File No. 33-45961
File No. 811-6569
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 12
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 12
WADDELL & REED FUNDS, INC.
- --------------------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
- --------------------------------------------------------------------------------
Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on June 30, 1999 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
================================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the Registrant's
fiscal year ended March 31, 1999 was filed on or about June 25, 1999.
<PAGE>
[front cover]
June 30, 1999
P R O S P E C T U S
[logo: Waddell & Reed
Financial Services]
Waddell & Reed
Funds, Inc.
- -----------------------------------------------------------
Asset Strategy Fund
Growth Fund
High Income Fund
International Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
Science and Technology Fund
Total Return Fund
[Cover graphic: oakleaf and acorns, globe and column on square background]
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offense to state otherwise.
<PAGE>
T A B L E O F C O N T E N T S
AN OVERVIEW OF THE FUNDS 4
- ---------------------------------------------------
ASSET STRATEGY FUND 4
- ---------------------------------------------------
PERFORMANCE 6
- ---------------------------------------------------
FEES AND EXPENSES 8
- ---------------------------------------------------
GROWTH FUND 10
- ---------------------------------------------------
PERFORMANCE 12
- ---------------------------------------------------
FEES AND EXPENSES 14
- ---------------------------------------------------
HIGH INCOME FUND 16
- ---------------------------------------------------
PERFORMANCE 18
- ---------------------------------------------------
FEES AND EXPENSES 20
- ---------------------------------------------------
INTERNATIONAL GROWTH FUND 22
- ---------------------------------------------------
PERFORMANCE 24
- ---------------------------------------------------
FEES AND EXPENSES 26
- ---------------------------------------------------
LIMITED-TERM BOND FUND 28
- ---------------------------------------------------
PERFORMANCE 30
- ---------------------------------------------------
FEES AND EXPENSES 32
- ---------------------------------------------------
MUNICIPAL BOND FUND 34
- ---------------------------------------------------
PERFORMANCE 36
- ---------------------------------------------------
FEES AND EXPENSES 38
- ---------------------------------------------------
SCIENCE AND TECHNOLOGY FUND 40
- ---------------------------------------------------
PERFORMANCE 42
- ---------------------------------------------------
FEES AND EXPENSES 44
- ---------------------------------------------------
TOTAL RETURN FUND 46
- ---------------------------------------------------
PERFORMANCE 48
- ---------------------------------------------------
FEES AND EXPENSES 50
- ---------------------------------------------------
THE INVESTMENT PRINCIPLES
OF THE FUNDS 52
- ---------------------------------------------------
Investment Goals, Principles Strategies
and Other Investments 52
------------------------------------------------
All Funds 66
------------------------------------------------
Risk Considerations of Principal
Strategies and Other Investments 66
---------------------------------------------
Year 2000 and Euro Issues 67
------------------------------------------------
YOUR ACCOUNT 69
- ---------------------------------------------------
Choosing a Share Class 69
------------------------------------------------
Ways to Set Up Your Account 73
------------------------------------------------
Buying Shares 74
------------------------------------------------
Minimum Investments 77
------------------------------------------------
Adding to Your Account 77
------------------------------------------------
<PAGE>
Selling Shares 78
------------------------------------------------
Telephone Transactions 81
------------------------------------------------
Shareholder Services 81
------------------------------------------------
Personal Service 81
-----------------------------------------------
Reports 82
-----------------------------------------------
Exchanges 82
-----------------------------------------------
Automatic Transactions for
-----------------------------------------------
Class B Shareholders 82
-----------------------------------------------
Distributions and Taxes 83
-------------------------------------------------
Distributions 83
-----------------------------------------------
Taxes 84
-----------------------------------------------
THE MANAGEMENT OF THE FUNDS 87
- ---------------------------------------------------
Portfolio Management 87
-------------------------------------------------
Management Fee 90
-------------------------------------------------
FINANCIAL HIGHLIGHTS 92
- ---------------------------------------------------
<PAGE>
An
Overview
of the
Funds
- ----------------
Asset
Strategy
Fund
[graphic: oakleaf and acorns on triangle background]
Goal
Asset Strategy Fund seeks high total return over the long term.
Principal Strategies
Asset Strategy Fund seeks to achieve its goal by allocating its assets among
stocks (a blend of value of growth), bonds of any quality including junk bonds
(rated BB and below by Standard & Poor's ("S&P") and Ba and below by Moody's
Investors Service ("MIS")) and short-term instruments, both in the United
States and abroad. The Fund can invest in securities of companies of any size.
The Fund selects a mix which represents the way the Fund's investments will
generally be allocated over the long term as indicated in the box below. This
mix will vary over shorter time periods as Waddell & Reed Investment Management
Company ("WRIMCO"), the Fund's investment manager, changes the Fund's holdings
based on WRIMCO's current outlook for the different markets. These changes may
be based on such factors as interest rate changes, security valuation levels
and a rise in the potential for growth stocks.
Mix
<TABLE>
<CAPTION>
<S> <C>
Stocks 70%
can range from
0-100%
Bonds 25%
can range from
0-100%
Short-term 5%
can range from
0-100%
</TABLE>
Principal Risks of Investing in the Fund
Because Asset Strategy Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
- - an increase in interest rates, which may cause the value
of the Fund's fixed-income securities to decline;
- - prepayment of higher-yielding bonds held by the Fund;
<PAGE>
- - the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- - adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline; and
- - the skill of WRIMCO in allocating the Fund's assets among different types of
investments.
Market risk for small- or medium-sized companies may be greater than that for
large companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. Additionally, stock of smaller
companies may experience volatile trading and price fluctuations. Investments
by the Fund in "junk bonds" are more susceptible to the risk of non-payment or
default, and their prices may be more volatile, than higher-rated bonds.
As well, the Fund may invest a significant portion of its assets in foreign
securities; the Fund, however, intends to maintain a limited exposure to
foreign holdings. Foreign securities present additional risks such as currency
fluctuations and political or economic conditions affecting the foreign
countries.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
Asset allocation funds are designed for investors who want to diversify among
stocks, bonds and short-term instruments, in one fund. If you are looking for
an investment that uses this technique in pursuit of high total return, this
Fund may be appropriate for you.
5
<PAGE>
Performance
- -----------------------
Asset
Strategy
Fund
[graphic: oakleaf and acorns on triangle background]
The chart and table below provide some indication of the risks of
investing in Asset Strategy Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for the periods shown compare with those of a broad measure of
market performance.
- - The chart presents the total annual returns for Class B and shows how
performance has varied from year to year over the life of the Fund.
- - The chart does not reflect any deferred sales charge that you may be required
to pay upon redemption of the Fund's Class B shares. If the deferred sales
charge were included, the returns would be less than those shown.
- - The table shows Class B and Class Y average annual returns and compares them
to the market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
'96 3.92%
'97 10.84%
'98 8.64%
</TABLE>
In the period shown in the chart, the highest quarterly return was 11.10% (the
second quarter of 1997) and the lowest quarterly return was -4.97% (the first
quarter of 1997). The Class B return for the quarter ended March 31, 1999 was
0.36%.
6
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year Life of Class
Class B* Class Y**
<S> <C> <C> <C>
Class B Shares of
Asset Strategy Fund 5.64% 6.99%
S&P 500 Index 28.70% 29.35% 28.30%
Salomon Brothers Broad
Investment Grade Debt
Index 8.71% 9.06% 7.29%
Salomon Brothers
Short-Term Index for
1 Month Certificates
of Deposit 5.67% 5.70% 5.63%
Lipper All Flexible
Portfolio Funds Universe
Average 14.22% 17.36% 15.52%
Class Y Shares of
Asset Strategy Fund 9.57% 8.66%
S&P 500 Index 28.70% 29.35% 28.30%
Salomon Brothers Broad
Investment Grade Debt
Index 8.71% 9.06% 7.29%
Salomon Brothers
Short-Term Index for
1 Month Certificates
of Deposit 5.67% 5.70% 5.63%
Lipper All Flexible
Portfolio Funds Universe
Average 14.22% 17.36% 15.52%
</TABLE>
The indexes shown are broad-based, securities market indexes that are
unmanaged. The Lipper average is a composite of mutual funds with goals similar
to the goal of the Fund.
*The Fund commenced operations on April 20, 1995, with a single class of
shares that was subsequently designated Class B shares. 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 reflect performance from April 30, 1995.
**Since December 29, 1995, the date on which Class Y shares were first acquired
by shareholders. Because the Class 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 reflect performance as of
December 31, 1995.
7
<PAGE>
Fees and Expenses
- -----------------------
Asset
Strategy
Fund
[graphic: oakleaf and acorns on triangle background]
This table describes the fees and expenses that you may pay if you buy and hold
shares of Asset Strategy Fund:
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class B Class Y
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price) None None
Maximum Contingent Deferred Sales
Charge (Load) (as a percentage of lesser
of amount invested or redemption value)(1) 3% None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(2) 0.70% 0.70%
Distribution and Service (12b-1) Fees(3) 1.00% 0.25%
Other Expenses 0.51% 0.39%
Total Annual Fund Operating Expenses 2.21% 1.34%
</TABLE>
(1)The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the
first calendar year to 0% after 4 years. See "Your Account" for further
information about the contingent deferred sales charge applicable to Class B
shares.
(2)Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999, otherwise,
expense ratios are based on Fund-level expenses for the fiscal year ended
March 31, 1999. Actual expenses may be greater or lesser than those shown.
(3)It is possible that long-term Class B shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum asset-based sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc.
8
<PAGE>
<TABLE>
<CAPTION>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example ssumes
that (a) you invest $10,000 in the particular Class B or Class Y shares for each
time period specified, (b) your investment has a 5% return each year, and (c)
the expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
Assuming Assuming
Redemption NoRedemption
at End of at End of
Each Period Each Period
Class B Class Y Class B Class Y
<S> <C> <C> <C> <C>
1 year $ 524 $ 136 $ 224 $ 136
3 years $ 791 $ 425 $ 691 $ 425
5 years $1,185 $ 734 $1,185 $ 734
10 years $2,544 $1,613 $2,544 $1,613
</TABLE>
9
<PAGE>
An
Overview
of the
Funds
- -----------------------
Growth
Fund
[graphic: globe on square background]
Goals
Growth Fund seeks capital appreciation.
Principal Strategies
Growth Fund seeks to achieve its goal by investing primarily in common stocks
of U.S. companies. The Fund typically invests in companies that offer, in the
opinion of WRIMCO, above average growth potential, including relatively new or
unseasoned companies. The Fund seeks companies with a demonstrated ability and
potential to increase earnings. The Fund may invest in companies of any size.
Principal Risks of Investing in the Fund
Because Growth Fund owns different types of investments, a variety of factors
can affect its investment performance, such as:
- - the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- - adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline;
- - the mix of securities in the Fund, particularly the relative weightings in,
and exposure to, different sectors and industries; and
- - WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- and medium-sized companies may be greater than that for
large companies. Stock of smaller companies, as well as stock of companies with
high-growth expectations reflected in their stock price, may experience
volatile trading and price fluctuations.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
10
<PAGE>
Who May Want to Invest
Growth Fund is designed for investors seeking long-term capital appreciation
and willing to accept greater risks than are present with many other mutual
funds. It is not intended for investors who desire assured income and
conservation of capital. You should consider whether the Fund fits your
particular investment objectives.
11
<PAGE>
Performance
- -----------------------
Growth
Fund
[graphic: globe on square background]
The chart and table below provide some indication of the risks of investing in
Growth Fund by showing changes in the Fund's performance from year to year and
by showing how the Fund's average annual returns for the periods shown compare
with those of a broad measure of market performance.
- - The chart presents the total annual returns for Class B and shows how
performance has varied from year to year over the life of the Fund.
- - The chart does not reflect any deferred sales charge that you may be required
to pay upon redemption of the Fund's Class B shares. If the deferred sales
charge were included, the returns would be less than those shown.
- - The table shows Class B and Class Y average annual returns and compares them
to the market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
'93 24.20%
'94 12.75%
'95 32.14%
'96 2.30%
'97 21.12%
'98 44.57%
</TABLE>
In the period shown in the chart, the highest quarterly return was 28.82% (the
fourth quarter of 1998) and the lowest quarterly return was -13.74% (the third
quarter of 1998). The Class B return for the quarter ended March 31, 1999 was
2.79%.
12
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
Life of Class
1 Year 5 Years Class B* Class Y**
<S> <C> <C> <C> <C>
Class B Shares
of Growth Fund 41.57% 21.69% 24.30%
Nasdaq Industrials
Index 6.62% 10.11% 12.61% 10.58%
Lipper Small
Company Growth
Fund Universe
Average -0.29% 12.92% 15.78% 12.73%
Class Y Shares
of Growth Fund 45.88% 22.72%
Nasdaq Industrials
Index 6.62% 10.11% 12.61% 10.58%
Lipper Small
Company Growth
Fund Universe
Average -0.29% 12.92% 15.78% 12.73%
</TABLE>
The index shown is broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*The Fund commenced operations on September 21, 1992 with a single class of
shares that was subsequently designated Class B shares. 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 reflect performance as of September 30, 1992.
**Since December 29, 1995, the date on which Class Y shares were first acquired
by shareholders. Because the Class 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 reflect performance as of
December 31, 1995.
13
<PAGE>
Fees and Expenses
- -----------------------
Growth
Fund
[graphic: globe on square background]
This table describes the fees and expenses that you may pay if you buy and hold
shares of Growth Fund:
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class B Class Y
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of
offering price) None None
Maximum Contingent Deferred Sales
Charge (Load) (as a percentage of lesser
of amount invested or redemption value)(4) 3% None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(5) 0.85% 0.85%
Distribution and Service (12b-1) Fees(6) 1.00% 0.25%
Other Expenses 0.29% 0.12%
Total Annual Fund Operating Expenses 2.14% 1.22%
</TABLE>
(4) The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the
first calendar year to 0% after 4 years. See "Your Account" for further
information about the contingent deferred sales charge applicable to Class B
shares.
(5) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on Fund-level expenses for the fiscal year ended
March 31, 1999. Actual expenses may be greater or lesser than those shown.
(6) It is possible that long-term Class B shareholders of the Fund may bear
12b-1 distribution fees which are more than the maximum asset-based sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
14
<PAGE>
<TABLE>
<CAPTION>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example
assumes that (a) you invest $10,000 in the particular Class B or Class Y shares for
each time period specified, (b) your investment has a 5% return each year, and
(c) the expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
Class B Class Y Class B Class Y
<S> <C> <C> <C> <C>
1 year $ 517 $ 124 $ 217 $ 124
3 years $ 770 $ 387 $ 670 $ 387
5 years $1,151 $ 670 $1,149 $ 670
10 years $2,472 $1,477 $2,472 $1,477
</TABLE>
15
<PAGE>
An
Overview
of the
Funds
- -----------------------
High
Income
Fund
[graphic: column on circle background]
Goals
High Income Fund seeks, as a primary goal, high current income. As a secondary
goal, the Fund seeks capital growth when consistent with its primary goal.
Principal Strategies
High Income Fund seeks to achieve its goals by investing primarily in
high-yield, high-risk, fixed-income securities of U.S. issuers, the risks of
which are, in the judgment of WRIMCO, consistent with the Fund's goals. The
Fund may invest in companies of any size. The Fund invests primarily in lower
quality bonds, commonly called "junk bonds," which are bonds rated BB and below
by S&P and Ba and below by MIS. The Fund may invest an unlimited amount of its
total assets in junk bonds. As well, the Fund may invest in bonds of any
maturity. The Fund may also invest a significant portion of its assets in
common stock in order to seek capital growth.
Principal Risks of Investing in the Fund
Because High Income Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
- - the credit quality, earnings performance and other conditions of the
companies whose securities the Fund holds;
- - the susceptibility of junk bonds to the risk of non-payment or default,
and that they may have more volatile prices, and may not be as liquid as
higher-rated bonds;
- - an increase in interest rates, which may cause the value of a bond held by
the Fund to decline;
- - changes in the maturities of bonds owned by the Fund;
- - adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline; and
- - the skill of WRIMCO in evaluating and managing the interest rate and credit
risks of the Fund's portfolio.
Market risk for small- or medium-sized companies may be greater than that for
large companies. For example,
16
<PAGE>
smaller companies may have limited financial resources, limited product lines
or inexperienced management.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
High Income Fund is designed for investors who primarily seek a level of
current income that is higher than is normally available with securities in the
higher rated categories and, secondarily, seek capital growth where consistent
with this income goal, through a diversified, actively managed portfolio. The
Fund is not suitable for all investors. You should consider whether the Fund
fits your particular investment objectives.
17
<PAGE>
Performance
- -----------------------
High
Income
Fund
[graphic: column on circle background]
The chart and table below provide some indication of
the risks of investing in High Income Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual
returns for the periods shown compare with those of a broad measure of market
performance.
- - The chart presents the total annual return for Class B.
- - The chart does not reflect any deferred sales charge that you may be required
to pay upon redemption of the Fund's Class B shares. If the deferred sales
charge were included, the returns would be less than those shown.
- - The table shows Class B average annual returns and compares them to the
market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
'98 3.64%
</TABLE>
In the period shown in the chart, the highest quarterly return was 6.82% (the
first quarter of 1998) and the lowest quarterly return was -6.62% (the third
quarter of 1998). The Class B return for the quarter ended March 31, 1999 was
1.30%.
18
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year Life of Fund*
<S> <C> <C>
Class B Shares of High
Income Fund 0.72% 3.81%
Salomon Brothers High
Yield Composite Index 4.04% 6.44%
Lipper High Current
Yield Fund Universe
Average -0.41% 2.32%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the
goals of the Fund.
*The Fund, offering Class B commenced operations on July 31, 1997 and Class Y
commenced operations December 30, 1998.
19
<PAGE>
Fees and Expenses
- -----------------------
High
Income
Fund
[graphic: column on circle background]
This table describes the fees and expenses that you may pay if you buy and hold
shares of High Income Fund:
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class B Class Y
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price) None None
Maximum Contingent Deferred Sales
Charge (Load) (as a percentage of lesser
of amount invested or redemption value)7 3% None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(8) 0.63% 0.63%
Distribution and Service (12b-1) Fees(9) 1.00% 0.25%
Other Expenses 0.54% 0.50%
Total Annual Fund Operating Expenses 2.17% 1.38%
</TABLE>
(7) The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the
first calendar year to 0% after 4 years. See "Your Account" for further
information about the contingent deferred sales charge applicable to Class
B shares.
(8) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999;
otherwise, expense ratios are based on Fund-level expenses for the fiscal
year ended March 31, 1999. Actual expenses may be greater or lesser than
those shown.
(9) It is possible that long-term Class B shareholders of the Fund may bear
12b-1 distribution fees which are more than the maximum asset-based sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
20
<PAGE>
<TABLE>
<CAPTION>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example assumes
that (a) you invest $10,000 in the particular Class B or Class Y shares for
each time period specified, (b) your investment has a 5% return each year, and
(c) the expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
Class B Class Y Class B Class Y
<S> <C> <C> <C> <C>
1 year $ 520 $140 $ 220 $140
3 years $ 778 $436 $ 678 $436
5 years $1,162 NA $1,162 NA
10 years $2,498 NA $2,498 NA
</TABLE>
21
<PAGE>
An
Overview
of the
Funds
- -----------------------
International
Growth
Fund
[graphic: globe on square background]
Goals
International Growth Fund seeks, as a primary goal, long-term appreciation of
capital. As a secondary goal, the Fund seeks current income.
Principal Strategies
International Growth Fund seeks to achieve its goals by investing primarily in
common stocks of foreign companies that WRIMCO believes have the potential for
long-term growth represented by economic expansion and restructuring programs.
The Fund will primarily invest in issuers of developed countries. The Fund may
invest in companies of any size.
Principal Risks of Investing in the Fund
Because International Growth Fund owns different types of investments, a
variety of factors can affect its investment performance, such as:
- - changes in foreign exchange rates, which may affect the value of the
securities the Fund holds;
- - adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline;
- - the earnings performance, credit quality and other conditions of the issuers
whose securities the Fund holds; and
- - WRIMCO's skill in evaluating and selecting securities for the Fund.
Investing in foreign securities presents additional risks, such as currency
fluctuations and political or economic conditions affecting the foreign
country. Accounting and disclosure standards also differ from country to
country, which makes obtaining reliable research information more difficult.
There is the possibility that, under unusual international monetary or
political conditions, the Fund's assets might be more volatile than would be
the case with other investments.
Market risk for small- or medium-sized companies may be greater than that for
large companies. For example, smaller companies have limited financial
resources, limited product lines or inexperienced management.
22
<PAGE>
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
International Growth Fund is designed for investors seeking long-term
appreciation of capital by investing primarily in securities issued by foreign
companies. You should consider whether the Fund fits your investment
objectives.
23
<PAGE>
Performance
- -----------------------
International
Growth
Fund
[graphic: globe on square background]
The chart and table below provide some indication of the risks of investing in
International Growth Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual returns for the periods
shown compare with those of a broad measure of market performance.
- - The chart presents the total annual returns for Class B and shows how
performance has varied from year to year over the life of the Fund.
- - The chart does not reflect any deferred sales charge that you may be required
to pay upon redemption of the Fund's Class B shares. If the deferred sales
charge were included, the returns would be less than those shown.
- - The table shows Class B and Class Y average annual returns and compares them
to the market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
'93 3.62%
'94 0.12%
'95 8.34%
'96 19.11%
'97 16.89%
'98 31.72%
</TABLE>
In the period shown in the chart, the highest quarterly return was 23.89% (the
first quarter of 1998) and the lowest quarterly return was -18.21% (the third
quarter of 1998). The Class B return for the quarter ended March 31, 1999 was
3.80%.
24
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
Life of Class
1 Year 5 Years Class B* Class Y**
<S> <C> <C> <C> <C>
Class B Shares of
International Growth
Fund 28.72% 14.74% 11.56%
Morgan Stanley Capital
International E.A.FE.
Index 20.00% 9.19% 8.81% 9.00%
Lipper International
Fund Universe Average 13.02% 7.80% 9.99% 9.93%
Class Y Shares of
International Growth
Fund 32.94% 23.45%
Morgan Stanley Capital
International E.A.FE.
Index 20.00% 9.19% 8.81% 9.00%
Lipper International
Fund Universe Average 13.02% 7.80% 9.99% 9.93%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the
goals of the Fund.
*The Fund commenced operations on September 21, 1992 with a single class of
shares that was subsequently designated Class B shares. 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 reflect performance as of September 30, 1992.
**Since December 29, 1995, the date on which Class Y shares were first acquired
by the public. Because the Class 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 reflect performance as of
December 30, 1995.
25
<PAGE>
Fees and Expenses
- -----------------------
International
Growth
Fund
[graphic: globe on square background]
This table describes the fees and expenses that you may pay if you buy and hold
shares of International Growth Fund:
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class B Class Y
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price) None None
Maximum Contingent Deferred Sales
Charge (Load) (as a percentage of lesser
of amount invested or redemption
value)10 3% None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(11) 0.85% 0.85%
Distribution and Service (12b-1) Fees(12) 1.00% 0.25%
Other Expenses 0.54% 0.38%
Total Annual Fund Operating Expenses 2.39% 1.48%
</TABLE>
(10) The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the
first calendar year to 0% after 4 years. See "Your Account" for further
information about the contingent deferred sales charge applicable to Class
B shares.
(11) Management Fees and Total Annual Fund Operating Expenses have been
restated to reflect the change in management fees effective June 30, 1999;
otherwise, expense ratios are based on Fund-level expenses for the fiscal
year ended March 31, 1999. Actual expenses may be greater or lesser than
those shown.
(12) It is possible that long-term Class B shareholders of the Fund may bear
12b-1 distribution fees which are more than the maximum asset-based sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
26
<PAGE>
<TABLE>
<CAPTION>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example
assumes that (a) you invest $10,000 in the particular Class B or Class Y shares for
each time period specified, (b) your investment has a 5% return each year, and
(c) the expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
Class B Class Y Class B Class Y
<S> <C> <C> <C> <C>
1 year $ 542 $ 151 $ 242 $ 151
3 years $ 845 $ 468 $ 745 $ 468
5 years $1,275 $ 808 $1,275 $ 808
10 years $2,726 $1,768 $2,726 $1,768
</TABLE>
27
<PAGE>
An
Overview
of the
Funds
- --------------------
Limited-Term
Bond Fund
[graphic: column on circle background]
Goal
Limited-Term Bond Fund seeks to provide a high level of current income
consistent with preservation of capital.
Principal Strategies
Limited-Term Bond Fund seeks to achieve its goal by investing primarily in
investment-grade debt securities of U.S. issuers, including corporate bonds,
mortgage-backed securities and U.S. Government securities. The Fund maintains a
dollar-weighted average portfolio maturity of not less than two years and not
more than five years. The Fund may invest in companies of any size.
Principal Risks of Investing in the Fund
Because Limited-Term Bond Fund primarily owns different types of debt
securities, a variety of factors can affect its investment performance, such
as:
- - an increase in interest rates, which may cause the value of the Fund's
fixed-income securities to decline;
- - the credit quality, earnings performance and other conditions of the issuers
whose securities the Fund holds;
- - prepayment of higher-yielding bonds held by the Fund;
- - adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline; and
- - WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund.
Market risk for small- or medium-sized companies may be greater than that for
large companies. For example, smaller companies have limited financial
resources, limited product lines or inexperienced management.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
28
<PAGE>
Who May Want to Invest
Limited-Term Bond Fund is designed for investors seeking a high level of
current income consistent with preservation of capital. You should consider
whether the Fund fits your investment objectives.
29
<PAGE>
Performance
- -----------------------
Limited-Term
Bond Fund
[graphic: column on circle background]
The chart and table below provide some indication of the risks of investing in
Limited-Term Bond Fund by showing changes in the Fund's performance from year to
year and by showing how the Fund's average annual returns for the periods shown
compare with those of a broad measure of market performance.
- - The chart presents the total annual returns for Class B and shows how
performance has varied from year to year over the life of the Fund.
- - The chart does not reflect any deferred sales charge that you may be required
to pay upon redemption of the Fund's Class B shares. If the deferred sales
charge were included, the returns would be less than those shown.
- - The table shows Class B and Class Y average annual returns and compares them
to the market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
ection of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
'93 7.32%
'94 -3.04%
'95 12.39%
'96 3.04%
'97 5.64%
'98 5.36%
</TABLE>
In the period shown in the chart, the highest quarterly return was 4.52% (the
second quarter of 1995) and the lowest quarterly return was -1.99% (the first
quarter of 1994). The Class B return for the quarter ended March 31, 1999 was
0.44%.
30
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year 5 Years Life of Class
Class B* Class Y**
<S> <C> <C> <C> <C>
Class B Shares of
Limited-Term Bond
Fund 2.36% 4.56% 4.57%
Salomon Brothers 1-5
Years Treasury/
Government
Sponsored/
Corporate Index 7.65% 6.24% 6.09% 6.48%
Lipper Short-
Intermediate Investment
Grade Debt Fund
Universe Average 6.63% 5.57% 5.65% 5.78%
Class Y Shares of
Limited-Term Bond
Fund 6.25% 5.51%
Salomon Brothers 1-5
Years Treasury/
Government
Sponsored/
Corporate Index 7.65% 6.24% 6.09% 6.48%
Lipper Short-
Intermediate Investment
Grade Debt Fund
Universe Average 6.63% 5.57% 5.65% 5.78%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the
goal of the Fund.
*The Fund commenced operations on September 21, 1992, with a single class of
shares that was subsequently designated Class B shares. 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 reflect performance as of September 30, 1992.
**Since December 29, 1995, the date on which Class Y shares were first acquired
by shareholders. Because the Class 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 reflect performance as of
December 31, 1995.
31
<PAGE>
Fees and Expenses
- -----------------------
Limited-Term
Bond Fund
[graphic: column on circle background]
This table describes the fees and expenses that you may pay if you buy and hold
shares of Limited-Term Bond Fund:
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class B Class Y
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price) None None
Maximum Contingent Deferred Sales
Charge (Load) (as a percentage of lesser
of amount invested or redemption
value)(13) 3% None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(14) 0.50% 0.50%
Distribution and Service (12b-1) Fees(15) 1.00% 0.25%
Other Expenses 0.55% 0.39%
Total Annual Fund Operating Expenses 2.05% 1.14%
</TABLE>
(13) The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the
first calendar year to 0% after 4 years. See "Your Account" for further
information about the contingent deferred sales charge applicable to Class
B shares.
(14) Management Fees and Total Annual Fund Operating Expenses have been
restated to reflect the change in management fees effective June 30, 1999,
otherwise, expense ratios are based on Fund-level expenses for the fiscal
year ended March 31, 1999. Actual expenses may be greater or lesser than
those shown.
(15) It is possible that long-term Class B shareholders of the Fund may bear
12b-1 distribution fees which are more than the maximum asset-based sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
32
<PAGE>
<TABLE>
<CAPTION>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example
assumes that (a) you invest $10,000 in the particular Class B or Class Y shares for
each time period specified, (b) your investment has a 5% return each year, and
(c) the expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Assuming Assuming
Redemption NoRedemption
at End of at End of
Each Period Each Period
Class B Class Y Class B Class Y
<S> <C> <C> <C> <C>
1 year $ 508 $ 116 $ 208 $ 116
3 years $ 743 $ 362 $ 643 $ 362
5 years $1,103 $ 628 $1,103 $ 628
10 years $2,379 $1,386 $2,379 $1,386
</TABLE>
33
<PAGE>
An
Overview
of the
Funds
- --------------------------------
Municipal
Bond Fund
[graphic: column on circle background]
Goal
Municipal Bond Fund seeks to provide income not subject to Federal income tax.
Principal Strategy
Municipal Bond Fund seeks to achieve its goal by investing primarily in
tax-exempt municipal bonds, mainly of investment grade (rated BBB or higher by
S&P or Baa or higher by MIS). The Fund may invest in bonds of any maturity.
"Municipal bonds" mean obligations the interest on which is not includable in
gross income for Federal income tax purposes. However, a significant portion of
the Fund's municipal bond interest may be subject to the alternative minimum
tax ("AMT"). The Fund diversifies its holdings among two main types of
municipal bonds:
- - general obligation bonds, which are backed by the full faith, credit and
taxing power of the governmental authority, and
- - revenue bonds, which are payable only from specific sources, such as the
revenue from a particular facility or a special tax. Revenue bonds include
industrial development bonds ("IDBs"), which finance privately operated
facilities.
Principal Risks of Investing in the Fund
Because Municipal Bond Fund primarily owns fixed income securities issued by
municipal authorities, a variety of factors can affect its investment
performance, such as:
- - an increase in interest rates which may cause the value of the Fund's
securities to decline;
- - prepayment of higher-yielding bonds held by the Fund ("call risk");
- - changes in the maturities of bonds owned by the Fund;
- - the credit quality of the issuers whose securities the Fund owns or of the
private companies involved in IDB-financed projects;
- - the local economic, political or regulatory environment affecting bonds owned
by the Fund;
- - failure of a bond's interest to qualify as tax-exempt;
34
<PAGE>
- - adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline;
- - legislation affecting the tax status of municipal bond interest; and
- - the skill of WRIMCO in evaluating and managing the interest rate and credit
risks of the Fund's portfolio.
A significant portion of the Fund's municipal bond interest may subject
investors to the alternative minimum tax ("AMT") for Federal income tax
purposes; this would have the effect of reducing the Fund's return to any such
investor.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
Municipal Bond Fund is designed for investors seeking current income that is
primarily free from Federal income tax, through a highly diversified, actively
managed portfolio. You should consider whether the Fund fits your particular
investment objectives.
35
<PAGE>
Performance
- --------------------
Municipal
Bond Fund
[graphic: column on circle background]
The chart and table below provide some indication ofthe risks of investing in
Municipal Bond Fund by showing changes in the Fund's performance from year to
year and by showing how the Fund's average annual returns for the periods
shown compare with those of a broad measure of market performance.
- - The chart presents the total annual returns for Class B and shows how
performance has varied from year to year over the life of the Fund.
- - The chart does not reflect any deferred sales charge that you may be required
to pay upon redemption of the Fund's Class B shares. If the deferred sales
charge were included, the returns would be less than those shown.
- - The table shows Class B average annual returns and compares them to the
market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
'93 13.73%
'94 -8.83%
'95 19.14%
'96 3.53%
'97 9.17%
'98 5.12%
</TABLE>
In the period shown in the chart, the highest quarterly return was 8.36% (the
first quarter of 1995) and the lowest quarterly return was -7.14% (the first
quarter of 1994). The Class B return for the quarter ended March 31, 1999 was
0.55%.
36
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year 5 Years Life of Fund*
<S> <C> <C> <C>
Class B Shares of
Municipal Bond Fund 2.12% 5.23% 6.71%
Lehman Brothers
Municipal Debt Index 6.48% 6.23% 7.22%
Lipper General
Municipal Bond Debt
Fund Universe Average 5.32% 5.44% 6.69%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the
goal of the Fund.
*The Fund commenced operations on September 21, 1992. 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 reflect performance as of September 30, 1992.
There were no outstanding Class Y shares until December 30, 1998.
37
<PAGE>
Fees and Expenses
- -----------------------
Municipal
Bond Fund
[graphic: column on circle background]
This table describes the fees and expenses that you may pay if you buy and hold
shares of Municipal Bond Fund:
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class B Class Y
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price) None None
Maximum Contingent Deferred Sales
Charge (Load) (as a percentage of lesser
of amount invested or redemption
value)(16) 3% None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(17) 0.53% 0.53%
Distribution and Service (12b-1) Fees(18) 1.00% 0.25%
Other Expenses 0.32% 0.32%
Total Annual Fund Operating Expenses 1.85% 1.10%
</TABLE>
(16) The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the
first calendar year to 0% after 4 years. See "Your Account" for further
information about the contingent deferred sales charge applicable to Class
B shares.
(17) Management Fees and Total Annual Fund Operating Expenses have been
restated to reflect the change in management fees effective June 30, 1999;
otherwise, expense ratios are based on Fund-level expenses for the fiscal
year ended March 31, 1999. Actual expenses may be greater or lesser than
those shown.
(18) It is possible that long-term Class B shareholders of the Fund may bear
12b-1 distribution fees which are more than the maximum asset-based sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
38
<PAGE>
<TABLE>
<CAPTION>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example
assumes that (a) you invest $10,000 in the particular Class B or Class Y shares for
each time period specified, (b) your investment has a 5% return each year, and
(c) the expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
Class B Class Y Class B Class Y
<S> <C> <C> <C> <C>
1 year $ 487 $112 $ 187 $112
3 years $ 680 $348 $ 580 $348
5 years $ 998 NA $ 998 NA
10 years $2,164 NA $2,164 NA
</TABLE>
39
<PAGE>
An
Overview
of the
Funds
- -----------------------
Science and
Technology Fund
[graphic: globe on square background]
Goal
Science and Technology Fund seeks long-term capital growth.
Principal Strategies
Science and Technology Fund seeks to achieve its goal by concentrating its
investments primarily in science and technology equity securities of U.S.
companies, primarily in common stock. Science and technology securities are
securities of companies whose products, processes or services, in WRIMCO's
opinion, are being or are expected to be significantly benefited by the use or
commercial application of scientific or technological developments or
discoveries. The Fund may invest in companies of any size. The Fund emphasizes
growth potential in selecting stocks; that is, WRIMCO seeks companies in which
earnings are likely to grow faster than the economy.
Principal Risks of Investing in the Fund
Because Science and Technology Fund owns different types of investments, a
variety of factors can affect its investment performance, such as:
- - the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the science and
technology industries;
- - rapid obsolescence of products or processes of companies in which the Fund
invests;
- - governmental regulation in the science and technology industry;
- - the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- - adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline; and
- - WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- to medium-sized companies may be greater than that for
large companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. As well, stock of smaller companies may
experience volatile trading and price fluctuations.
40
<PAGE>
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
Science and Technology Fund is designed for investors who seek long-term
capital growth by investing in an actively managed Fund concentrating in
science and technology securities. This Fund is not suitable for all investors.
You should consider whether the Fund fits your investment objectives.
41
<PAGE>
Performance
- -------------------
Science and
Technology Fund
[graphic: globe on square background]
The chart and table below provide some indication of the risks of investing
in Science and Technology Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns for
the periods shown compare with those of a broad measure of market
performance.
- - The chart presents the total annual returns for Class B.
- - The chart does not reflect any deferred sales charge that you may be required
to pay upon redemption of the Fund's Class B shares. If the deferred sales
charge were included, the returns would be less than those shown.
- - The table shows Class B average annual returns and compares them to the
market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
'98 44.03%
</TABLE>
In the period shown in the chart, the highest quarterly return was 28.22% (the
fourth quarter of 1998) and the lowest quarterly return was -12.63% (the third
quarter of 1998). The Class B return for the quarter ended March 31, 1999 was
18.55%.
42
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year Life of Fund*
<S> <C> <C>
Class B Shares of Science
and Technology Fund 41.03% 29.42%
S&P 400 Index 33.85% 23.65%
Lipper Science and
Technology Fund
Universe Average 53.01% 26.48%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the
goal of the Fund.
*The Fund commenced operations on July 31, 1997.
43
<PAGE>
Fees and Expenses
- -----------------------
Science and
Technology Fund
[graphic: globe on square background]
This table describes the fees and expenses that you may pay if you buy and hold
shares of Science and Technology Fund:
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class B Class Y
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price) None None
Maximum Contingent Deferred Sales
Charge (Load) (as a percentage of lesser
of amount invested or redemption
value)(19) 3% None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(20) 0.85% 0.85%
Distribution and Service (12b-1) Fees(21) 1.00% 0.25%
Other Expenses 0.87% 0.48%
Total Annual Fund Operating Expenses 2.72% 1.58%
</TABLE>
(19) The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the
first calendar year to 0% after 4 years. See "Your Account" for further
information about the contingent deferred sales charge applicable to Class
B shares.
(20) Management Fees and Total Annual Fund Operating Expenses have been
restated to reflect the change in management fees effective June 30, 1999;
otherwise, expense ratios are based on Fund-level expenses for the fiscal
year ended March 31, 1999. Actual expenses may be greater or lesser than
those shown.
(21) It is possible that long-term Class B shareholders of the Fund may bear
12b-1 distribution fees which are more than the maximum asset-based sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
44
<PAGE>
<TABLE>
<CAPTION>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example
assumes that (a) you invest $10,000 in the particular Class B or Class Y shares for
each time period specified, (b) your investment has a 5% return each year, and
(c) the expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
Class B Class Y Class B Class Y
<S> <C> <C> <C> <C>
1 year $ 575 $160 $ 275 $160
3 years $ 944 $498 $ 844 $498
5 years $1,440 NA $1,440 NA
10 years $3,051 NA $3,051 NA
</TABLE>
45
<PAGE>
An
Overview
of the
Funds
- -----------------------
Total
Return
Fund
[graphic: globe on square background]
Goal
Total Return Fund seeks to provide current income while seeking capital growth.
Principal Strategies
Total Return Fund seeks to achieve its goal by investing primarily in common
stocks, of U.S. companies with dominant market positions in their industries
that have a record of paying regular dividends on common stock or have the
potential for capital appreciation. When WRIMCO believes that stocks with high
yields are less attractive than other common stocks, the Fund may hold
lower-yielding or non-dividend-paying common stocks because of their prospects
for capital appreciation. At other times, such as when the economy no longer
presents a favorable environment for the common stocks of large U.S. companies,
the Fund may seek to achieve its goal by investing in investment grade debt
securities when WRIMCO believes the return on these securities is attractive
relative to the return on common stocks. The Fund may invest in companies of
any size.
Principal Risks of Investing in the Fund
Because Total Return Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
- - adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline;
- - the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- - an increase in interest rates, which may cause the value of the Fund's
fixed-income securities to decline; and
- - WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- or medium-sized companies may be greater than that for
large companies. Stock of smaller companies, as well as stock of companies with
high-growth expectations reflected in their stock price, may experience
volatile trading and price fluctuations.
46
<PAGE>
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
Total Return Fund is designed for investors who seek dividend income with
potential for capital growth. You should consider whether the Fund fits your
investment objectives.
47
<PAGE>
Performance
- -----------------------
Total
Return
Fund
[graphic: globe on square background]
The chart and table below provide some indication of the risks of investing
in Total Return Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual returns for the periods
shown compare with those of a broad measure of market performance.
- - The chart presents the total annual returns for Class B and shows how
performance has varied from year to year over the life of the Fund.
- - The chart does not reflect any deferred sales charge that you may be required
to pay upon redemption of the Fund's Class B shares. If the deferred sales
charge were included, the returns would be less than those shown.
- - The table shows Class B and Class Y average annual returns and compares them
to the market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
'93 14.03%
'94 -2.07%
'95 29.65%
'96 18.12%
'97 24.61%
'98 20.73%
</TABLE>
In the period shown in the chart, the highest quarterly return was 17.05% (the
second quarter of 1997) and the lowest quarterly return was -7.12% (the third
quarter of 1998). The Class B return for the quarter ended March 31, 1999 was
0.70%.
48
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
Life of Class
1 Year 5 Years Class B* Class Y**
<S> <C> <C> <C> <C>
Class B Shares of Total
Return Fund 17.73% 17.68% 17.40%
S&P 500 Index 28.70% 24.08% 21.63% 28.30%
Lipper Growth and
Income Fund Universe
Average 15.78% 18.38% 17.50% 21.30%
Class Y Shares of Total
Return Fund 20.73% 41.90%
S&P 500 Index 28.70% 24.08% 21.63% 28.30%
Lipper Growth and
Income Fund Universe
Average 15.78% 18.38% 17.50% 21.30%
</TABLE>
The indexes shown is a broad-based, securities market index that is unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the
goal of the Fund.
*The Fund commenced operations on September 21, 1992, with a single class of
shares that was subsequently designated Class B shares. 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 reflect performance as of September 30, 1992.
**Since December 29, 1995, the date on which Class Y shares were first acquired
by shareholders. Because the Class 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 reflect performance as of
December 31, 1995.
49
<PAGE>
Fees and Expenses
- -----------------------
Total
Return
Fund
[graphic: globe on square background]
This table describes the fees and expenses that you may pay if you buy and
hold shares of Total Return Fund:
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class B Class Y
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price) None None
Maximum Contingent Deferred Sales
Charge (Load) (as a percentage of lesser
of amount invested or redemption
value)(22) 3% None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(23) 0.70% 0.70%
Distribution and Service (12b-1) Fees(24) 1.00% 0.25%
Other Expenses 0.22% 0.19%
Total Annual Fund Operating Expenses 1.92% 1.14%
</TABLE>
(22) The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the
first calendar year to 0% after 4 years. See "Your Account" for further
information about the contingent deferred sales charge applicable to Class
B shares.
(23) Management Fees and Total Annual Fund Operating Expenses have been
restated to reflect the change in management fees effective June 30, 1999;
otherwise, expense ratios are based on Fund-level expenses for the fiscal
year ended March 31, 1999. Actual expenses may be greater or lesser than
those shown.
(24) It is possible that long-term Class B shareholders of the Fund may bear
12b-1 distribution fees which are more than the maximum asset-based sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
50
<PAGE>
<TABLE>
<CAPTION>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example
assumes that (a) you invest $10,000 in the particular Class B or Class Y shares for
each time period specified, (b) your investment has a 5% return each year, and
(c) the expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions, your costs would be:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
Class B Class Y Class B Class Y
<S> <C> <C> <C> <C>
1 year $ 495 $ 116 $ 195 $ 116
3 years $ 703 $ 362 $ 603 $ 362
5 years $1,037 $ 628 $1,037 $ 628
10 years $2,243 $1,386 $2,243 $1,386
</TABLE>
51
<PAGE>
The
Investment
Principles of
the Funds
- --------------------
Asset
Strategy
Fund
[graphic: oakleaf and acorns on triangle background]
Investment Goals, Principal Strategies and Other Investments
The goal of Asset Strategy Fund is high total return over the long term. The
Fund seeks to achieve its goal by allocating its assets among a diversified
portfolio of stocks, bonds, and short-term instruments. There is no guarantee
that the Fund will achieve its goal.
Allocating assets among different types of investments allows the Fund to take
advantage of opportunities wherever they may occur, but also subjects the Fund
to the risks of a given investment type. Stock values generally fluctuate in
response to the activities of individual companies and general market and
economic conditions. The values of bonds and short-term instruments generally
fluctuate based on changes in interest rates and in the credit quality of the
issuer.
WRIMCO regularly reviews the Fund's allocation of assets and makes changes to
favor investments that it believes provide the best opportunity to achieve the
Fund's goal. Although WRIMCO uses its expertise and resources in choosing
investments and in allocating assets, WRIMCO's decisions may not always be
beneficial to the Fund.
The Fund allocates its assets among the following classes, or types, of
investments.
- - The stock class includes equity securities of all types (including preferred
stock), although WRIMCO typically emphasizes a blend of value and growth
potential in selecting stocks. Value stocks are those that WRIMCO believes
are currently selling below their true worth. Growth stocks are those whose
earnings WRIMCO believes are likely to grow faster than the economy.
- - The bond class includes all varieties of fixed-income instruments, such as
corporate or U.S. Government debt securities, with maturities of more than
three years (including adjustable rate preferred stocks). This asset class
may include a significant amount of junk bonds which are rated BB and below
by S&P and Ba and below by MIS, up to 35% of the Fund's total assets.
52
<PAGE>
- - The short-term class includes all types of short-term instruments with
remaining maturities of three years or less, including high-quality money
market instruments.
- - Within each of these classes, the Fund may invest in both domestic and
foreign securities.
The mix of assets in the Fund will change from time to time depending on
WRIMCO's assessment of the market for each asset class in general. The
allowable range and approximate percentage of the mix for each asset class are
listed below. Some types of investments, such as indexed securities, can fall
into more than one asset class.
<TABLE>
<CAPTION>
Mix Range
<S> <C>
Stock class 70% 0-100%
Bond class 25% 0-100%
Short-term class 5% 0-100%
</TABLE>
WRIMCO tries to balance the Fund's investment risks against potentially higher
total returns by reducing the stock class allocation during stock market down
cycles and increasing the stock class allocation during periods of strongly
positive market performance. Typically, WRIMCO makes asset shifts among classes
gradually over time. WRIMCO considers various factors when it decides to sell a
security, such as an individual security's performance and/or if it is an
appropriate time to vary the Fund's mix.
As a defensive measure, the Fund may increase its holdings in the bond or
short-term classes when WRIMCO believes that there is a potential bear market,
prolonged downturn in stock prices or significant loss in stock value. WRIMCO
may also, as a temporary defensive measure, invest up to all of the Fund's
assets in:
- - money market instruments rated A-1 by S&P or Prime 1 by MIS, or unrated
securities judged by WRIMCO to be of equivalent quality; or
- - precious metals.
Although WRIMCO may seek to preserve appreciation in the Fund by taking a
defensive position, doing so may reduce the potential for further appreciation.
53
<PAGE>
Growth
Fund
[graphic: globe on square background]
The primary goal of Growth Fund is capital appreciation. The Fund seeks to
achieve its goal by investing primarily in a diversified portfolio of common
stocks. To a lesser degree, the Fund may invest in securities convertible into
common stocks, of U.S. and foreign companies. Generally, the Fund may invest in
a wide range of marketable securities that, in WRIMCO's opinion, offer the
potential for growth. There is no guarantee that the Fund will achieve its goal.
In selecting companies, WRIMCO may look at a number of factors relating to a
company, such as:
- - aggressive or creative management;
- - technological or specialized expertise;
- - new or unique products or services;
- - entry into new or emerging industries; and
- - special situations arising out of government priorities or programs.
In determining whether to sell a security, WRIMCO will use the same type of
analysis that it uses in buying securities in order to determine whether the
security no longer offers significant growth potential. As well, WRIMCO may
wish to take advantage of more attractive investment opportunities.
The Fund may also invest, to a lesser degree, in foreign securities, which
present additional risks such as currency fluctuation and political or economic
conditions affecting the foreign country.
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may take certain steps with respect to up to all of the Fund's assets,
including any one or more of the following:
- - hold cash, commercial paper, certificates of deposit or other short-term
investments;
- - invest in debt securities (including commercial paper or short-term U.S.
Government securities); or
- - invest in convertible preferred stock.
Taking a defensive position may reduce the potential for appreciation in the
Fund's portfolio.
54
<PAGE>
High
Income
Fund
[graphic: column on circle background]
The primary goal of High Income Fund is to earn a high level of current income.
As a secondary goal, the Fund seeks capital growth when consistent with its
primary goal. The Fund seeks to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk, fixed-income securities, the
risks of which are, in the judgment of WRIMCO, consistent with the Fund's goals.
There is no guarantee that the Fund will achieve its goals.
The Fund primarily owns debt securities; however, it may also own preferred
stock, common stock and convertible securities. In general, the high income
that the Fund seeks is paid by debt securities rated in the lower rating
categories of the established rating services or unrated securities that are
determined by WRIMCO to be of comparable quality; these are securities rated
BBB or lower by S&P, or Baa or lower by MIS and unrated securities.
Lower-quality debt securities, which include "junk bonds", are considered to be
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-quality securities and may decline significantly in
periods of general economic difficulty.
The Fund will normally invest at least 80% of its total assets to seek a high
level of current income. The Fund limits its acquisition of common stock so
that no more than 20% of its total assets will consist of common stock and no
more than 10% of its total assets will consist of non-dividend-paying common
stock.
WRIMCO may look at a number of factors in selecting securities for the Fund.
These include an issuer's past, current and estimated future:
- - financial strength;
- - cash flow;
- - management;
- - borrowing requirements; and
- - responsiveness to changes in interest rates and business conditions.
55
<PAGE>
In determining whether to sell a debt security, WRIMCO will use the same type
of analysis that it uses in buying debt securities. For example, WRIMCO may
sell a holding if the issuer's financial strength declines to an unacceptable
level or management of the company weakens. As well, WRIMCO may choose to sell
an equity security if the issuer's growth potential has diminished.
The Fund may invest an unlimited amount of assets in foreign securities. At
this time, however, the Fund intends to invest in foreign securities to a
limited extent.
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may take any one or more of the following steps with respect to up to all of
the assets in the Fund:
- - shorten the average maturity of the Fund's debt holdings;
- - hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit); and
- - emphasize high-grade debt securities.
Taking a defensive position may reduce the yield on the Fund's portfolio. As an
alternative to taking a temporary defensive position, or in order to more
quickly participate in anticipated market changes or market conditions, the
Fund may invest in options and futures contracts.
56
<PAGE>
International
Growth
Fund
[graphic: globe on square background]
The primary goal of the International Growth Fund is long-term capital
appreciation, with current income as a secondary goal. The Fund seeks to achieve
these goals by investing primarily in a diversified portfolio of common stocks,
preferred stocks and debt securities, mostly of investment grade, of foreign
issuers. There is no guarantee that the Fund will achieve its goals.
Under normal conditions, the Fund invests at least 80% of its total assets in
foreign securities and at least 65% of its assets in issuers of at least three
foreign countries. The Fund generally limits its holdings so that no more than
75% of its total assets are invested in issuers of a single foreign country and
no more than 25% of its assets are invested in securities issued by the
government of a foreign country.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include the issuer's:
- - growth potential;
- - earnings potential;
- - management;
- - industry position; and
- - applicable economic and market conditions.
In determining whether to sell a stock, WRIMCO will use the same type of
analysis that it uses in buying stocks in order to determine whether the
security no longer offers significant growth potential. As well, WRIMCO may
wish to take advantage of more attractive investment opportunities.
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may take certain steps with respect to up to all of the Fund's assets in debt
securities (including commercial paper or short-term U.S. Government
securities) or preferred stocks, or both. Taking a defensive position may
reduce the potential for appreciation in the Fund's portfolio.
57
<PAGE>
Limited-Term
Bond Fund
[graphic: column on circle background]
The goal of Limited-Term Bond Fund is to provide a high level of current income
consistent with preservation of capital. The Fund seeks to achieve its goal by
investing primarily in a diversified portfolio of investment-grade,
intermediate-term debt securities of U.S. issuers, including U.S. Government
securities (securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities), collateralized mortgage obligations and other
asset-backed securities. The Fund will invest 65% of its total assets in bonds.
There is no guarantee that the Fund will achieve its goal.
The maturity of an asset-backed security is the estimated average life of the
security, based on certain prescribed models or formulas used by WRIMCO. The
maturity of other types of debt securities is the earlier of the call date or
the maturity date, as appropriate. The Fund may also own common stocks and
convertible securities, including convertible preferred stock in certain
circumstances.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
- - the security's current coupon;
- - the maturity of the security;
- - the relative value of the security
- - the creditworthiness of the particular issuer (if not backed by the full
faith and credit of the U.S. Treasury); and
- - the structure of the security, such as whether it has a put or a call
feature.
WRIMCO will base its decision to sell a security on several factors, including:
- - if the security continues to meet WRIMCO's selection criteria; and/or
- - the availability of more attractive investment opportunities
58
<PAGE>
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may take certain steps with respect to up to all of the Fund's assets,
including any one or more of the following:
- - shorten the average maturity of the Fund's portfolio;
- - hold short-term investments, cash or cash equivalents;
- - emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
- - invest in convertible preferred stock.
Taking a defensive position may reduce the Fund's yield.
59
<PAGE>
Municipal
Bond Fund
[graphic: column on circle background]
The goal of Municipal Bond Fund is to provide income that is not subject to
Federal income tax. The Fund seeks to achieve this goal by investing principally
in a diversified portfolio of municipal bonds. There is no guarantee that the
Fund will achieve its goal.
As used in this Prospectus, "municipal bonds" mean obligations the interest on
which is not includable in gross income for Federal income tax purposes. The
Fund anticipates that not more than 40% of the dividends it will pay to
shareholders will be treated as a tax preference item for AMT purposes. The
Fund and WRIMCO rely on the opinion of bond counsel for the issuer in
determining whether obligations are municipal bonds.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main types of municipal
bonds are general obligation bonds and revenue bonds. For general obligation
bonds, the issuer has pledged its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or a special tax or other revenue source. IDBs are revenue bonds
issued by or on behalf of public authorities to obtain funds to finance
privately operated facilities. Other municipal obligations include lease
obligations of municipal authorities or entities and participations in these
obligations.
At least 80% of the Fund's net assets will be invested during normal market
conditions in municipal bonds of investment grade, which means that the bonds
are either:
- - rated at least BBB by S&P, or Baa by MIS; or
- - if unrated, are determined by WRIMCO to be of comparable quality.
The Fund may invest up to 10% of its total assets in taxable debt securities
other than municipal bonds. These must be either:
- - U.S. Government securities;
- - obligations of domestic banks and certain savings and loan associations;
60
<PAGE>
- - commercial paper rated at least A by S&P or MIS; and/or
- - any of the foregoing obligations subject to repurchase agreements.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
- - the security's current coupon;
- - the maturity of the security;
- - the relative value of the security;
- - the creditworthiness of the particular issuer (if not backed by the full
faith and credit of the U.S. Treasury); and
- - the structure of the security: does it have a put or a call feature.
In determing whether to sell a security, WRIMCO will use the same type of
analysis that is used in buying securities in order to determine whether the
security continues to be a desired investment for the Fund. As well, WRIMCO may
determine that more attractive investment opportunities are available.
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may take certain steps with respect to up to all of the Fund's assets,
including any one or more of the following:
- - shorten the average maturity of the Fund's portfolio;
- - hold taxable obligations, subject to the limitations stated above; or
- - emphasize debt securities of a higher quality than those the Fund would
ordinarily hold.
Taking a defensive position may reduce the Fund's yield.
61
<PAGE>
Science and
Technology Fund
[graphic: globe on circle background]
The goal of Science and Technology Fund is long-term capital growth. The Fund
seeks to achieve this goal by investing primarily in a diversified portfolio of
science and technology securities. Science and technology securities are
securities of companies whose products, processes or services, in WRIMCO's
opinion, are being or are expected to be significantly benefited by the use or
commercial application of scientific or technological discoveries. There is no
guarantee that the Fund will achieve its goal.
The Fund invests in such areas as:
- - aerospace and defense electronics;
- - biotechnology;
- - business machines;
- - cable and broadband access;
- - communications and electronic equipment;
- - computer software and services;
- - computer systems;
- - electronics;
- - electronic media;
- - internet and internet-related services;
- - medical devices and drugs;
- - medical and hospital supplies and services; and
- - office equipment and supplies.
The Fund primarily owns common stock; however, it may invest in preferred
stock, debt securities and convertible securities to a lesser extent. WRIMCO
typically emphasizes growth potential in selecting stocks. A stock has growth
potential if, in WRIMCO's opinion, the earnings of the company are likely to
grow faster than the economy.
In determining whether to sell a stock, WRIMCO will use the same type of
analysis that is used in buying stocks in order to determine whether the stock
continues to offer growth potential. As well, WRIMCO may determine more
attractive investment opportunities are available.
The Fund may invest a limited amount of its assets in foreign securities.
Investment in foreign securities
62
<PAGE>
present additional risks such as currency fluctuations and political or
economic conditions affecting the foreign country.
Under normal economic and market conditions, the Fund will not invest more than
20% of its total assets in securities other than science or technology
securities. When WRIMCO believes that a temporary defensive position is
desirable, the Fund may invest up to all of its assets in U.S. Government
securities or other debt securities, mostly of investment grade. Taking a
defensive position may reduce the potential for appreciation in the Fund's
portfolio.
63
<PAGE>
Total
Return
Fund
[graphic: globe on circle background]
The goal of Total Return Fund is to provide current income while seeking capital
growth. The Fund seeks to achieve its goal by investing primarily in a
diversified portfolio of common stocks, or securities convertible into common
stocks, of U.S. companies that have a record of paying regular dividends on
common stock or have the potential for capital appreciation. There is no
guarantee that the Fund will achieve its goal.
WRIMCO attempts to select securities with income and growth possibilities by
looking at many factors including the company's:
- - dividend payment history;
- - profitability record;
- - history of improving sales and profits;
- - management;
- - leadership position in its industry; and
- - stock price value.
In determining whether to sell either an equity security or a debt security,
WRIMCO uses the same analysis used in order to determine if the equity security
offers opportunities for capital appreciation or if the debt security continues
to provide adequate income. As well, WRIMCO may determine more attractive
investment opportunities exist.
The Fund may invest a limited amount of its assets in foreign securities.
Investments in foreign securities present additional risks such as currency
fluctuations and political or economic conditions affecting the foreign
country.
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may take certain steps with respect to up to all of the Fund's assets,
including any one or more of the following:
- - hold cash, commercial paper, certificates of deposit or other short-term
investments;
- - invest in debt securities (including commercial paper or short-term U.S.
Government securities); or
- - invest in convertible preferred stock.
64
<PAGE>
Taking a defensive position may reduce the Fund's yield as well as the potential
for appreciation of the Fund's portfolio.
65
<PAGE>
All Funds
[graphic: globe on square background]
[graphic: oakleaf and acorns on triangle background]
[graphic: column on circle background]
Each Fund may also invest in and use certain other types of instruments in
seeking to achieve its goals. For example, each Fund is permitted to invest in
options, futures contracts, asset-backed securities and other derivative
instruments if it is permitted to invest in the type of asset by which the
return on, or value of, the derivative is measured. At this time, each Fund has
limited exposure to derivative investments. You will find more information in
the Statement of Additional Information ("SAI") about each Fund's permitted
investments and strategies, as well as the restrictions that apply to them.
Risk Considerations of Principal Strategies and Other Investments
Risks exist in any investment. Each Fund is subject to market risk, financial
risk, and, in some cases, prepayment risk.
- - Market risk is the possibility of a change in the price of the security
because of market factors including changes in interest rates. Bonds with
longer maturities are more interest-rate sensitive. For example, if
interest rates increase, the value of a bond with a longer maturity is more
likely to decrease. Because of market risk, the share price of each Fund
will likely change as well.
- - Financial risk is based on the financial situation of the issuer of the
security. To the extent a Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the underlying securities
in which it invests. For an equity investment, a Fund's financial risk may
depend, for example, on the earnings performance of the company issuing the
stock.
- - Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid
before its expected maturity date.
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<PAGE>
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investment and,
with respect to Asset Strategy Fund, on WRIMCO's skill in allocating assets.
Asset Strategy Fund and Science and Technology Fund may each actively trade
securities in seeking to achieve its goals. Doing so may increase transaction
costs (which may reduce performance) and increase distributions paid by the
Fund, which may increase your taxable income.
Certain types of each Fund's authorized investments and strategies (such as
foreign securities, "junk bonds" and derivative instruments) involve special
risks. Depending on how much a Fund invests or uses these strategies, these
special risks may become significant. For example, foreign investments may
subject a Fund to restrictions on receiving the investment proceeds from a
foreign country, foreign taxes, and potential difficulties in enforcing
contractual obligations, as well as fluctuations in foreign currency values and
other developments that may adversely affect a foreign country. Junk bonds pose
a greater risk of nonpayment of interest or principal than higher-rated bonds.
Derivative instruments may expose a Fund to greater volatility than an
investment in a more traditional stock, bond or other security.
Year 2000 and Euro Issues
Like other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer systems
used by WRIMCO and the Funds' other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
WRIMCO is taking steps that it believes are reasonably designed to address year
2000 computer-related problems with respect to the computer systems that it
uses and to obtain assurances that comparable steps are being taken by the
Funds' other, major service providers. Although there can be no assurances,
WRIMCO believes these steps will be sufficient to avoid any adverse impact on
the Funds. Similarly, the companies and other issuers in which the Funds invest
could be adversely affected by year 2000 computer-related problems. The risk
may be greater for issuers in certain foreign countries, especially developing
countries, than for U.S. issuers. There can be no assurance that
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<PAGE>
the steps taken, if any, by issuers in which a Fund invests will be sufficient
to avoid any adverse impact on the Fund.
Also, certain of the Funds could be adversely affected by the conversion of
certain European currencies into the Euro. This conversion, which is underway,
is scheduled to be completed in 2002. However, problems with the conversion
process and delays could increase volatility in world capital markets and
affect European capital markets in particular.
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<PAGE>
Your
Account
- --------------------------------
Choosing a Share Class
[graphic: globe on square background]
[graphic: oakleaf and acorns on triangle background]
[graphic: column on circle background]
This Prospectus offers two classes of shares of each Fund: Class B and Class Y.
Each class has its own sales charge, if any, and expense structure. You should
choose the class for which you are eligible and that seems best for you, which
usually depends on how much you plan to invest and how long you plan to hold
your shares. Class B shares are available for both individual and institutional
investors. Class Y shares are designed only for institutional investors and
others investing through certain intermediaries, as described below. All of
your future investments in a Fund will be made in the class you select when you
open your account, unless you inform the Fund otherwise, in writing, when you
make the future investment.
Class B shares are subject to a contingent deferred sales charge if you sell
them within three years of their purchase according to the table below. Class B
shares pay an annual 12b-1 service fee of up to 0.25% of average Class B net
assets and an annual 12b-1 distribution fee of up to 0.75% of average Class B
net assets. The ongoing expenses of this class are higher than those for Class
Y shares.
For Class B shares, the Corporation has adopted a Distribution and Service Plan
("Class B Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("Rule 12b-1"). Under the Class B Plan, each Fund may pay the distributor
a fee of up to 0.75%, on an annual basis, of the average daily net assets of
the Fund's Class B shares to compensate the Distributor for the distribution of
the Class B shares of that Fund and a fee of up to 0.25%, on an annual basis,
of the average daily net assets of the Fund's Class B shares to compensate the
Distributor for providing personal services to Class B shareholders and/or
maintaining Class B shareholder accounts. No payment of the distribution fee
will be made, and no deferred sales charge will be paid, to the Distributor by
any Fund if, and to the extent that, the aggregate of the distribution fees
paid by the Fund and the deferred sales charges received by the Distributor
with respect to the Fund's Class B shares would exceed the maximum
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<PAGE>
amount of such charges that the Distributor is permitted to receive under NASD
rules as then in effect.
For Class Y shares, the Corporation has adopted a Distribution and Service Plan
("Class Y Plan") pursuant to Rule 12b-1. Under the Class Y Plan, each Fund may
pay the Distributor a fee of up to 0.25%, on an annual basis, of the average
daily net assets of the Fund's Class Y shares to compensate the Distributor for
distributing the Class Y shares of that Fund, providing personal services to
Class Y shareholders and/or maintaining Class Y shareholder accounts.
Because the Plan fees are paid out of the assets of the applicable class on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Contingent Deferred Sales Charge. A contingent deferred sales charge may be
assessed against your redemption amount for Class B shares and paid to Waddell
& Reed, Inc. (the "Distributor"), subject to the limitation described under
"Distribution" and as further described below. The purpose of the deferred
sales charge is to compensate the Distributor for the costs incurred by it in
connection with the sale of a Fund's Class B shares. The deferred sales charge
will not be imposed on Class B shares representing payment of dividends or
distributions or on amounts which represent an increase in the value of a
shareholder's account resulting from capital appreciation above the amount paid
for Class B shares purchased during the deferred sales charge period.
The deferred sales charge will be applied to the total amount invested during a
calendar year to acquire shares or the value of the shares redeemed, whichever
is less. All investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the deferred
sales charge.
For purposes of determining the applicability and rate of any deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
purchased during the deferred sales charge period representing capital
appreciation, next of Class B shares purchased during the deferred sales charge
period representing pay-
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ment of dividends and distributions and then of Class B shares held by the
shareholder for the longest period of time.
Unless instructed otherwise, the Corporation, when requested to redeem a
specific dollar amount, will redeem additional Class B shares equal in value to
the deferred sales charge. For example, should you request a $1,000 redemption
and the applicable deferred sales charge is $27, the Fund will redeem shares
having an aggregate Net Asset Value ("NAV") of $1,027, absent different
instructions.
<TABLE>
<CAPTION>
Deferred
Date of Sales
Redemption Charge
<S> <C>
any time during the calendar year of
investment and the first full calendar year
after the calendar year of investment 3%
second full calendar year 2%
third full calendar year 1%
after third full calendar year 0%
</TABLE>
The deferred sales charge will not apply in the following circumstances:
- - in connection with redemptions of Class B shares requested within one year of
the shareholder's death or disability, provided the Corporation is notified
of the death or disability at the time of the request and furnished proof
of such event satisfactory to the Distributor.
- - in connection with redemptions of Class B shares that are made to effect a
distribution from a qualified retirement plan following retirement, a
required minimum distribution from an individual retirement account, Keogh
plan or Internal Revenue Code ("Code") section 403(b)(7) custodial account,
or a tax-free return of an excess contribution, or that otherwise results
from the death or disability of the employee, as well as in connection with
redemptions by any tax-exempt employee benefit plan for which, as a result
of a subsequent law or legislation, the continuation of its investment
would be improper.
- - in connection with redemptions of Class B shares purchased by current or
retired directors of the Corporation, or current or retired officers or
employees of the Corporation, WRIMCO, the Distributor or their affiliated
companies, registered representatives of Waddell & Reed, Inc., and by the
members of immediate families of such persons.
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<PAGE>
- - in connection with redemptions of Class B shares made pursuant to a
shareholder's participation in any systematic withdrawal plan adopted for a
Fund. (The Plan and this exclusion from the deferred sales charge do not
apply to a one-time withdrawal.)
- - in connection with redemptions the proceeds of which are reinvested in Class
B shares of a Fund within thirty days after such redemption.
- - in connection with the exercise of certain exchange privileges.
- - on redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B shares of a Fund if the aggregate NAV of those shares
is less than $500.
- - in connection with redemptions effected by another registered investment
company by virtue of a merger or other reorganization with a Fund or by a
former shareholder of such investment company of Class B shares of a Fund
acquired pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
shares, which requires certain notices.
Class Y shares are not subject to a sales charge upon purchase or a contingent
deferred sales charge upon redemption. Class Y shares are subject to an annual
12b-1 fee of up to 0.25% of average Class Y net assets and may cost you less
than if you had bought Class B shares. Class Y shares are only available for
purchase by:
- - participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Code, when an unaffiliated third party provides certain administrative,
distribution, and/or other support services to the plan and the plan holds
the shares in an omnibus account on the Fund's records;
- - banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an
omnibus account on the Fund's records and to which entity an unaffiliated
third party provides certain administrative, distribution and/or other
support services;
- - government entities or authorities and corporations and to which entity an
unaffiliated third party provides certain admin-
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istrative, distribution and/or other support services where the investment
is $1 million; and
- - certain retirement plans and trusts for employees and financial advisors of
Waddell & Reed, Inc. and its affiliates. The different ways to set up
(register) your account are listed below.
Ways to Set Up Your Account
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax deductible.
- - Individual Retirement Accounts (IRAs) allow an individual under 70-1/2, with
earned income, to invest up to $2,000 per tax year. The maximum annual
contribution for an investor and his or her spouse is $4,000 ($2,000 per
spouse) or, if less, the couple's combined earned income for the taxable
year.
- - Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- - Roth IRAs allow certain individuals to make non-deductible contributions up
to $2,000 per year. Withdrawals of earnings may be tax-free if the account
is at least five years old and certain other requirements are met.
- - Education IRAs are established for the benefit of a minor, with
non-deductible contributions, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
- - Simplified Employee Pension Plans (SEP--IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh Plan, but with fewer administrative
requirements.
- - Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established
by small employers to contribute to their
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<PAGE>
employees' retirement accounts and involve fewer administrative requirements
than 401(k) or other qualified plans generally.
- - Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
- - 401(k) Programs allow employees of corporations and non-governmental
tax-exempt organizations of all sizes to contribute a percentage of their
wages on a tax-deferred basis. These accounts need to be established by the
administrator or trustee of the plan.
- - 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
- - 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA").
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and its
financial advisors. To open your account you must complete and sign an
application. Your Waddell & Reed financial advisor can help you with any
questions you might have.
To purchase Class B and Class Y shares by check, make your check payable to
Waddell & Reed, Inc. Mail the check, along with your completed application, to
Waddell & Reed, Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
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<PAGE>
To purchase Class Y shares by wire, you must first obtain an account number by
calling 1-800-366-5465, then mail a completed application to Waddell & Reed,
Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to
913-236-5044. Instruct your bank to wire the amount you wish to invest, along
with the account number and registration, to UMB Bank, n.a., ABA Number
101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
You may also buy Class Y shares of the Fund indirectly through certain
broker-dealers, banks and other third parties, some of which may charge you a
fee. These firms may have additional requirements to buy Class Y shares.
The price to buy a share of a particular class of a Fund, called the NAV of
that class, is calculated every business day. The Funds' shares are sold
without a sales charge.
In the calculation of a Fund's NAV:
- - The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
- - Bonds are generally valued according to prices quoted by an independent
pricing service.
- - Short-term debt securities are valued at amortized cost, which approximates
market value.
- - Other investment assets for which market prices are unavailable are valued at
their fair value by or at the direction of the Board of Directors.
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by the Fund may be priced at the close of the regular
session of any other securities or commodities exchange on which that
instrument is traded.
Certain of the Funds may invest in securities listed on foreign exchanges which
may trade on Saturdays or on U.S. national business holidays when the NYSE is
closed. Consequently, the NAV of such Fund shares may be significantly affected
on days when the Fund does not price its shares and when you are not able to
purchase or redeem the Fund's shares. Similarly, if an event materially
affecting the value of foreign investments or foreign currency exchange rates
occurs prior to the close of business of the NYSE but after the time their
values are otherwise
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<PAGE>
determined, such investments or exchange rates may be valued at their fair
value as determined in good faith by or under the direction of the Board of
Directors.
When you place an order to buy shares, your order will be processed at the next
NAV calculated after your order is received and accepted. Note the following:
- - Orders are accepted only at the home office of Waddell & Reed, Inc.
- - All of your purchases must be made in U.S. dollars.
- - If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund, the payment may be delayed for up to ten
days to ensure that your previous investment has cleared.
- - If you purchase Class Y shares of a Fund from certain broker-dealers,
banks or other authorized third parties, the Fund will be deemed to have
received your purchase order when that third party (or its designee) has
received your order. Your order will receive the Class Y offering price next
calculated after the order has been received in proper form by the
authorized third party (or its designee). You should consult that firm to
determine the time by which it must receive your order for you to purchase
shares of the Fund at that day's price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Corporation reserve the right
to discontinue offering shares of the Funds for purchase.
76
<PAGE>
Minimum Investments
<TABLE>
<CAPTION>
For Class B:
<S> <C>
To Open an Account $1,000
For certain exchanges $ 100
For certain retirement accounts and accounts opened
through Automatic Investment Service $ 50
For certain retirement accounts and accounts opened
through payroll deductions for or by employees of
WRIMCO, Waddell & Reed, Inc. and their affiliates $ 25
To Add to an Account
For certain exchanges $ 100
For Automatic Investment Service $ 25
For Class Y:
To Open an Account
For a government entity or authority or for a
corporation:
(within first twelve months) $10 million
For other investors: Any amount
To Add to An Account Any amount
</TABLE>
The minimum investment required to open an account may be waived or reduced for
purchases by employees of Waddell & Reed, Inc. or its affiliates, certain
pension and retirement plan accounts and participants in automatic investment
plans.
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail
the check along with:
- - the detachable form that accompanies the confirmation of a prior purchase or
your year-to-date statement; or
- - a letter stating your account number, the account registration, and that you
wish to purchase Class B or Class Y shares of the Fund.
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<PAGE>
Mail to Waddell & Reed, Inc. at:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
To add to your Class Y account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB
Bank, n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO
Customer Name and Account Number.
If you purchase Class Y shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The Corporation will redeem your shares at their NAV next calculated after
receipt of a written request for redemption in good order by Waddell & Reed,
Inc. at it home office and, for Class B shares, subject to the contingent
deferred sales charge discussed above.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
- - the name on the account registration;
- - the Fund's name;
- - the Fund account number;
- - the dollar amount or number, and the class, of shares to be redeemed; and
- - any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed financial advisor, or
mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
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<PAGE>
To sell Class Y shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465, or fax
your request to 913-236-5044, and give your instructions to redeem Class Y
shares and make payment by wire to your pre-designated bank account or by check
to you at the address on the account.
When you place an order to sell shares, please note the following:
- - If more than one person owns the shares, each owner must sign the written
request.
- - If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Corporation telephone or written
assurance, satisfactory to the Corporation, that the check has cleared and
been honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Corporation is able to verify that your purchase check has
cleared and been honored.
- - Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
- - Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
- - If you purchased Class Y shares from certain broker-dealers, banks or other
authorized third parties, you may sell those shares through those firms,
some of which may charge you a fee and may have additional requirements to
sell Fund shares. The Fund will be deemed to have received your order to
sell Class Y shares when that firm (or its designee) has received your
order. Your order will receive the Class Y NAV next calculated after the
order has been received in proper form by the authorized firm (or its
designee). You should consult that firm to determine the time by which it
must receive your order for you to sell Class Y shares at that day's price.
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<PAGE>
Special Requirements for Selling Shares
<TABLE>
<CAPTION>
Account Type Special Requirements
<S> <C>
The written instructions must be signed by all persons
Individual or Joint
required to sign for transactions, exactly as their
Tenant
names appear on the account.
The written instructions must be signed by the
Sole Proprietorship
individual owner of the business.
The custodian must sign the written instructions
UGMA, UTMA
indicating capacity as custodian.
The written instructions must be signed by a properly
Retirement Account
authorized person.
The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's name is
Trust
not in the account registration, provide a currently
certified copy of the trust document.
At least one person authorized by corporate
Business or Organization resolution to act on the account must sign the written
instructions.
The written instructions must be signed by the person
Conservator, Guardian
properly authorized by court order to act in the
or Other Fiduciary
particular fiduciary capacity.
</TABLE>
The Corporation may require a signature guarantee in certain situations such
as:
- - a redemption request made by a corporation, partnership or fiduciary;
- - a redemption request made by someone other than the owner of record; or
- - the check is made payable to someone other than the owner of record.
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but
not from a notary public.
The Corporation reserves the right to redeem at NAV all shares of a Fund owned
or held by you having an aggregate NAV of less than $500. The Corporation will
give you notice of its intention to redeem your shares and a 60-day opportunity
to purchase a sufficient number of additional shares to bring the aggregate NAV
of your shares of that Fund to $500. For Class B shares, these redemptions are
not subject to the deferred sales charge. The Corporation will not apply its
redemption right to individual retirement plan accounts, retirement accounts or
accounts which have an aggregate NAV of less than $500 due to market forces.
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You may reinvest in any one of the eight Funds all or part of the amount you
redeemed by sending to the Fund the amount you want to reinvest. If you
reinvest in Class B shares within thirty days after the date of your redemption
of Class B shares, the Distributor will, with your reinvestment, restore an
amount equal to the deferred sales charge attributable to the amount reinvested
by adding the deferred sales charge amount to your reinvestment. For purposes
of determining future deferred sales charges, the reinvestment will be treated
as a new investment. You may do this only once as to shares of the Corporation.
This privilege may be eliminated or modified at any time without prior notice
to shareholders.
Under the terms of the 401(k) prototype plan which the Distributor has
available, the plan may have the right to make a loan to a plan participant by
redeeming Corporation shares held by the plan. Principal and interest payments
on the loan made in accordance with the terms of the plan may be reinvested by
the plan in shares of any of the Funds in which the plan may invest.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed financial advisor is available to provide personal
service. Additionally, one toll-free call, 1-800-366-5465, connects you to a
Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to answer your questions or update your account records. At almost
any time of the day or night, you may access TeleWaddell from a touch-tone
phone to:
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<PAGE>
- - obtain information about your accounts;
- - obtain price information about other funds in the United Group; or
- - request duplicate statements.
Reports
Statements and reports sent to you include the following:
- - confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
- - year-to-date statements (quarterly)
- - annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one
account with the Funds. Call the telephone number listed above for Customer
Service if you need copies of annual or semiannual reports or account
information.
Exchanges
You may sell your Class B shares of any of the Funds and buy Class B shares of
another Fund or of United Cash Management, Inc., a fund in the United Group of
Mutual Funds, without payment of a deferred sales charge. The time period with
respect to the deferred sales charge will continue to run. You may sell your
Class Y shares of any of the Funds and buy Class Y shares of another Fund or
Class A shares of United Cash Management, Inc., a fund in the United Group of
Mutual Funds. Subject to certain conditions stated in the SAI, automatic
monthly exchanges of Class A shares of United Cash Management, Inc. may be made
into the Funds.
Exchanges may only be made into Funds which are legally permitted for sale in
the state of residence of the investor. Note that exchanges out of the Funds
may have tax consequences for you. Before exchanging into a Fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Automatic Transactions for Class B Shareholders
Flexible Withdrawal Service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
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<PAGE>
Regular Investment Plans allow you to transfer money into your Fund account, or
between Fund accounts, automatically. While Regular Investment Plans do not
guarantee a profit and will not protect you against loss in a declining market,
they can be an excellent way to invest for retirement, a home, educational
expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed financial advisor for more
information.
<TABLE>
<CAPTION>
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Class B account with Waddell
& Reed Funds, Inc.
Minimum Frequency
<S> <C>
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to a Fund in Waddell & Reed
Funds, Inc., whether in the same or a different Class B account
Minimum Frequency
$100 Monthly
</TABLE>
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year. Usually, a Fund distributes net
investment income at the following times: Total Return Fund, Growth Fund,
International Growth Fund and Science and Technology Fund, annually in
December; Asset Strategy Fund, quarterly in March, June, September and
December; and Limited-Term Bond Fund, Municipal Bond Fund and High Income Fund
declared daily and paid monthly. Dividends declared for a particular day are
paid to shareholders of record on the prior business day. However, dividends
declared for Saturday and Sunday are paid to shareholders of record on the
preceding Thursday. Net capital gains (and any net gains from foreign currency
transactions) ordinarily are distributed by each Fund in December.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. Each Fund offers three options:
1. Share Payment Option. Your dividends, capital gains and other distributions
with respect to a class will be automatically
83
<PAGE>
paid in additional shares of the same class of the distributing Fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains and other distributions with
respect to a class will be automatically paid in additional shares of the
same class of the distributing Fund, but you will be sent a check for each
dividend distribution. However, if the dividend distribution is less than
ten dollars, the distribution will be automatically paid in additional
shares of the same class of the distributing Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions if the total distribution is ten dollars or greater.
If the distribution total is less than ten dollars, the total distribution
will be automatically paid in additional shares of the same class of the
distributing Fund.
For retirement accounts, all distributions are automatically paid in additional
Fund shares of the distributing Fund.
Taxes
As with any investment, you should consider how your investment in a Fund will
be taxed. If your account is not a tax-deferred retirement account (or you are
not otherwise exempt from income tax), you should be aware of the following tax
implications:
Taxes on distributions. Dividends from a Fund's investment company taxable
income generally are taxable to you as ordinary income, whether received in
cash or paid in additional Fund shares. Distributions by Municipal Bond Fund
that are designated by it as exempt-interest dividends generally may be
excluded by you from your gross income. Distributions of a Fund's net capital
gains, when designated as such, are taxable to you as long-term capital gains,
whether received in cash or paid in additional Fund shares and regardless of
the length of time you have owned your shares. For Federal income tax purposes,
your long-term capital gains (if you are a noncorporate shareholder of the
Fund) may be taxable at different rates depending on how long the Fund held the
assets generating the gains, but generally are taxed at a maximum rate of 20%.
Each Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that year.
84
<PAGE>
A portion of the dividends paid by Total Return Fund, Growth Fund, Asset
Strategy Fund, International Growth Fund, High Income Fund and/or Science and
Technology Fund, whether received in cash or paid in additional Fund shares,
may be eligible for the dividends-received deduction allowed to corporations.
The eligible portion may not exceed the aggregate dividends received by the
Fund from U.S. corporations. However, dividends received by a corporate
shareholder and deducted by it pursuant to the dividends-received deduction are
subject indirectly to the Federal alternative minimum tax ("AMT"). No part of
the dividends paid by Limited-Term Bond Fund and Municipal Bond Fund is
expected to be eligible for this deduction.
Exempt-interest dividends paid by Municipal Bond Fund may be subject to income
taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that must
be treated by you as a "tax preference item" for purposes of calculating your
liability, if any, for the AMT; that Fund anticipates such portion will be not
more than 40% of the dividends it will pay to its shareholders. Municipal Bond
Fund will provide you with information concerning the amount of distributions
subject to the AMT after the end of each calendar year. Shareholders who may be
subject to the AMT should consult with their tax advisers concerning investment
in that Fund.
Entities or other persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by private activity bonds ("PABs")
or industrial development bonds ("IDBs") should consult their tax advisers
before purchasing Municipal Bond Fund shares because, for users of certain of
these facilities, the interest on those bonds is not exempt from Federal income
tax. For these purposes, the term "substantial user" is defined generally to
include a "non-exempt person" who regularly uses in trade or business a part of
a facility financed from the proceeds of PABs or IDBs.
Withholding. Each Fund must withhold 31% of all taxable dividends, capital
gains distributions and redemption proceeds payable to individuals and certain
other noncorporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate from taxable dividends
and capital gains distributions also is required for shareholders subject to
backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the
85
<PAGE>
redeemed shares. An exchange of shares of one Fund for shares of any other Fund
or of United Cash Management, Inc. generally will have similar tax
consequences. In addition, if you purchase shares of a Fund within thirty days
before or after redeeming other shares of that Fund (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares of
Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds.
If such a proposal were enacted, the availability of municipal bonds for
investment by that Fund and the value of its portfolio would be affected. In
that event, that Fund may decide to reevaluate its investment goal and
policies.
State and local income taxes. The portion of the dividends paid by Limited-Term
Bond Fund (and, to a lesser extent, the other Funds) attributable to interest
earned on its U.S. Government securities generally is not subject to state and
local income taxes, although distributions by any Fund to its shareholders of
net realized gains on the sale of those securities are fully subject to those
taxes. You should consult your tax adviser to determine the taxability of
dividends and other distributions by the Funds in your state and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders; you will
find more information in the SAI. There may be other Federal, state or local
tax considerations applicable to a particular investor. You are urged to
consult your own tax adviser.
86
<PAGE>
The
Management
of the Funds
[graphic: globe on square background]
[graphic: oakleaf and acorns on triangle background]
[graphic: column on circle background]
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Corporation's
Board of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO and its predecessors have served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, Waddell & Reed Funds, Inc. and Target/United Funds, Inc.
since the inception of the company. WRIMCO is located at 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
James D. Wineland is primarily responsible for the management of the portfolio
of Total Return Fund. Mr. Wineland has held his Fund responsibilities since
July 1, 1997. He is Vice President of WRIMCO, Vice President of the Corporation
and Vice President of other investment companies for which WRIMCO serves as
investment manager. From March 1995 to March 1998 Mr. Wineland was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company, a former affiliate of WRIMCO. Mr. Wineland has served as the portfolio
manager for investment companies managed by WRIMCO since January 1988 and has
been an employee of such since November 1984.
Mark G. Seferovich and Grant P. Sarris are primarily responsible for the
management of the portfolio of Growth Fund. Mr. Seferovich has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO,
Vice President of the Corporation and Vice President of other investment
companies for which WRIMCO serves as investment manager. Mr. Seferovich has
served as the portfolio manager of investment companies managed by WRIMCO since
February 1989 and has been an employee of such since February 1989. From March
1996 to March 1998, Mr. Seferovich was Vice President of, and a portfolio
manager for, Waddell & Reed Asset Management Company.
Mr. Sarris has held his Fund responsibilities since May 1998. He is Vice
President of WRIMCO and Vice President of other investment companies for which
87
<PAGE>
WRIMCO serves as investment manager. Mr. Sarris has served as an investment
analyst with WRIMCO, since October 1, 1991 and had served as Assistant
Portfolio Manager of Growth Fund from January 1, 1996 until May, 1998. He has
been an employee of WRIMCO since October 1, 1991.
W. Patrick Sterner is primarily responsible for the management of the portfolio
of Limited-Term Bond Fund. Mr. Sterner has held his Fund responsibilities since
September 1992. He is Vice President of WRIMCO, Vice President of the
Corporation and Vice President of another investment company for which WRIMCO
serves as investment manager. From August 1992 to March 1998, Mr. Sterner was
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. He has been an employee of WRIMCO since August 1992.
John M. Holliday is primarily responsible for the management of the portfolio
of Municipal Bond Fund. Mr. Holliday has held his Fund responsibilities since
September 1992. He is Senior Vice President of WRIMCO, Vice President of the
Corporation and Vice President of other investment companies for which WRIMCO
serves as investment manager. From July 1986 to March 1998, Mr. Holliday was
Senior Vice President of, and a portfolio manager for, Waddell & Reed Asset
Management Company. Mr. Holliday has served as the portfolio manager for
investment companies managed by WRIMCO since August 1979 and has been an
employee of such since April 1978.
Thomas A. Mengel is primarily responsible for the management of the portfolio
of International Growth Fund. Mr. Mengel has held his Fund responsibilities
since joining WRIMCO on May 1, 1996. Mr. Mengel is Vice President of WRIMCO,
Vice President of the Corporation and Vice President of other investment
companies for which WRIMCO serves as investment manager. From 1993 to 1996, Mr.
Mengel was the President of Sal. Oppenheim jr. & Cie. Securities, Inc.
Michael L. Avery is primarily responsible for the management of the equity
portion of the portfolio of Asset Strategy Fund. Mr. Avery has held his Fund
responsibilities since January 1997. He is Senior Vice President of WRIMCO,
Vice President of the Corporation and Vice President of other investment
companies for which WRIMCO serves as investment manager. From March 1995 to
March 1998, Mr. Avery was Vice President of, and Director of Research for,
Waddell & Reed Asset Management Com-
88
<PAGE>
pany. Mr. Avery has served as the portfolio manager for investment companies
managed by WRIMCO, since February 1, 1994, has served as the Director of
Research of WRIMCO since August 1987, and has been an employee of such since
June 1981.
Daniel J. Vrabac is primarily responsible for the management of the
fixed-income portion of the portfolio of Asset Strategy Fund. Mr. Vrabac has
held his Fund responsibilities since January 1997. He is Vice President of the
Corporation and Vice President of other investment companies for which WRIMCO
serves as investment manager. From May 1994 to March 1998, Mr. Vrabac was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Mr. Vrabac has served as an investment analyst with WRIMCO since May
1994 and has been an employee of WRIMCO since May 1993. Mr. Vrabac was a Vice
President of Kansas City Life Insurance Company from May 1983 to May 1994.
Abel Garcia is primarily responsible for the management of the portfolio of
Science and Technology Fund. Mr. Garcia has held his Fund responsibilities
since July 31, 1997. He is Vice President of WRIMCO, Vice President of the
Corporation and Vice President of other investment companies for which WRIMCO
serves as investment manager. From May 1988 to March 1998, Mr. Garcia was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Mr. Garcia has been an employee of WRIMCO since August 1983.
Louise D. Rieke is primarily responsible for the management of the portfolio of
High Income Fund. Ms. Rieke has held her Fund responsibilities since July 31,
1997. She is Vice President of WRIMCO, Vice President of the Corporation and
Vice President of other investment companies for which WRIMCO serves as
investment manager. From November 1985 to March 1998, Ms. Rieke was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Ms. Rieke has served as the portfolio manager for investment companies
managed by WRIMCO since July 1986 and has been an employee of such since May
1971.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
89
<PAGE>
Management Fee
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in the share price or
dividends of that Fund; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained in the SAI.
The management fee is payable by a Fund at the annual rates of:
for Asset Strategy Fund, 0.70% of net assets up to $1 billion, 0.65% of net
assets over $1 billion and up to $2 billion, 0.60% of net assets over $2
billion and up to $3 billion, and 0.55% of net assets over $3 billion;
for Growth Fund, 0.85% of net assets up to $1 billion, 0.83% of net assets over
$1 billion and up to $2 billion, 0.80% of net assets over $2 billion and up to
$3 billion, and 0.76% of net assets over $3 billion;
for High Income Fund, 0.625% of net assets up to $500 million, 0.60% of net
assets over $500 million and up to $1 billion, 0.55% of net assets over $1
billion and up to $1.5 billion, and 0.50% of net assets over $1.5 billion;
for International Growth Fund, 0.85% of net assets up to $1 billion, 0.83% of
net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2
billion and up to $3 billion, and 0.76% of net assets over $3 billion;
for Limited-Term Bond Fund, 0.50% of net assets up to $500 million, 0.45% of
net assets over $500 million and up to $1 billion, 0.40% of net assets over $1
billion and up to $1.5 billion, and 0.35% of net assets over $1.5 billion;
for Municipal Bond Fund, 0.525% of net assets up to $500 million, 0.50% of net
assets over $500 million and up to $1 billion, 0.45% of net assets over $1
billion and up to $1.5 billion, and 0.40% of net assets over $1.5 billion;
for Science and Technology Fund, 0.85% of net assets up to $1 billion, 0.83% of
net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2
billion and up to $3 billion, and 0.76% of net assets over $3 billion;
90
<PAGE>
and for Total Return Fund, 0.70% of net assets up to $1 billion, 0.65% of net
assets over $1 billion and up to $2 billion, 0.60% of net assets over $2
billion and up to $3 billion, 0.55% of net assets over $3 billion.
Prior to June 30, 1999 the management fee was computed on each Fund's net asset
value as of the close of business each day at an annual rate as follows:
<TABLE>
<CAPTION>
Fund Rate Annual
<S> <C>
Asset Strategy Fund 0.81%
Growth Fund 0.81%
High Income Fund 0.66%
International Growth Fund 0.81%
Limited-Term Bond Fund 0.56%
Municipal Bond Fund 0.56%
Science and Technology Fun d 0.71%
Total Return Fund 0.71%
</TABLE>
For the fiscal year ended March 31, 1999, management fees for each Fund as a
percentage of such Fund's net assets were as follows:
<TABLE>
<CAPTION>
Fund Rate Annual
<S> <C>
Asset Strategy Fund 0.81%
Growth Fund 0.81%
High Income Fund 0.66%
International Growth Fund 0.81%
Limited-Term Bond Fund 0.56%
Municipal Bond Fund 0.56%
Science and Technology Fun d 0.70%
Total Return Fund 0.71%
</TABLE>
91
<PAGE>
Financial Highlights
[graphic: globe on square background]
[graphic: oakleaf and acorns on triangle background]
[graphic: column on circle background]
The following information is to help you understand the financial performance of
the Corporation's Class B* and Class Y shares for the fiscal periods shown.
Certain information reflects financial results for a single Fund share. "Total
return" shows how much your investment would have increased (or decreased)
during each period, assuming reinvestment of all dividends and distributions.
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended March 31, 1999, is included in the SAI, which is available upon request.
92
<PAGE>
Financial Highlights
- --------------------------------
Asset
Strategy
Fund
[graphic: oakleaf and acorns on triangle background]
For a Class B share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 20,
FOR THE FISCAL YEAR 1995** TO
ENDED MARCH 31, MARCH 31,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Class B Per-Share Data
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
-----------------------------------------------------------------------------
Class B Ratios/Supplemental Data
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%
</TABLE>
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
**Commencement of operations.
***Annualized.
93
<PAGE>
Financial Highlights
- -----------------------
Asset
Strategy
Fund
[graphic: oakleaf and acorns on triangle background]
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 29,
FOR THE FISCAL YEAR 1995* TO
ENDED MARCH 31, MARCH 31,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Class Y Per-Share Data
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
----------------------------------------------------------------------
Class Y Ratios/Supplemental Data
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%***
</TABLE>
*Commencement of operations.
**Annualized.
***Portfolio turnover is for the period from April 20, 1995 to March 31, 1996.
94
<PAGE>
Financial Highlights
- --------------------------------
Growth
Fund
[graphic: globe on square background]
For a Class B share outstanding throughout each period*:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MARCH 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Class B Per-Share Data
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
---------------------------------------------------------------------------------------
Class B Ratios/Supplemental Data
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%
</TABLE>
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
95
<PAGE>
Financial Highlights
- ------------------------
Growth
Fund
[graphic: globe on square background]
For a Class Y share outstanding throughout each period:*
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 29,
FOR THE FISCAL YEAR 1995** TO
ENDED MARCH 31, MARCH 31,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Class Y Per-Share Data
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
----------------------------------------------------------------------------
Class Y Ratios/Supplemental Data
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%***
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
96
<PAGE>
Financial Highlights
- --------------------------------
High
Income
Fund
[graphic: column on circle background]
For a Class B share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FOR THE
FISCAL PERIOD FROM
YEAR 7/31/97*
ENDED TO
3/31/99 3/31/98
Class B Per-Share Data
<S> <C> <C>
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:
Declared 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
-------------------------------------------------------------
Class B Ratios/Supplemental Data
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%
</TABLE>
*Commencement of operations.
**Annualized.
97
<PAGE>
Financial Highlights
- -----------------------
High
Income
Fund
[graphic: column on circle background]
For a Class Y share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
12/30/98*
TO
3/31/99
Class Y Per-Share Data
<S> <C>
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:
Declared from net investment income (0.20)
From capital gains (0.03)
----------------------------------------------------------
Total distributions (0.23)
----------------------------------------------------------
Net asset value, end of period $ 9.94
----------------------------------------------------------
Class Y Ratios/Supplemental Data
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%**
</TABLE>
*Commencement of operations.
**Annualized.
98
<PAGE>
Financial Highlights
- ------------------------
International
Growth
Fund*
[graphic: globe on square background]
For a Class B share outstanding throughout each period**:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MARCH 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Class B Per-Share Data
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
----------------------------------------------------------------------------------
Class B Ratios/Supplemental Data
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%
</TABLE>
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**On December 2, 1995, Fund shares outstanding were designated Class B shares.
99
<PAGE>
Financial Highlights
- --------------------------------
International
Growth
Fund
[graphic: globe on square background]
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 29,
FOR THE FISCAL YEAR 1995* TO
ENDED MARCH 31, MARCH 31,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Class Y Per-Share Data
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
-------------------------------------------------------------------------
Class Y Ratios/Supplemental Data
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%**
</TABLE>
*Commencement of operations.
**Annualized.
100
<PAGE>
Financial Highlights
- -----------------------------
Limited-Term
Bond
Fund
[graphic: column on circle background]
For a Class B share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MARCH 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Class B Per-Share Data
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:
Declared 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 (0.00) (0.45) (0.45) (0.41) (0.40)
---------------------------------------------------------------------------------
Net asset value, end
of period $ 10.16 $ 10.14 $ 9.90 $ 10.00 $ 9.70
---------------------------------------------------------------------------------
Class B Ratios/Supplemental Data
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%
</TABLE>
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
101
<PAGE>
Financial Highlights
- --------------------------------
Limited-Term
Bond
Fund
[graphic: column on circle background]
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 29,
FOR THE FISCAL YEAR 1995* TO
ENDED MARCH 31, MARCH 31,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Class Y Per-Share Data
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:
Declared 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
-------------------------------------------------------------------------
Class Y Ratios/Supplemental Data
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%**
</TABLE>
*Commencement of operations.
**Annualized.
102
<PAGE>
Financial Highlights
- --------------------------------
Municipal
Bond
Fund
[graphic: column on circle background]
For a Class B share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MARCH 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Class B Per-Share Data
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 (loss)
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:
Declared 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
---------------------------------------------------------------------------------
Class B Ratios/Supplemental Data
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%
</TABLE>
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
103
<PAGE>
Financial Highlights
- --------------------------
Municipal
Bond
Fund
[graphic: column on circle background]
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FOR THE FISCAL FOR THE
FROM PERIOD YEAR PERIOD FROM
12/30/98*** ENDED ENDED 12/29/95*
TO 3/31/99 6/23/97** 3/31/97 TO 3/31/96
Class Y Per-Share Data
<S> <C> <C> <C> <C>
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:
Declared 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
------------------------------------------------------------------------------------------------
Class Y Ratios/Supplemental Data
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%****
</TABLE>
*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.
104
<PAGE>
Financial Highlights
- --------------------------------
Science and Technology Fund
[graphic: globe on square background]
For a Class B share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD
FISCAL FROM
YEAR 7/31/97*
ENDED TO
3/31/99 3./31/98
<S> <C> <C>
Class B Per-Share Data
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
----------------------------------------------------------
Class B Ratios/Supplemental Data
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%
</TABLE>
*Commencement of operations.
**Annualized.
105
<PAGE>
Financial Highlights
- --------------------------------
Science and Technology Fund
[graphic: globe on square background]
For a Class Y share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
6/9/98*
TO
3/31/99
<S> <C>
Class Y Per-Share Data
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
---------------------------------------------------------
Class Y Ratios/Supplemental Data
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%**
</TABLE>
*Commencement of operations.
**Annualized.
106
<PAGE>
Financial Highlights
- --------------------------------
Total
Return
Fund
[graphic: globe on square background]
For a Class B share outstanding throughout each period*:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
MARCH 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Class B Per-Share Data
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 0.98 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)
---------------------------------------------------------------------------------------
Total distributions (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
---------------------------------------------------------------------------------------
Class B Ratios/Supplemental Data
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%
</TABLE>
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
107
<PAGE>
Financial Highlights
- --------------------------------
Total
Return
Fund
[graphic: globe on square background]
For a Class Y share outstanding throughout each period:*
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
DECEMBER 29,
FOR THE FISCAL YEAR 1995** TO
ENDED MARCH 31, MARCH 31,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Class Y Per-Share Data
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 0.02 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)
-------------------------------------------------------------------------
Total distributions (1.64) (0.39) (0.05) (0.00)
-------------------------------------------------------------------------
Net asset value, end
of period $ 11.78 $ 12.46 $ 9.18 $ 8.19
-------------------------------------------------------------------------
Class Y Ratios/Supplemental Data
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%***
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
108
<PAGE>
Waddell &
Reed
Funds, Inc.
[graphic: globe on square background]
[graphic: oakleaf and acorns on triangle background]
[graphic: column on circle background]
Custodian
UMB Bank, n.a.
Kansas City, Missouri
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts
Avenue, N.W.
Washington, D.C. 20036
Independent Auditors
Deloitte & Touche LLP
1010 Grand Avenue
Kansas City, Missouri
64106-2232
Investment Manager
Waddell & Reed Investment
Management Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Underwriter
Waddell & Reed, Inc.
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Shareholder Servicing Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Accounting Services Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
109
<PAGE>
Waddell & Reed, Inc.
[graphic: globe on square background]
[graphic: oakleaf and acorns on triangle background]
[graphic: column on circle background]
You can get more information about the Funds in--
- - the Statement of Additional Information (SAI) dated June 30, 1999, which
contains detailed information about each Fund, particularly the investment
policies and practices. You may not be aware of important information
about a Fund unless you read both the Prospectus and the SAI. The current
SAI is on file with the Securities and Exchange Commission (SEC) and it is
incorporated into this Prospectus by reference (that is, the SAI is
legally part of the Prospectus).
- - the Annual and Semiannual Reports to Shareholders, which detail each Fund's
actual investments and include financial statements as of the close of the
particular annual or semiannual period. The annual report also contains a
discussion of the market conditions and investment strategies that
significantly affected a Fund's performance during the year covered by the
report.
To request a copy of the current SAI or copies of the Funds' most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the
Fund or Waddell & Reed, Inc. at the address and telephone number below.
Information about the Funds (including the current SAI and most recent Annual
and Semiannual Reports) is available from the SEC's web site at
http://www.sec.gov and from the SEC's Public Reference Room in Washington, D.C.
You can find out about the operation of the Public Reference Room and
applicable copying charges by calling 1-800-SEC-0330.
The Funds' SEC file number is: 811-6569.
- --------------------------------------------------------------------------------
[Waddell & Reed Logo]
Waddell & Reed Funds, Inc.
6300 Lamar Avenue, P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000, (800) 366-5465
WRP3000(6-99)
<PAGE>
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
June 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the prospectus
("Prospectus") for the Class B shares and the Class Y shares of Waddell & Reed
Funds, Inc. (the "Corporation") dated June 30, 1999, which may be obtained from
the Corporation or its principal underwriter and distributor, Waddell & Reed,
Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Performance Information ........................................ 2
Investment Strategies, Policies and Practices................... 6
Investment Management and Other Services ....................... 41
Purchase, Redemption and Pricing of Shares ..................... 47
Directors and Officers ......................................... 55
Payments to Shareholders ....................................... 63
Taxes .......................................................... 64
Portfolio Transactions and Brokerage ........................... 70
Other Information .............................................. 73
Financial Statements ........................................... 75
Appendix A .....................................................
Waddell & Reed Funds, Inc. is a mutual fund; an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Corporation is an open-end, diversified management company organized as a
Maryland corporation on January 29, 1992.
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Corporation's principal underwriter and
distributor (the "Distributor"), or the Corporation may, from time to time,
publish for one or more of the eight Funds (each a "Fund" and collectively the
"Funds") total return information, yield information and/or performance rankings
in advertisements and sales materials.
Total Return
The total return is the overall change in the value of an investment
over a given period of time. An average annual total return quotation is
computed by finding the average annual compounded rates of return over the one-,
five-, and ten-year periods that would equate the initial amount invested to the
ending redeemable value. Total return is calculated by assuming an initial
$1,000 investment. Class B shares redeemed during the first four years after
their purchase may be subject to a contingent deferred sales charge (the
"deferred sales charge") in a maximum amount equal to 3%. See "Purchase,
Redemption and Pricing of Shares." The average annual total return quotations
for Class B shares reflect the imposition of the maximum applicable deferred
sales charge. All dividends and distributions are assumed to be reinvested in
shares of the applicable class at net asset value as of the day the dividend or
distribution is paid. No sales load is charged on reinvested dividends or
distributions on Class B shares. The formula used to calculate the average
annual total return for a particular class of a Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented that may
not reflect the deferred sales charge.
The average annual total return quotations for Class B shares of each
Fund with the maximum deferred sales charge deducted as of March 31, 1999, which
is the most recent balance sheet included in this SAI, for the periods shown
were as follows:
<TABLE>
<CAPTION>
One Year Period Five Year Period Period from
From 4-1-98 From 4-1-94 9-21-92* to
to 3-31-99 to 3-31-99 3-31-99
--------------- ---------------- -----------
<S> <C> <C> <C>
Asset Strategy Fund -1.15% 6.63%**
Growth Fund 18.61% 22.68% 23.80%
High Income Fund -4.48% 4.07%***
International Growth Fund 7.36% 15.80% 11.73%
Limited-Term Bond Fund 1.65% 5.07% 4.47%
Municipal Bond Fund 1.70% 6.92% 6.54%
Science and Technology Fund 42.30% 38.24%***
Total Return Fund 4.65% 18.07% 16.81%
</TABLE>
* Date of initial public offering
** For the period from April 20, 1995, the date of initial public offering, to
March 31, 1999.
*** For the period from July 31, 1997, the date of initial public offering, to
March 31, 1999.
The average annual total return quotations for the Class B shares of
each fund without the maximum deferred sales charge deducted as of March 31,
1999, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
<TABLE>
<CAPTION>
One Year Period Five Year Period Period from
From 4-1-98 From 4-1-94 9/21/92* to
to 3-31-99 to 3-31-99 3-31-99
--------------- ---------------- -----------
<S> <C> <C> <C>
Asset Strategy Fund 1.79% 6.84%**
Growth Fund 21.61% 22.68% 23.80%
High Income Fund -1.72% 5.81%***
International Growth Fund 10.36% 15.80% 11.73%
Limited-Term Bond Fund 4.65% 5.07% 4.47%
Municipal Bond Fund 4.64% 6.92% 6.54%
Science and Technology Fund 45.30% 39.69%***
Total Return Fund 7.47% 18.07% 16.81%
</TABLE>
* Date of initial public offering
** For the period from April 20, 1995, the date of initial public offering, to
March 31, 1999.
*** For the period from July 31, 1997, the date of initial public offering, to
March 31, 1999.
International Growth Fund (formerly Global Income Fund) changed its
name and investment objective effective April 20, 1995. Prior to this change,
this Fund's policies related to providing a high level of current income rather
than long-term appreciation.
Prior to December 2, 1995, the Funds offered only one class of shares
to the public. Shares of each Fund outstanding on that date were designated as
Class B shares. Since that date, Class Y shares of each of the Funds have been
available to certain institutional investors.
The average annual total return quotations for Class Y shares as of
March 31, 1999, which is the most recent balance sheet included in this SAI, for
the periods shown were as follows:
One Year Period Period from
From 4-1-98 inception* to
to 3-31-99 3-31-99
--------------- --------------
Asset Strategy Fund 2.75% 8.19%
Growth Fund 22.73% 21.96%
High Income Fund 2.45%
International Growth Fund 11.41% 23.00%
Limited-Term Bond Fund 5.60% 5.29%
Municipal Bond Fund 0.80%**
Science and Technology Fund 44.67%
Total Return Fund 8.37% 20.49%
* Each of these Funds (other than Municipal Bond Fund, Science and Technology
Fund and High Income Fund) commenced selling Class Y shares on December 29,
1995.
** For the period from December 30, 1998 through March 31, 1999.
High Income Fund commenced Class Y operations on December 30, 1998 and
Science and Technology Fund commenced Class Y operations on June 9, 1998.
Yield
Yield refers to the income generated by an investment in a Fund over a
given period of time. A yield quoted for a class of a Fund is computed by
dividing the net investment income per share of that class earned during the
period for which the yield is shown by the maximum offering price per share of
that class on the last day of that period according to the following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where, with respect to a particular class of a Fund:
: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares of the class
outstanding during the period that were entitled to
receive dividends.
d = the maximum offering price per share of the class on
the last day of the period.
The yields computed according to the formula for the 30-day period
ended on March 31, 1999, the date of the most recent balance sheet included in
this SAI, for Class B shares of each of Limited-Term Bond Fund and Municipal
Bond Fund are:
Limited-Term Bond Fund 4.60%
Municipal Bond Fund 4.15%
The yield computed according to the formula for the 30-day period ended
on March 31, 1999, the date of the most recent balance sheet included in this
SAI, for Class Y shares of Limited-Term Bond Fund is:
Limited-Term Bond Fund 5.47%
Municipal Bond Fund 4.40%
Municipal Bond Fund may also advertise or include in sales materials
its tax equivalent yield, which is calculated by applying the stated income tax
rate to only the net investment income exempt from taxation according to a
standard formula which provides for computation of tax equivalent yield by
dividing that portion of the Fund's yield which is tax-exempt by one minus a
stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt.
The tax equivalent yield for Class B shares of Municipal Bond Fund
computed according to the formula for the 30-day period ended on March 31, 1999,
the date of the most recent balance sheet included in this SAI, is 4.87%, 5.73%,
5.98%, 6.44% and 6.82% for marginal tax brackets of 15%, 28%, 31%, 36% and
39.6%, respectively. The tax equivalent yield for Class Y shares of Municipal
Bond Fund computed according to the formula for the 30-day period ended on March
31, 1999, the date of the most recent balance sheet included in this SAI, is
5.17%, 6.09%, 6.35%, 6.84% and 7.24% for marginal tax brackets of 15%, 28%, 31%,
36% and 39.6%, respectively.
Changes in yields primarily reflect different interest rates received
by a Fund as its portfolio securities change. Yield is also affected by
portfolio quality, portfolio maturity, type of securities held and operating
expenses. Yield quotations for Class B shares do not reflect the imposition of
the deferred sales charge described above. If such deferred sales charge imposed
at the time of redemption was reflected, it would reduce the performance quoted.
Non-standardized performance information may also be presented.
Performance Rankings
The Distributor or the Corporation also may from time to time publish
for one or more of the eight Funds in advertisements or sales material
performance rankings as published by recognized independent mutual fund
statistical services such as Lipper Analytical Services, Inc., or by
publications of general interest such as Forbes, Money, The Wall Street Journal,
Business Week, Barron's, Fortune or Morningstar Mutual Fund Values. Each class
of a Fund may also compare its performance to that of other selected mutual
funds or selected recognized market indicators such as the Standard & Poor's 500
Composite Stock Price Index and the Dow Jones Industrial Average. Performance
information may be quoted numerically or presented in a table, graph or other
illustration. In connection with a ranking, a Fund may provide additional
information, such as the particular category to which it related, the number of
funds in the category, the criteria upon which the ranking is based, and the
effect of sales charges, fee waivers and/or expense reimbursements.
All performance information that a Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a Fund's shares when redeemed may be more or less
than their original cost.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and policies
the Funds' investment manager, Waddell & Reed Investment Management Company
("WRIMCO"), may employ and the types of instruments in which a Fund may invest,
in pursuit of a Fund's goal(s). A summary of the risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques, or use them to the full extent permitted by a Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help a Fund achieve its goal. See "Investment
Restrictions and Limitations" for a listing of the fundamental and
non-fundamental (e.g., operating) investment restrictions and policies of each
Fund.
Asset Allocation
Asset Strategy Fund allocates its assets among the following classes,
or types, of investments:
The short-term class includes all types of domestic and foreign
securities and money market instruments with remaining maturities of three years
or less. WRIMCO will seek to maximize total return within the short-term asset
class by taking advantage of yield differentials between different instruments,
issuers, and currencies. Short-term instruments may include corporate debt
securities, such as commercial paper and notes; government securities issued by
U.S. or foreign governments or their agencies or instrumentalities; bank
deposits and other financial institution obligations; repurchase agreements
involving any type of security; and other similar short-term instruments. These
instruments may be denominated in U.S. dollars or foreign currency.
The bond class includes all varieties of domestic and foreign
fixed-income securities with maturities greater than three years. WRIMCO seeks
to maximize total return within the bond class by adjusting Asset Strategy
Fund's investments in securities with different credit qualities, maturities,
and coupon or dividend rates, and by seeking to take advantage of yield
differentials between securities. Securities in this class may include bonds,
notes, adjustable-rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government agency
securities, zero coupon bonds, and other intermediate and long-term securities.
As with the short-term class, these securities may be denominated in U.S.
dollars or foreign currency. Asset Strategy Fund may not invest more than 35% of
its total assets in lower quality, high-yielding debt securities.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks, which are included in the
bond class). WRIMCO seeks to maximize total return within this asset class by
actively allocating assets to industry sectors expected to benefit from major
trends, and to individual stocks that WRIMCO believes to have superior growth
potential. Securities in the stock class may include common stocks, fixed-rate
preferred stocks (including convertible preferred stocks), warrants, rights,
depositary receipts, securities of closed-end investment companies, and other
equity securities issued by companies of any size, located anywhere in the
world.
WRIMCO seeks to take advantage of yield differentials by considering
the purchase or sale of instruments when differentials on spreads between
various grades and maturities of such instruments approach extreme levels
relative to long-term norms.
In making asset allocation decisions, WRIMCO typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.
Securities - General
The main types of securities in which the Funds may invest include
common stock, preferred stock, debt securities and convertible securities.
Although common stocks and other equity securities have a history of long-term
growth in value, their prices tend to fluctuate in the short term, particularly
those of smaller companies. A Fund may invest in preferred stock that is rated
by an established rating service or, if unrated, judged by WRIMCO to be of
equivalent quality. Debt securities have varying levels of sensitivity to
changes in interest rates and varying degrees of quality. As a general matter,
however, when interest rates rise, the values of fixed-rate securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt rise.
Similarly, long-term bonds are generally more sensitive to interest rate changes
than shorter-term bonds.
Lower quality debt securities (commonly called "junk bonds") are
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than high-quality securities and may decline
significantly in periods of general economic difficulty. The market for
lower-rated debt securities may be thinner and less active than that for
higher-rated debt securities, which can adversely affect the prices at which the
former are sold. Adverse publicity and changing investor perceptions may
decrease the values and liquidity of lower-rated debt securities, especially in
a thinly traded market. Valuation becomes more difficult and judgment plays a
greater role in valuing lower-rated debt securities than with respect to
securities for which more external sources of quotations and last sale
information are available. Since the risk of default is higher for lower-rated
debt securities, WRIMCO's research and credit analysis are an especially
important part of managing securities of this type held by a Fund. WRIMCO
continuously monitors the issuers of lower-rated debt securities in a Fund's
portfolio in an attempt to determine if the issuers will have sufficient cash
flow and profits to meet required principal and interest payments. A Fund may
choose, at its expense or in conjunction with others, to pursue litigation or
otherwise exercise its rights as a security holder to seek to protect the
interests of security holders if it determines this to be in the best interest
of the Fund's shareholders.
A Fund may invest in debt securities rated in any rating category of
the established rating services, including securities rated in the lowest
category (such as those rated D by Standard & Poor's ("S&P") and C by Moody's
Investor Services, Inc. ("MIS")). Debt securities rated D by S&P or C by MIS are
in payment default or are regarded as having extremely poor prospects of ever
attaining any real investment standing. Debt securities rated at least BBB by
S&P or Baa by MIS are considered to be investment grade debt securities.
Securities rated BBB or Baa may have speculative characteristics. In addition, a
Fund will treat unrated securities judged by WRIMCO to be of equivalent quality
to a rated security having that rating.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with credit ratings.
Credit ratings evaluate the safety of principal and interest payments, not
market value risk. Credit ratings for individual securities may change from time
to time, and a Fund may retain a portfolio security whose rating has been
changed.
Each of the Funds (other than Municipal Bond Fund) may purchase debt
securities whose principal amount at maturity is dependent upon the performance
of a specified equity security. The issuer of such debt securities, typically an
investment banking firm, is unaffiliated with the issuer of the equity security
to whose performance the debt security is linked. Equity-linked debt securities
differ from ordinary debt securities in that the principal amount received at
maturity is not fixed, but is based on the price of the linked equity security
at the time the debt security matures. The performance of equity-linked debt
securities depends primarily on the performance of the linked equity security
and may also be influenced by interest rate changes. In addition, although the
debt securities are typically adjusted for diluting events such as stock splits,
stock dividends and certain other events affecting the market value of the
linked equity security, the debt securities are not adjusted for subsequent
issuances of the linked equity security for cash. Such an issuance could
adversely affect the price of the debt security. In addition to the equity risk
relating to the linked equity security, such debt securities are also subject to
credit risk with regard to the issuer of the debt security. In general, however,
such debt securities are less volatile than the equity securities to which they
are linked.
Certain of the Funds may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or different issuer within a particular period of time
at a specified price or formula. Convertible securities generally have higher
yields than common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in the
value that the underlying stock because they have fixed income characteristics,
and provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in
interest rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer and
other factors also may have an effect on the convertible security's investment
value.
Each of the Funds (other than Municipal Bond Fund) may also invest in a
type of convertible preferred stock that pays a cumulative, fixed dividend that
is senior to, and expected to be in excess of, the dividends paid on the common
stock of the issuer. At the mandatory conversion date, the preferred stock is
converted into not more than one share of the issuer's common stock at the "call
price" that was established at the time the preferred stock was issued. If the
price per share of the related common stock on the mandatory conversion date is
less than the call price, the holder of the preferred stock will nonetheless
receive only one share of common stock for each share of preferred stock (plus
cash in the amount of any accrued but unpaid dividends). At any time prior to
the mandatory conversion date, the issuer may redeem the preferred stock upon
issuing to the holder a number of shares of common stock equal to the call price
of the preferred stock in effect on the date of redemption divided by the market
value of the common stock, with such market value typically determined one or
two trading days prior to the date notice of redemption is given. The issuer
must also pay the holder of the preferred stock cash in an amount equal to any
accrued but unpaid dividends on the preferred stock. This convertible preferred
stock is subject to the same market risk as the common stock of the issuer,
except to the extent that such risk is mitigated by the higher dividend paid on
the preferred stock. The opportunity for equity appreciation afforded by an
investment in such convertible preferred stock, however, is limited, because in
the event the market value of the issuer's common stock increases to or above
the call price of the preferred stock, the issuer may (and would be expected to)
call the preferred stock for redemption at the call price. This convertible
preferred stock is also subject to credit risk with regard to the ability of the
issuer to pay the dividend established upon issuance of the preferred stock.
Generally, convertible preferred stock is less volatile than the related common
stock of the issuer.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities") are high quality debt
instruments issued or guaranteed as to principal or interest by the U.S.
Treasury or an agency or instrumentality of the U.S. Government. These
securities include Treasury Bills (which mature within one year of the date they
are issued), Treasury Notes (which have maturities of one to ten years) and
Treasury Bonds (which generally have maturities of more than 10 years). All such
Treasury securities are backed by the full faith and credit of the United
States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Fannie Mae (formerly, the Federal National Mortgage Association), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation, and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by Fannie Mae, are supported only by
the credit of the instrumentality and by a pool of mortgage assets. If the
securities are not backed by the full faith and credit of the United States, the
owner of the securities must look principally to the agency issuing the
obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. Limited-Term Bond Fund will invest in securities of agencies and
instrumentalities only if WRIMCO is satisfied that the credit risk involved is
acceptable.
U.S. Government securities may include mortgage-backed securities
issued by U.S. Government agencies or instrumentalities including, but not
limited to, Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed
securities include "pass-through" securities, "participation certificates" and
collateralized mortgage obligations. See "Mortgage-Backed and Asset-Backed
Securities." Timely payment of principal and interest on Ginnie Mae
pass-throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government,
but their obligations are not backed by the full faith and credit of the United
States. It is possible that the availability and the marketability (i.e.,
liquidity) of the securities discussed in this section could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit.
Money Market Instruments
Money market instruments are high-quality, short-term debt instruments
that present minimal credit risk. They may include U.S. Government securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit and other financial institution obligations. These instruments may carry
fixed or variable interest rates.
Zero Coupon Securities
Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or that specify a
future date when the securities begin to pay current interest; instead, they are
sold at a deep discount from their face value and are redeemed at face value
when they mature. Because zero coupon securities do not pay current income,
their prices can be very volatile when interest rates change and generally are
subject to greater price fluctuations in response to changing interest rates
than prices of comparable maturities that make current distributions of interest
in cash.
A Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). The Federal tax
law requires that a holder of a security with OID accrue a ratable portion of
the OID on the security as income each year, even though the holder may receive
no interest payment on the security during the year. Accordingly, although a
Fund will receive no payments on its zero coupon securities prior to their
maturity or disposition, it will have current income attributable to those
securities and includable in the dividends paid to its shareholders. Those
dividends will be paid from a Fund's cash assets or by liquidation of portfolio
securities, if necessary, at a time when the Fund otherwise might not have done
so.
A broker-dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
A Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury security and selling them as
individual securities. Bonds issued by the Resolution Funding Corporation
(REFCORP) and the Financing Corporation (FICO) can also be separated in this
fashion. Original issue zeros are zero coupon securities originally issued by
the U.S.
Government, a government agency, or a corporation in zero coupon form.
Municipal Bonds
Municipal bonds are issued by a wide range of state and local
governments, agencies and authorities for various purposes. The two main kinds
of municipal bonds are general obligation bonds and revenue bonds. In general
obligation bonds, the issuer has pledged its full faith, credit and taxing power
for the payment of principal and interest. Revenue bonds are payable only from
specific sources; these may include revenues from a particular facility or class
of facilities or special tax or other revenue source.
A special class of bonds issued by state and local government
authorities and agencies are industrial development bonds. Only those industrial
development bonds the interest on which is free from Federal income taxation
(although it may be an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT")) will be considered municipal bonds. In general,
industrial development bonds are revenue bonds and are issued by or on behalf of
public authorities to obtain funds to finance privately operated facilities.
They generally depend for their credit quality on the credit standing of the
company involved. Such entities and persons should consult with their tax
advisers before investing in Municipal Bond Fund.
Municipal leases and participation interests therein are another
specific type of municipal bond. The factors that WRIMCO considers in
determining whether or not any rated municipal lease obligations are liquid
include the following: (i) the frequency of trades and quotes for the
obligations; (ii) the number of dealers willing to purchase or sell the security
and the number of other potential buyers; (iii) the willingness of dealers to
undertake to make a market in the securities; (iv) the nature of marketplace
trades, including the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer; (v) the likelihood that the
marketability of the obligation will be maintained through the time the
instrument is held; (vi) the credit quality of the issuer and the lessee; and
(vii) the essentiality to the lessee of the property covered by the lease.
Unrated municipal lease obligations are considered illiquid. These obligations,
which may take the form of a lease, an installment purchase, or a conditional
sale contract, are issued by state and local governments and authorities to
acquire land and a variety of equipment and facilities. The Funds have not held
and do not intend to hold such obligations directly as a lessor of the property,
but may from time to time purchase a participation interest in a municipal
obligation from a bank or other third party. A participation interest gives a
Fund a specified, undivided interest in the obligation in proportion to its
purchased interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated
with general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt,
including voter referenda, interest rate limits or public sale requirements.
Leases, installment purchases or conditional sale contracts have evolved as a
means for governmental issuers to acquire property and equipment without being
required to meet these constitutional and statutory requirements. Many leases
and contracts include "non-appropriation clauses" providing that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the legislative body
on a yearly or other periodic basis. Non-appropriation clauses free the issuer
from debt issuance limitations. In determining the liquidity of a municipal
lease obligation, WRIMCO will differentiate between direct interests in
municipal leases and municipal lease-backed securities, the latter of which may
take the form of a lease-backed revenue bond, a tax-exempt asset-backed security
or any other investment structure using a municipal lease-purchased agreement as
its base. While the former may present liquidity issues, the latter are based on
a well established method of securing payment of a municipal lease obligation.
WRIMCO and the Funds rely on the opinion of bond counsel for the issuer
in determining whether obligations are municipal bonds. If a court should hold
that an obligation held by Municipal Bond Fund is not a municipal bond (i.e.,
that the interest thereon is taxable), Municipal Bond Fund will sell the
obligation as soon as possible, but it might incur a loss upon such sale.
With respect to ratings of municipal bonds (see Appendix A to this
SAI), now or in the future, S&P, or MIS may use different rating designations
for municipal bonds depending on their maturities on issuance or other
characteristics. For example, MIS currently rates the top four categories of
"municipal notes" (i.e., municipal bonds generally with a maturity at the time
of issuance ranging from six months to three years) as MIG 1, MIG 2, MIG 3 and
MIG 4. A Fund is not required to dispose of any municipal bond if its rating
falls below the rating required for its purchase, nor does such a fall in rating
affect the amount of unrated municipal bonds that a Fund may buy.
Mortgage-Backed and Asset-Backed Securities
Mortgage-Backed Securities. Mortgage-backed securities represent direct
or indirect participations in, or are secured by and payable from, mortgage
loans secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are collectively referred to
in this SAI as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of the
payments that investors receive, as well as the priority of their rights to
receive payments, are determined by the specific terms of the CMO class.
The U.S. Government mortgage-backed securities in which the Funds may
invest include mortgage-backed securities issued or guaranteed as to the payment
of principal and interest (but not as to market value) by Ginnie Mae, Fannie Mae
or Freddie Mac. Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and special
purpose entities. Payments of principal and interest (but not the market value)
of such private mortgage-backed securities may be supported by pools of mortgage
loans or other mortgage-backed securities that are guaranteed, directly or
indirectly, by the U.S. Government or one of its agencies or instrumentalities,
or they may be issued without any government guarantee of the underlying
mortgage assets but with some form of non-government credit enhancement. These
credit enhancements do not protect investors from changes in market value.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities are created when a U.S. Government agency or a financial institution
separates the interest and principal components of a mortgage-backed security
and sells them as individual securities. The holder of the "principal-only"
security ("PO") receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only" security
("IO") receives interest payments from the same underlying security.
For example, interest-only ("IO") classes are entitled to receive all
or a portion of the interest, but none (or only a nominal amount) of the
principal payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest allocable to the IO class, and therefore the yield
to investors, generally will be reduced. In some instances, an investor in an IO
may fail to recoup all of the investor's initial investment, even if the
security is government guaranteed or considered to be of the highest quality.
Conversely, principal-only ("PO") classes are entitled to receive all or a
portion of the principal payments, but none of the interest, from the underlying
mortgage assets. PO classes are purchased at substantial discounts from par, and
the yield to investors will be reduced if principal payments are slower than
expected. IOs, POs and other CMOs involve special risks, and evaluating them
requires special knowledge.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed above.
However, the underlying assets are not first lien mortgage loans or interests
therein, but include assets such as motor vehicle installment sales contracts,
other installment sale contracts, home equity loans, leases of various types of
real and personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts or special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to a certain amount and for a certain time period by a letter of
credit or pool insurance policy issued by a financial institution unaffiliated
with the issuer, or other credit enhancements may be present. The value of
asset-backed securities may also depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the financial
institution providing the credit enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed Securities.
The yield characteristics of mortgage-backed and asset-backed securities differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a pool
of mortgage loans are influenced by a variety of economic, geographic, social
and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are likely to experience
substantial prepayments. Such securities, however, often provide that for a
specified time period the issuers will replace receivables in the pool that are
repaid with comparable obligations. If the issuer is unable to do so, repayment
of principal on the asset-backed securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the
mortgage-backed securities, and this delay reduces the effective yield to the
holder of such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools of
fixed-rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Changes in the rate or "speed" of these payments can
cause the value of the mortgage backed securities to fluctuate rapidly. However,
these effects may not be present, or may differ in degree, if the mortgage loans
in the pools have adjustable interest rates or other special payment terms, such
as a prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically structured in a
manner that provides any of a wide variety of investment characteristics, such
as yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
reduced. These changes can result in volatility in the market value and in some
instances reduced liquidity, of the CMO class.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and may carry
rights that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial intermediaries on
dates prior to their stated maturities. Floating rate securities have interest
rates that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in the
interest rate. These formulas are designed to result in a market value for the
instrument that approximates its par value. Each Fund may invest in variable and
floating rate instruments as long as WRIMCO determines that it is consistent
with the Fund's goal(s) and investment policies.
Bank Deposits
Among the debt securities in which the Funds may invest are deposits in
banks (represented by certificates of deposit or other evidence of deposit
issued by such banks) of varying maturities. The Federal Deposit Insurance
Corporation insures the principal of certain such deposits, currently to the
extent of $100,000 per bank. Bank deposits are not marketable, and a Fund may
invest in them only within the limit mentioned under "Illiquid Investments"
unless such obligations are payable at principal amount plus accrued interest on
demand or within seven days after demand.
Indexed Securities
Each Fund (other than Municipal Bond Fund) may purchase securities the
value of which varies in relation to the value of other securities, securities
indices, currencies, precious metals or other commodities, or other financial
indicators, subject to its operating policy regarding derivative instruments.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. The performance of indexed securities depends to a
great extent on the performance of the security, currency or other instrument to
which they are indexed and may also be influenced by interest rate changes in
the United States and abroad. At the same time, indexed securities are subject
to the credit risks associated with the issuer of the security and their values
may decline substantially if the issuer's creditworthiness deteriorates. Indexed
securities may be more volatile than the underlying investments. Gold-indexed
securities, for example, typically provide for a maturity value that depends on
the price of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are short-term
to intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations,
and certain U.S. Government agencies. WRIMCO will use its judgment in
determining whether indexed securities should be treated as short-term
instruments, bonds, stocks, or as a separate asset class for purposes of Asset
Strategy Fund's investment allocations, depending on the individual
characteristics of the securities. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Loans and Other Direct Debt Instruments
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to a
Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating service. If a Fund does not receive scheduled interest or principal
payments on such indebtedness, the Fund's share price and yield could be
adversely affected. Loans that are fully secured offer a Fund more protections
than an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or that the
collateral could be liquidated. Indebtedness of borrowers whose creditworthiness
is poor involves substantially greater risks, and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of developing countries also involves a risk that the governmental
entities responsible for the repayment of the debt may be unable, or unwilling,
to pay interest and principal when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks to a
Fund. For example, if a loan is foreclosed, a Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. Direct debt instruments may also involve a risk
of insolvency of the lending bank or other intermediary. Direct debt instruments
that are not in the form of securities may offer less legal protection to a Fund
in the event of fraud or misrepresentation. In the absence of definitive
regulatory guidance, a Fund relies on WRIMCO's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect the Fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation and
could suffer a loss of principal or interest.
Investments in direct debt instruments may entail less legal protection
for a Fund. Direct indebtedness purchased by a Fund may include letters of
credit, revolving credit facilities, or other standby financing commitments
obligating a Fund to pay additional cash on demand. These commitments may have
the effect of requiring a Fund to increase its investment in a borrower at a
time when it would not otherwise have done so, even if the borrower's condition
makes it unlikely that the amount will ever be repaid. A Fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
potential obligations under standby financing commitments. Other types of direct
debt instruments, such as loans through direct assignment of a financial
institution's interest with respect to a loan, may involve additional risks to a
Fund. For example, if a loan is foreclosed, the Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral.
For purposes of the limitations on the amount of total assets that a
Fund will invest in any one issuer or in issuers within the same industry, a
Fund generally will treat the borrower as the "issuer" of indebtedness held by
the Fund. In the case of loan participations where a bank or other lending
institution serves as financial intermediary between a Fund and the borrower, if
the participation does not shift to the Fund the direct debtor-creditor
relationship with the borrower, Securities and Exchange Commission ("SEC")
interpretations require the Fund, in appropriate circumstances, to treat both
the lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict a Fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Foreign Securities and Currencies
International Growth Fund, Asset Strategy Fund, Total Return Fund,
Growth Fund, Science and Technology Fund and High Income Fund may purchase
securities of foreign issuers, including depositary receipts, subject to the
restrictions described in the Prospectus and this SAI. Limited-Term Bond Fund
and Municipal Bond Fund may not invest in foreign securities.
In general, depositary receipts are securities convertible into and
evidencing ownership of securities of foreign corporate issuers, although
depositary receipts may not necessarily be denominated in the same currency as
the securities into which they may be converted. American depositary receipts,
in registered form, are dollar-denominated receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities.
International depositary receipts and European depositary receipts, in bearer
form, are foreign receipts evidencing a similar arrangement and are designed for
use by non-U.S. investors and traders in non-U.S. markets. Global depositary
receipts are designed to facilitate the trading of foreign issuers by U.S. and
non-U.S. investors and traders.
WRIMCO believes that there are investment opportunities as well as
risks in investing in foreign securities. Individual foreign economies may
differ favorably or unfavorably from the U.S. economy or each other in such
matters as gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Individual foreign
companies may also differ favorably or unfavorably from domestic companies in
the same industry. Foreign currencies may be stronger or weaker than the U.S.
dollar or than each other. Thus, the value of securities denominated in or
indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. WRIMCO believes that ability to invest
assets abroad might enable a Fund to take advantage of these differences and
strengths where they are favorable.
However, foreign securities and foreign currencies involve additional
significant risks, apart from the risks inherent in U.S. investments. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial conditions and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be greater possibility of
default by foreign governments or government-sponsored enterprises. Investments
in foreign countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
These is no assurance that WRIMCO will be able to anticipate these potential
events or counter their effects.
The considerations noted above generally are intensified in developing
countries. A developing country is a nation that, in WRIMCO's opinion, is likely
to experience long-term gross domestic product growth above that expected to
occur in the United States, the United Kingdom, France, Germany, Italy, Japan
and Canada. Developing countries may have relatively unstable governments,
economies based on only a few industries and securities markets that trade a
small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Each of the Funds (other than Limited-Term Bond Fund and Municipal Bond
Fund) may purchase and sell foreign currency and invest in foreign currency
deposits, and may enter into forward currency contracts, as described in the
Prospectus and this SAI. Each of those Funds may incur a transaction charge in
connection with the exchange of currency. Currency conversion involves dealer
spreads and other costs, although commissions are not usually charged. See
"Options, Futures and Other Strategies - Forward Currency Contracts" below.
Restricted Securities
Restricted securities are securities that are subject to legal or
contractual restrictions on resale. However, restricted securities generally can
be sold in privately negotiated transactions, pursuant to an exemption from
registration under the Securities Act of 1933, as amended, or in a registered
public offering. Where registration is required, a Fund may be obligated to pay
all or part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, a Fund might
obtain a less favorable price than prevailed when it decided to seek
registration of the security.
There are risks associated with investment in restricted securities in
that there can be no assurance of a ready market for resale. Also, the
contractual restrictions on resale might prevent a Fund from reselling the
securities at a time when such sale would be desirable. Restricted securities in
which a Fund seeks to invest need not be listed or admitted to trading on a
foreign or domestic exchange and may be less liquid than listed securities.
Certain restricted securities, e.g., Rule 144A securities may be determined to
be liquid in accordance with guidelines adopted by the Board of Directors.
See "Illiquid Investments."
Lending Securities
Securities loans may be made by each Fund (except Municipal Bond Fund)
on a short-term or long-term basis for the purpose of increasing the Fund's
income. If a Fund lends securities, the borrower pays the Fund an amount equal
to the dividends or interest on the securities that the Fund would have received
if it had not lent the securities. The Fund also receives additional
compensation. Each of the Funds makes loans of its securities only to parties
deemed by WRIMCO to be creditworthy.
Any securities loan that a Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). Under the
present Guidelines, the collateral must consist of cash, U.S. Government
securities or bank letters of credit, at least equal in value to the market
value of the securities lent on each day that the loan is outstanding. If the
market value of the lent securities exceeds the value of the collateral, the
borrower must add more collateral so that it at least equals the market value of
the securities lent. If the market value of the securities decreases, the
borrower is entitled to the return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for a Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that a Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities), entered
into at the request of the borrower and for its account and risk, under which
the banks are obligated to pay to the Fund, while the letter is in effect,
amounts demanded by the Fund if the demand meets the terms of the letter. The
Fund's right to make this demand secures the borrower's obligations to it. The
terms of any such letters and the creditworthiness of the banks providing them
(which might include the Fund's custodian bank) must be satisfactory to the
Fund. Under the Funds' current securities lending procedures, a Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. A Fund will make loans only under rules of the New York Stock
Exchange ("NYSE"), which presently require the borrower to return the securities
to the Fund within five business days after the Fund gives notice to do so. If a
Fund loses its voting rights on securities loaned, it will have the securities
returned to it in time to vote them if a material event affecting the investment
is to be voted on. A Fund may pay reasonable finder's, administrative and
custodian fees in connection with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, risks of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to (i) whom securities may be loaned, (ii) the investment of cash collateral, or
(iii) voting rights.
Repurchase Agreements
Each of the Funds may purchase securities subject to repurchase
agreements subject to its limitation on investment in illiquid investments. See
"Illiquid Investments." A repurchase agreement is an instrument under which a
Fund purchases a security and the seller (normally a commercial bank or
broker-dealer) agrees, at the time of purchase, that it will repurchase the
security at a specified time and price. The amount by which the resale price is
greater than the purchase price reflects an agreed-upon market interest rate
effective for the period of the agreement. The return on the securities subject
to the repurchase agreement may be more or less than the return on the
repurchase agreement.
The majority of the repurchase agreements in which a Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that a
Fund may suffer a loss if the seller fails to pay the agreed-upon amount on the
delivery date and that amount is greater than the resale price of the underlying
securities and other collateral held by the Fund. In the event of bankruptcy or
other default by the seller, there may be possible delays and expenses in
liquidating the underlying securities or other collateral, decline in their
value and loss of interest. The return on such collateral may be more or less
than that from the repurchase agreement. The Funds' repurchase agreements will
be structured so as to fully collateralize the loans. In other words, the value
of the underlying securities, which will be held by the Fund's custodian bank or
by a third party that qualifies as a custodian under Section 17(f) of the
Investment Company Act of 1940, as amended (the "1940 Act"), is and, during the
entire term of the agreement, will remain at least equal to the value of the
loan, including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Board of Directors.
Warrants and Rights
Warrants are options to purchase equity securities at a specified price
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends, and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
When-Issued and Delayed-Delivery Transactions
Each Fund may purchase any securities in which it may invest on a
when-issued or delayed-delivery basis or sell them on a delayed-delivery basis.
In either case payment and delivery for the securities takes place at a future
date. The securities so purchased or sold by a Fund are subject to market
fluctuation; their value may be less or more when delivered than the purchase
price paid or received. When purchasing securities on a when issued or
delayed-delivery basis, a Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. No interest accrues to a
Fund until delivery and payment is completed. When a Fund makes a commitment to
purchase securities on a when-issued or delayed-delivery basis, it will record
the transaction and thereafter reflect the value of the securities in
determining its net asset value per share. When a Fund sells a security on a
delayed-delivery basis, the Fund does not participate in further gains or losses
with respect to the security. When a Fund makes a commitment to sell securities
on a delayed-delivery basis, it will record the transaction and thereafter value
the securities at the sales price in determining the Fund's net asset value per
share. If the other party to a delayed-delivery transaction fails to deliver or
pay for the securities, a Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Ordinarily a Fund purchases securities on a when-issued or
delayed-delivery basis with the intention of actually taking delivery of the
securities. However, before the securities are delivered to the Fund and before
it has paid for them (the "settlement date"), the Fund could sell the securities
if WRIMCO decided it was advisable to do so for investment reasons. The Fund
will hold aside or segregate cash or other securities, other than those
purchased on a when-issued or delayed-delivery basis, at least equal to the
amount it will have to pay on the settlement date; these other securities may,
however, be sold at or before the settlement date to pay the purchase price of
the when-issued or delayed-delivery securities.
Investment Company Securities
Certain of the Funds may purchase securities of closed-end investment
companies. As a shareholder in an investment company, a Fund would bear its pro
rata share of that investment company's expenses, which could result in
duplication of certain fees, including management and administrative fees.
Precious Metals
The ability of Asset Strategy Fund to purchase and hold precious metals
such as gold, silver and platinum may allow it to benefit from a potential
increase in the price of precious metals or stability in the price of such
metals at a time when the value of securities may be declining. For example,
during periods of declining stock prices, the price of gold may increase or
remain stable, while the value of the stock market may be subject to a general
decline.
Precious metals prices are affected by various factors, such as
economic conditions, political events and monetary policies. As a result, the
price of gold, silver or platinum may fluctuate widely. The sole source of
return to Asset Strategy Fund from such investments will be gains realized in
sales; a negative return will be realized if the metal is sold at a loss.
Investments in precious metals do not provide a yield. Asset Strategy Fund's
direct investment in precious metals may be limited by tax considerations. See
"Taxes" below for a more detailed discussion of the tax implications of
investments in Precious metals.
Illiquid Investments
Illiquid investments are investments that cannot be sold or otherwise
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Investments currently
considered to be illiquid include:
(i) repurchase agreements not terminable within seven days;
(ii) securities for which market quotations are not readily
available;
(iii) over-the-counter ("OTC") options and their underlying
collateral;
(iv) bank deposits, unless they are payable at principal amount
plus accrued interest on demand or within seven days after
demand;
(v) restricted securities not determined to be liquid pursuant to
guidelines established by the Board of Directors;
(vi) securities involved in swap, cap, collar and floor
transactions;
(vii) non-government stripped fixed-rate mortgage-backed securities;
and
(viii) direct debt instruments.
The assets used as cover for OTC options written by a Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
If through a change in values, net assets, or other circumstances, each
Fund (except Asset Strategy Fund) were in a position where more than 10% (15%
for Asset Strategy Fund) of its net assets were invested in illiquid securities,
it would seek to take appropriate steps to protect liquidity.
Options, Futures and Other Strategies
General. WRIMCO may use certain options, futures contracts (sometimes
referred to as "futures"), options on futures contracts, forward currency
contracts, swaps, caps, collars, floors, indexed securities and other derivative
instruments (collectively "Financial Instruments") to attempt to enhance a
Fund's income or yield or to attempt to hedge a Fund's investments. The
strategies described below may be used in an attempt to manage a Fund's foreign
currency exposure, if applicable, as well as other risks of the Fund's
investments that can affect fluctuation in its net asset value.
Generally, a Fund may purchase and sell any type of Financial
Instrument. However, as an operating policy, a Fund will only purchase or sell a
particular Financial Instrument if the Fund is authorized to invest in the type
of asset by which the return on, or value of, the Financial Instrument is
primarily measured or, with respect to foreign currency derivatives, if the Fund
is authorized to invest in foreign securities.
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held in a Fund's portfolio. Thus, in a short hedge, a Fund
takes a position in a Financial Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that a Fund intends to acquire.
Thus, in a long hedge, a Fund takes a position in a Financial Instrument whose
price is expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, a Fund does not own a
corresponding security and, therefore, the transaction does not relate to a
security the Fund owns. Rather, it relates to a security that the Fund intends
to acquire. If a Fund does not complete the hedge by purchasing the security it
anticipated purchasing, the effect on the Fund's portfolio is the same as if the
transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a Fund owns or intends to acquire. Financial Instruments on indices, in
contrast, generally are used to attempt to hedge against price movements in
market sectors in which a Fund has invested or expects to invest. Financial
Instruments on debt securities may be used to hedge either individual securities
or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations
of the SEC, the several exchanges upon which they are traded and the Commodity
Futures Trading Commission (the "CFTC"). In addition, a Fund's ability to use
Financial Instruments will be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below,
WRIMCO expects to discover additional opportunities in connection with Financial
Instruments and other similar or related techniques. These new opportunities may
become available as WRIMCO develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new Financial Instruments or
other techniques are developed. WRIMCO may utilize these opportunities to the
extent that they are consistent with a Fund's goal(s) and permitted by a Fund's
investment limitations and applicable regulatory authorities. A Fund might not
use any of these strategies, and there can be no assurance that any strategy
used will succeed. The Funds' Prospectus or SAI will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. In general these
techniques may increase the volatility of a Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed and use of Financial Instruments could result in a loss,
regardless of whether the intent was to reduce risk or increase return.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of the
investments being hedged. For example, if the value of a Financial Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match a Fund's current or anticipated investments exactly. A Fund may
invest in options and futures contracts based on securities with different
issuers, maturities or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Fund entered into a short hedge because WRIMCO projected a decline in the price
of a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not attempted to hedge at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Fund sell a portfolio
security at a disadvantageous time.
(5) A Fund's ability to close out a position in a Financial Instrument
prior to expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of the
other party to the transaction (the "counterparty") to enter into a transaction
closing out the position. Therefore, there is no assurance that any position can
be closed out at a time and price that is favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. A Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or forward contracts, or (2) cash and liquid assets with a value,
marked-to-market daily, sufficient to cover its potential obligations to the
extent not covered as provided in (1) above. Each Fund will comply with SEC
guidelines regarding cover for these instruments and will, if the guidelines so
require, set aside cash or liquid assets in an account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover or accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon price
during the option period. A put option gives the purchaser the right to sell,
and obligates the writer to buy, the underlying investment at the agreed-upon
price during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract.
The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call options
can enable a Fund to enhance income or yield by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price of the option,
minus the premium received, the Fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security or currency at less than its market value. If
the call option is an OTC option, the securities or other assets used as cover
would be considered illiquid to the extent described under "Illiquid
Investments."
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a Fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
A type of put that a Fund may purchase is an "optional delivery standby
commitment," which is entered into by parties selling debt securities to the
Fund. An optional delivery standby commitment gives a Fund the right to sell the
security back to the seller on specified terms. This right is provided as an
inducement to purchase the security.
Risks of Options on Securities. Options offer large amounts of
leverage, which will result in a Fund's net asset value being more sensitive to
changes in the value of the related instrument. A Fund may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a Fund purchases an OTC option,
it relies on the counterparty from whom it purchased the option to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by the
Fund as well as the loss of any expected benefit of the transaction.
A Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. However,
there can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the counterparty, or by a transaction in the secondary market if any such
market exists. However, there can be no assurance that a Fund will in fact be
able to close out an OTC option position at a favorable price prior to
expiration. In the event of insolvency of the counterparty, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
If a Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Options on Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When a Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple ("multiplier"),
which determines the total dollar value for each point of such difference. When
a Fund buys a call on an index, it pays a premium and has the same rights as to
such call as are indicated above. When a Fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's exercise of the put, to deliver to the Fund an
amount of cash if the closing level of the index upon which the put is based is
less than the exercise price of the put, which amount of cash is determined by
the multiplier, as described above for calls. When a Fund writes a put on an
index, it receives a premium and the purchaser of the put has the right, prior
to the expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the index and the exercise
price times the multiplier if the closing level is less than the exercise price.
Risks of Options on Indices. The risks of investment in options on
indices may be greater than options on securities. Because index options are
settled in cash, when a Fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. The Fund can offset some of the risk of writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, the Fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, a Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size and
strike price, the terms of OTC options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows a Fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
Generally, OTC foreign currency options used by a Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies can be used to manage the average
duration of a Fund's fixed-income portfolio. If WRIMCO wishes to shorten the
average duration of a Fund's fixed-income portfolio, the Fund may sell a debt
futures contract or a call option thereon, or purchase a put option on that
futures contract. If WRIMCO wishes to lengthen the average duration of a Fund's
fixed-income portfolio, the Fund may buy a debt futures contract or a call
option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions in
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary market.
However, there can be no assurance that a liquid secondary market will exist for
a particular contract at a particular time. In such event, it may not be
possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous day's settlement price; once that
limit is reached, no trades may be made that day at a price beyond the limit.
Daily price limits do not limit potential losses because prices could move to
the daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the futures contract or option or to maintain liquid
assets in an account.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to differences in the natures of those markets, are subject to the
following factors, which may create distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationships between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate, currency exchange rate or stock market trends by WRIMCO may still
not result in a successful transaction. WRIMCO may be incorrect in its
expectations as to the extent of various interest rate, currency exchange rate
or stock market movements or the time span within which the movements take
place.
Index Futures. The risk of imperfect correlation between movements in
the price of an index future and movements in the price of the securities that
are the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index futures may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, a Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where a Fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before a Fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the Fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
Operating Policy. To the extent that a Fund enters into futures
contracts, options on futures contracts or options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money" at the time of purchase) will not exceed 5% of the liquidation
value of that Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into. (In general, a
call option on a futures contract is "in-the-money" if the value of the
underlying futures contract exceeds the strike, i.e., exercise, price of the
call; a put option on a futures contract is "in-the-money" if the value of the
underlying futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of a Fund's assets that are at risk
in futures contracts, options on futures contracts and currency options.
Foreign Currency Hedging Strategies--Special Considerations. Each Fund
(other than Limited-Term Bond Fund and Municipal Bond Fund) may use options and
futures contracts on foreign currencies (including the Euro), as described
above, and foreign currency forward contracts, as described below, to attempt to
hedge against movements in the values of the foreign currencies in which the
Fund's securities are denominated or to attempt to enhance income or yield.
Currency hedges can protect against price movements in a security that a Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.
Each of these Funds might seek to hedge against changes in the value of
a particular currency when no Financial Instruments on that currency are
available or such Financial Instruments are more expensive than certain other
Financial Instruments. In such cases, a Fund may seek to hedge against price
movements in that currency by entering into transactions using Financial
Instruments on another currency or a basket of currencies, the values of which
WRIMCO believes will have a high degree of positive correlation to the value of
the currency being hedged. The risk that movements in the price of the Financial
Instrument will not correlate perfectly with movements in the price of the
currency subject to the hedging transaction is magnified when this strategy is
used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, a Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
a Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. Each Fund (other than Limited-Term Bond
Fund and Municipal Bond Fund) may enter into forward currency contracts to
purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days (term) from the date of the forward currency contract agreed upon
by the parties, at a price set at the time of the forward currency contract.
These forward currency contracts are traded directly between currency traders
(usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, a Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that a Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security, dividend or
interest payment denominated in a foreign currency.
Each of these Funds may also use forward contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if a Fund owned securities denominated in Euros, it could enter
into a forward currency contract to sell Euros in return for U.S. dollars to
hedge against possible declines in the Euro's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. Each of these Funds could also hedge the position by
selling another currency expected to perform similarly to the Euro. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency exposure
as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
Each of these Funds also may use forward currency contracts to attempt
to enhance income or yield. A Fund could use forward currency contracts to
increase its exposure to foreign currencies that WRIMCO believes might rise in
value relative to the U.S. dollar, or shift its exposure to foreign currency
fluctuations from one country to another. For example, if a Fund owned
securities denominated in a foreign currency and WRIMCO believed that currency
would decline relative to another currency, it might enter into a forward
currency contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second foreign currency.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, a Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
foreign currency or to maintain cash or liquid assets in an account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, WRIMCO believes that it is
important to have the flexibility to enter into such forward currency contracts
when it determines that the best interests of a Fund will be served.
Successful use of forward currency contracts depends on WRIMCO's skill
in analyzing and predicting currency values. Forward currency contracts may
substantially change a Fund's exposure to changes in currency exchange rates and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to a Fund or that WRIMCO will hedge at an
appropriate time.
Combined Positions. A Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of its overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Turnover. A Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by a Fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate. Once
a Fund has received an exercise notice on an option it has written, it cannot
effect a closing transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by a Fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
the Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.
Swaps, Caps, Collars and Floors. A Fund may enter into swaps, caps,
collars and floors to preserve a return or a spread on a particular investment
or portion of its portfolio, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date or to attempt to
enhance yield. Swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed-rate payments. The purchase of a cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
value, to receive payments on a notional principal amount from the party selling
the cap. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar combines
elements of buying a cap and selling a floor.
Swap agreements, including caps, collars and floors, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their structure,
swap agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield because, and to the extent, these
agreements affect a Fund's exposure to long- or short-term interest rates (in
the United States or abroad), foreign currency values, mortgage-backed security
values, corporate borrowing rates, or other factors such as security prices or
inflation rates.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agrees to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options.
The creditworthiness of firms with which a Fund enters into swaps, caps
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Corporation's Board of Directors. If a firm's creditworthiness declines, the
value of the agreement would be likely to decline, potentially resulting in
losses. If a default occurs by the other party to such transaction, a Fund will
have contractual remedies pursuant to the agreements related to the transaction.
The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the Fund's
custodian that satisfies the requirements of the 1940 Act. Each Fund will also
establish and maintain such account with respect to its total obligations under
any swaps that are not entered into on a net basis and with respect to any caps
or floors that are written by the Fund. WRIMCO and the Funds believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions. The Corporation understands that the position of the SEC is that
assets involved in swap transactions are illiquid and are, therefore, subject to
the limitations on investing in illiquid securities.
Investment Restrictions and Limitations
Certain of the Funds' investment restrictions and other limitations are
described in this SAI. The following are each Fund's fundamental investment
restrictions set forth in their entirety, which, like each Fund's goal(s),
cannot be changed without shareholder approval for the affected Fund. For this
purpose, shareholder approval means the approval, at a meeting of Fund
shareholders, by the lesser of (1) the holders of 67% or more of a Fund's shares
represented at the meeting, if more than 50% of the Fund's outstanding shares
are present in person or by proxy or (2) more than 50% of the Fund's outstanding
shares. If a percentage restriction is adhered to at the time of an investment
or transaction, later changes in percentage resulting from a change in value of
portfolio securities or amount of total assets will not be considered a
violation of the restriction.
(i) Total Return Fund, Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund, Science and
Technology Fund and High Income Fund may not buy real estate,
any nonliquid interests in real estate investment trusts or
interests in real estate limited partnerships; however, each
of these Funds may buy obligations or instruments that it
otherwise may buy even though the issuer invests in real
estate or interests in real estate. Asset Strategy Fund may
not invest in real estate limited partnerships or purchase or
sell real estate unless acquired as a result of ownership of
securities (but this shall not prevent this Fund from
purchasing and selling securities issued by companies or other
entities or investment vehicles that deal in real estate or
interests therein, nor shall this prevent this Fund from
purchasing interests in pools of real estate mortgage loans);
(ii) Total Return Fund, Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund, High Income
Fund and Science and Technology Fund may not acquire shares of
an investment company that issues redeemable securities. Total
Return Fund, Growth Fund, International Growth Fund, High
Income Fund and Science and Technology Fund may buy shares of
an investment company that does not issue redeemable
securities if the Fund does so in a regular transaction in the
open market and in compliance with the requirements of the
1940 Act. Notwithstanding the foregoing, each of these Funds
may also acquire investment company shares as part of a
merger, consolidation or other reorganization;
(iii) Total Return Fund, Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund, High Income
Fund and Science and Technology Fund may not lend money or
other assets, other than through certain limited types of
loans; however, each of these Funds may buy debt securities
and other obligations consistent with its goal and its other
investment policies and restrictions, may enter into
repurchase agreements and, except Municipal Bond Fund, may
lend its portfolio securities to the extent allowed, and in
accordance with the requirements under, the 1940 Act. Asset
Strategy Fund may not make loans, except (a) by lending
portfolio securities to the extent allowed, and in accordance
with the requirements under, the 1940 Act; (b) through the
purchase of debt securities and other obligations consistent
with its goal and its other investment policies and
restrictions; and (c) by engaging in repurchase agreements
with respect to portfolio securities;
(iv) No Fund may invest for the purpose of exercising control or
management of another issuer;
(v) No Fund may sell securities short (unless it owns or has the
right to obtain securities equivalent in kind and amount to
the securities sold short) or purchase securities on margin,
except that (1) this policy does not prevent a Fund from
entering into short positions in foreign currency, futures
contracts, options, forward contracts, swaps, caps, collars,
floors and other financial instruments, (2) a Fund may obtain
such short-term credits as are necessary for the clearance of
transactions, and (3) a Fund may make margin payments in
connection with futures contracts, options, forward contracts,
swaps, caps, collars, floors and other financial instruments;
(vi) No Fund may engage in the underwriting of securities of other
issuers, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed an
underwriter under Federal securities laws;
(vii) No Fund may invest in a security if, as a result, it would own
more than 10% of the outstanding voting securities of an
issuer, or if more than 5% of the Fund's total assets would be
invested in securities of that issuer, provided that U.S.
Government securities are not subject to this limitation and
up to 25% of the Fund's total assets may be invested without
regard to these restrictions;
(viii) No Fund (other than Science and Technology Fund) may buy a
security if, as a result, 25% or more of the Fund's total
assets would then be invested in securities of issuers having
their principal business activities in the same industry,
except for municipal bonds (other than industrial development
bonds) and U.S. Government securities;
(ix) Municipal Bond Fund may not purchase warrants;
(x) Total Return Fund, Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund, High Income
Fund and Science and Technology Fund may not purchase or sell
physical commodities; however, this policy does not prevent
these Funds from purchasing and selling foreign currency,
futures contracts, options, forward contracts, swaps, caps,
collars, floors and other financial instruments. Asset
Strategy Fund may not purchase or sell physical commodities,
except that this Fund may purchase and sell precious metals
for temporary, defensive purposes; however, this policy shall
not prevent this Fund from purchasing and selling foreign
currency, futures contracts, options, forward contracts,
swaps, caps, collars, floors and other financial instruments;
(xi) Total Return Fund, Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund, High Income
Fund and Science and Technology Fund may not issue senior
securities. Asset Strategy Fund may not issue bonds or any
other class of securities preferred over shares of the Fund in
respect of the Fund's assets or earnings, provided that this
Fund may issue additional series and classes of shares in
accordance with its Articles of Incorporation;
Total Return Fund, Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund, Science and
Technology Fund and High Income Fund may not borrow money,
except that these Funds may borrow money (and pledge assets in
connection therewith) from banks for temporary, extraordinary
or emergency purposes but only up to 5% of their respective
assets. Asset Strategy Fund may not borrow money, except that
this Fund may borrow money for emergency or extraordinary
purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of its total assets (less
liabilities other than borrowings). Any borrowings that come
to exceed 33 1/3% of the value of Asset Strategy Fund's total
assets by reason of a decline in net assets will be reduced
within three days to the extent necessary to comply with the
33 1/3% limitation. For purposes of this limitation, "three
days" means three days, exclusive of Sundays and holidays;
(xii) Total Return Fund, Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund and High Income
Fund may not invest in interests in oil, gas or mineral leases
or mineral development programs, including oil and gas limited
partnerships; and
(xiii) At least 80% of Municipal Bond Fund's net assets will be
invested during normal market conditions in municipal bonds.
For purposes of applying restriction (vii) there may be a question as
to who is the "issuer" of municipal bonds. For example, municipal bonds may be
created by a particular government but be backed only by the assets and revenues
of a subdivision of that government such as an agency, instrumentality,
authority or other subdivision. In such case, such subdivision would be
considered the "issuer" for the purposes of the 5% restriction. In the case of
industrial development bonds, the nongovernmental user of facilities financed by
them is also considered as a separate "issuer." This restriction does not apply
to U.S. Government securities. The method of determining who is an "issuer" may
be changed without shareholder vote. In applying this 5% restriction, the same
standards apply as set forth above for determining who is an "issuer;" however,
it also considers for the purpose of this 5% restriction that a guarantee by a
government or other entity of a municipal bond is a separate security that would
be given a value and included in the 5% restriction if the value of all
municipal bonds created by the government or entity and owned by a Fund should
exceed 10% of the value of its total assets.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder approval:
(i) At least 65% of Growth Fund's and International Growth Fund's
respective assets will be invested during normal market
conditions in growth securities.
(ii) During normal market conditions, at least 80% of International
Growth Fund's assets will be invested in foreign securities
and at least 65% of its assets will be invested in at least
three different countries outside the United States.
International Growth Fund may not purchase a foreign security
if, as a result of such purchase, more than 75% of its assets
would be invested in issuers of any one foreign country.
International Growth Fund will not invest more than 25% of its
total assets in securities issued by the government of any one
foreign country.
(iii) During normal market conditions, Science and Technology Fund
will not invest in any securities other than science
securities or technology securities if, as a result, more than
20% of its total assets would be invested in such other
securities.
(iv) At least 65% of High Income Fund's total assets will be
invested during normal market conditions to seek a high level
of current income. High Income Portfolio will not purchase a
common stock if, as a result, more than 20% of its total
assets would be invested in common stocks. This 20% limit
includes common stocks acquired on conversion of convertible
securities, on exercise of warrants or call options or in any
other voluntary manner. The Fund does not currently intend to
invest more than 10% of its total assets in
non-dividend-paying common stocks.
(v) At least 80% of Municipal Bond Fund's assets will consist of
municipal bonds of investment grade. Municipal Bond Fund does
not intend to invest more than 50% of its assets in industrial
development bonds. Up to 10% of Municipal Bond Fund's assets
may be invested in debt securities other than municipal bonds.
Municipal Bond Fund will have less than 25% of its assets in
securities of issuers located in any single state.
(vi) At least 65% of Limited-Term Bond Fund's total assets will be
invested during normal market conditions in bonds, and at 65%
of Municipal Bond Fund's total assets will be invested during
normal market conditions in bonds exclusive of other municipal
debt obligations.
(vii) Each of Growth Fund, International Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund, Science and Technology
Portfolio Fund, and Total Return Fund does not currently
intend to invest in non-investment grade debt securities if,
as a result, more than 5% of its assets would consist of such
investments. Asset Strategy Fund may not invest more than 35%
of its total assets in non-investment grade debt securities
and unrated securities judged by WRIMCO to be of equivalent
quality. Limited-Term Bond Fund does not currently intend to
invest more than 50% of its assets in securities rated in the
lowest tier of investment grade debt securities (those rated
BBB by S&P or Baa by MIS).
(viii) Asset Strategy Fund currently intends to limit its investments
in foreign securities, under normal market conditions, to no
more than 50% of its total assets and to limit its investments
in obligations of any single foreign government to less than
25% of its total assets.
(ix) Each of Total Return Fund and Growth Fund may invest up to 10%
of its net assets, and Science and Technology Fund may invest
up to 20% of its net assets, in foreign securities. High
Income Fund will not invest more than 25% of its total assets
in securities issued by any single foreign government.
Limited-Term Bond Fund and Municipal Bond Fund may not invest
in foreign securities.
(x) Asset Strategy Fund, Limited-Term Bond Fund and Municipal Bond
Fund do not currently intend to invest more than 5% of their
respective total assets in when-issued and delayed delivery
transactions.
(xi) Each Fund may not purchase a security if, as a result, more
than 10% (15% for Asset Strategy Fund) of its net assets would
consist of illiquid investments.
(xii) High Income Fund and Science and Technology Fund do not
currently intend to invest more than 5% of their respective
assets in the shares of investment companies. Asset Strategy
Fund does not currently intend to purchase shares of
investment companies that do not redeem their shares except in
a regular transaction in the open market where no commission
except ordinary broker's commission is paid and if, as a
result, no more than 10% of its total assets would be invested
in such securities. Asset Strategy Portfolio does not
currently intend to purchase shares of open-end investment
companies. These limitations do not apply to securities
received by Asset Strategy Fund as dividends, through offers
of exchange, or as a result of a reorganization, consolidation
or merger.
(xiii) No Fund (other than Growth Fund and Science and Technology
Fund) may invest in the securities of any issuer if, as a
result, more than 5% of its total assets would be invested in
the securities of business enterprises that, including
predecessors, have a record of less than three years of
continuous operation. This restriction does not apply to any
obligations issued or guaranteed by the U.S. government or a
state or local government authority, or their respective
instrumentalities, or to CMOs, other mortgage-related
securities, asset-backed securities, indexed securities or OTC
derivative instruments.
(xiv) Asset Strategy Fund may borrow money only from a bank. Asset
Strategy Fund will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding.
(xv) Asset Strategy Fund does not currently intend to lend assets
other than securities to other parties, except by acquiring
loans, loan participations, or other forms of direct debt
instruments. (This limitation does not apply to purchases of
debt securities and other obligations or to repurchase
agreements.)
(xvi) Asset Strategy Fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year and
dividing it by the monthly average of the market value of such securities during
the year, excluding certain short-term securities. A Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The portfolio turnover rates for the fiscal years ended March 31, 1999
and 1998 for each of the Funds then in existence were as follows:
1999 1998
----- ----
Asset Strategy Fund 168.17% 220.67%
Growth Fund 51.41% 33.46%
High Income Fund 50.98% 67.82%
International Growth Fund 116.25% 105.11%
Limited-Term Bond Fund 32.11% 27.37%
Municipal Bond Fund 41.53% 27.86%
Science and Technology Fund 51.00% 26.64%
Total Return Fund 54.73% 36.94%
The portfolio turnover rate for the common stock portion of Asset
Strategy Fund's portfolio for the fiscal year ended March 31, 1999 was 356.79%;
the rate for the remainder of the portfolio was 73.22%.
Science and Technology Fund and High Income Fund commenced operations
on July 31, 1997.
A high turnover rate will increase transaction costs and commission
costs that will be borne by the Funds and could generate taxable income or loss.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Corporation has an Investment Management Agreement (the "Management
Agreement") with WRIMCO. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Funds and provide investment advice to the
Funds. The address of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. (the
"Distributor") is the Corporation's principal underwriter and distributor.
The Management Agreement permits WRIMCO or an affiliate of WRIMCO to
enter into a separate agreement for transfer agency services (the "Shareholder
Servicing Agreement") and a separate agreement for accounting services (the
"Accounting Services Agreement") with the Corporation. The Management Agreement
contains detailed provisions as to the matters to be considered by the
Corporation's Board of Directors prior to approving any Shareholder Servicing
Agreement or Accounting Services Agreement.
Waddell & Reed Financial, Inc.
WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly
owned subsidiary of Waddell & Reed Financial, Inc., a publicly held company. The
address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to Target/United Funds, Inc. since that
fund's inception, until January 8, 1992, when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for United Asset Strategy
Fund, Inc. since it commenced operations in March 1995. Waddell & Reed, Inc.
serves as principal underwriter for the Funds, the investment companies in the
United Group of Mutual Funds and acts as principal underwriter and distributor
for variable life insurance and variable annuity policies issued by United
Investors Life Insurance Company for which Target/United Funds, Inc. is the
underlying investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Corporation and Waddell & Reed Services Company (the "Agent"), a subsidiary of
the Distributor, the Agent performs shareholder servicing functions, including
the maintenance of shareholder accounts, the issuance, transfer and redemption
of shares, distribution of dividends and payment of redemptions, the furnishing
of related information to the Corporation and handling of shareholder inquiries.
A new Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the
Corporation and the Agent, the Agent provides the Corporation with bookkeeping
and accounting services and assistance, including maintenance of the
Corporation's records, pricing of the Corporation's shares, and preparation of
prospectuses for existing shareholders, proxy statements and certain reports. A
new Accounting Services Agreement, or amendments to an existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Payments for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus. The management
fees paid to WRIMCO during the fiscal years ended March 31, 1999, 1998 and 1997
for each of the Funds then in existence were as follows:
1999 1998 1997
---- ----- ----
Asset Strategy Fund $ 201,083 $ 127,507 $ 116,390
Growth Fund 2,846,036 2,041,002 1,904,258
High Income Fund 123,728 24,352*
International Growth Fund 725,596 553,692 251,914
Limited-Term Bond Fund 107,424 101,985 108,389
Municipal Bond Fund 226,707 216,501 200,636
Science and Technology Fund 130,141 17,585*
Total Return Fund 3,391,371 2,837,414 1,886,789
*For the period from 7/31/97, the date of initial public offering, to 3/31/98.
For purposes of calculating the daily fee, the Corporation does not
include money owed to it by the Distributor for shares which it has sold but not
yet paid to the Corporation. The Corporation accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class B
shares, each Fund pays the Agent a monthly fee of $1.3125 for each shareholder
account that was in existence at any time during the prior month, plus $0.30 for
each account on which a dividend or distribution, of cash or shares, had a
record date in that month. For Class Y shares, each Fund pays the Agent a
monthly fee equal to one-twelfth of .15 of 1% of the average daily net assets of
that class for the preceding month. Each Fund also pays certain out-of-pocket
expenses of the Agent, including long distance telephone communications costs;
microfilm and storage costs for certain documents; forms, printing and mailing
costs; and costs of legal and special services not provided by the Distributor,
WRIMCO or the Agent.
Under the Accounting Services Agreement, each Fund pays the Agent a
monthly fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------- ------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent during the fiscal years ended March 31, 1999,
1998 and 1997 for each of the Funds then in existence were as follows:
1999 1998 1997
---- ----- ----
Asset Strategy Fund 15,000 10,000 10,000
High Income Fund 10,000 833*
Growth Fund 54,167 49,167 50,000
International Growth Fund 30,000 30,000 17,500
Limited-Term Bond Fund 10,000 10,000 10,000
Municipal Bond Fund 20,000 20,000 20,000
Science and Technology Fund 10,833 2,972*
Total Return Fund 60,000 59,167 50,000
*For the period 7/31/97, the date of initial public offering, to 3-31-98.
Because the Corporation pays a management fee for investment
supervision and an accounting services fee for accounting services as discussed
above, WRIMCO and the Agent, respectively, pay all of their own expenses in
providing these services. Amounts paid by the Corporation under the Shareholder
Servicing Agreement are described above. The Distributor and its affiliates pay
the Corporation's Directors and officers who are affiliated with the Distributor
and its affiliates. The Corporation pays the fees and expenses of the
Corporation's other Directors.
The Corporation pays all of its other expenses. These include, for each
Fund, the costs of materials sent to shareholders, audit and outside legal fees,
taxes, brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Corporation under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Distribution Arrangement
The Distributor acts as principal underwriter and distributor of the
Corporation's shares pursuant to an underwriting agreement (the "Underwriting
Agreement"). The Underwriting Agreement requires the Distributor to use its best
efforts to sell the shares of the Corporation but is not exclusive, and permits
and recognizes that the Distributor also distributes shares of other investment
companies and other securities. Shares are sold on a continuous basis.
Under a Distribution and Service Plan for the Class B shares (the
"Class B Plan") adopted by the Corporation pursuant to Rule 12b-1 under the 1940
Act, the Corporation, with respect to each Fund, pays the Distributor daily a
distribution fee not to exceed, on an annual basis, 0.75% of the particular
Fund's Class B net asset value and a service fee not to exceed, on an annual
basis, 0.25% of the particular Fund's Class B net asset value. Under a
Distribution and Service Plan for Class Y shares (the "Class Y Plan") adopted by
the Corporation pursuant to Rule 12b-1, with respect to each Fund, the
Corporation pays the Distributor daily a distribution and/or service fee not to
exceed, on an annual basis, 0.25% of the particular Fund's Class Y net asset
value.
The Distributor offers the Corporation's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
contemplated for Class B shares, to make distribution of shares also through
other broker-dealers. In distributing shares through its sales force, the
Distributor will pay commissions and incentives to the sales force at or about
the time of sale and will incur other expenses including costs for prospectuses,
sales literature, advertisements, sales office maintenance, processing of orders
and general overhead with respect to its efforts to distribute the Corporation's
shares. The Class B Plan, the Class Y Plan and the Underwriting Agreement
contemplate that the Distributor may be compensated for these Class B-related
distribution efforts through the distribution fee.
The sales force may be paid continuing compensation based on the value
of the shares held by shareholders to whom the member of the sales force is
assigned to provide personal services, and the Distributor or its subsidiary,
Waddell & Reed Services Company, may also provide services to shareholders
through telephonic means and written communications. For the fiscal year ended
March 31, 1999, the Corporation paid (or accrued) the following amounts to the
Distributor as distribution fees and service fees under the Class B Plan for
each of the Funds: Total Return Fund - $3,579,703 and $1,201,998; Growth Fund -
$2,628,139 and $886,048; Limited-Term Bond Fund - $142,615 and $47,963;
Municipal Bond Fund - $304,226 and $101,556; International Growth Fund -
$669,749 and $224,783; Asset Strategy Fund - $184,962 and $61,504; Science and
Technology Fund - $138,798 and $46,968; and High Income Fund - $141,552 and
$47,649. For the fiscal year ended March 31, 1999, the Corporation paid (or
accrued) the following amounts to the Distributor as distribution fees and
service fees under the Class Y Plan for each of the Funds: Total Return Fund -
$2,844; Growth Fund - $3,986; Limited-Term Bond Fund - $550; Municipal Bond Fund
- - $1; International Growth Fund - $1,292; Asset Strategy Fund - $666; Science
and Technology Fund - $12; and High Income Fund - $3. The distribution fees were
paid to compensate the Distributor for its expenses relating to sales force
compensation, providing prospectuses and sales literature to prospective
investors, advertising, sales processing, field office expenses and home office
sales management in connection with the distribution of Class B and/or Class Y
shares of a Fund. The service fees were paid to compensate the Distributor for
providing personal services to the particular Fund's Class B and/or Class Y
shareholders and for the maintenance of Class B and/or Class Y accounts.
The only Directors or interested persons, as defined in the 1940 Act,
of the Corporation who have a direct or indirect financial interest in the
operation of a Plan are the officers and Directors who are also officers of
either Waddell & Reed, Inc. or its affiliate(s) or who are shareholders of
Waddell & Reed Financial, Inc., the indirect parent company of Waddell & Reed,
Inc. Each Plan is anticipated to benefit the applicable Fund and its
shareholders affected by the particular Plan through Waddell & Reed, Inc.'s
activities not only to distribute the affected shares of the Fund but also to
provide personal services to shareholders of the affected class and thereby
promote the maintenance of their accounts with the Fund. Each Fund anticipates
that shareholders of a particular class may benefit to the extent that Waddell &
Reed's activities are successful in increasing the assets of that Fund class,
through increased sales or reduced redemptions, or a combination of these, and
reducing a shareholder's share of Fund and class expenses. Increased Fund assets
may also provide greater resources with which to pursue the goal of a Fund.
Further, continuing sales of Fund shares may also reduce the likelihood that it
will be necessary to liquidate portfolio securities, in amounts or at times that
may be disadvantageous to a Fund, to meet redemption demands. In addition, each
Fund anticipates that the revenues from the Plan will provide Waddell & Reed,
Inc. with greater resources to make the financial commitments necessary to
continue to improve the quality and level of services to the Fund and its
affected shareholders.The Class B Plan, the Class Y Plan and the Underwriting
Agreement were approved by the Corporation's Board of Directors, including the
Directors who are not interested persons of the Corporation or of the
Distributor and who have no direct or indirect financial interest in the
operations of the Plan or any agreement referred to in the Plan (hereafter the
"Plan Directors"). Each Plan was also approved as to each Fund by the
Distributor as the sole shareholder of the affected shares of each of the Funds,
and classes thereof, at the time.
Among other things, the Plan for each class provides that (i) the
Distributor will submit to the Directors at least quarterly, and the Directors
will review, reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendments thereto are approved by the Directors including the Plan Directors
acting in person at a meeting called for that purpose, (iii) payments by the
Corporation under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the outstanding shares of that
class of each affected Fund, and (iv) while the Plan remains in effect, the
selection and nomination of the Directors who are Plan Directors shall be
committed to the discretion of the Plan Directors.
For the Corporation's fiscal year ended March 31, 1999, the Distributor
earned deferred sales charges from each of the Funds with respect to Class B
shares then in existence as follows: Total Return Fund - $685,398; Growth Fund -
$389,310; Limited-Term Bond Fund - $25,931; Municipal Bond Fund - $57,794;
International Growth Fund - $151,121; Asset Strategy Fund - $35,673; Science and
Technology Fund - $25,217; and High Income Fund - $41,890.
Custodial and Auditing Services
The custodian for each Fund is UMB Bank, n.a., Kansas City, Missouri.
In general, the custodian is responsible for holding each Fund's cash and
securities. Deloitte & Touche LLP, Kansas City, Missouri, the Funds' independent
auditors, audits the Corporation's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of a Fund is the value
of the assets of that class, less the liabilities of that class, divided by the
total number of shares outstanding of that class.
The offering price of a Class B or a Class Y share is its net asset
value next determined following acceptance of a purchase order. The number of
shares you receive for your purchase depends on the next offering price after
the Distributor receives and accepts your order at its principal business office
at the address shown on the cover of this SAI. You will be sent a confirmation
after your purchase which will indicate how many shares you have purchased.
Shares are normally issued for cash only.
The Distributor need not accept any purchase order, and it or the
Corporation may determine to discontinue offering Corporation shares for
purchase.
The net asset value per share is ordinarily computed once on each day
that the NYSE is open for trading as of the later of the close of the regular
session of the NYSE or the close of the regular session of any domestic
securities or commodities exchange on which an option or future held by a Fund
is traded. The NYSE annually announces the days on which it will not be open for
trading. The most recent announcement indicates that the NYSE will not be open
on the following days: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. However, it is possible that the NYSE may close on other
days. The net asset value changes every business day, since the value of the
assets and the number of shares outstanding changes every business day.
The securities in the portfolio of each Fund, except as otherwise
noted, that are listed or traded on a stock exchange, are valued on the basis of
the last sale on that day or, lacking any sales, at a price that is the mean
between the closing bid and asked prices. Other securities that are traded
over-the-counter are priced using The Nasdaq Stock Market, which provides
information on bid and asked prices quoted by major dealers in such stocks.
Bonds, other than convertible bonds, are generally valued using a third-party
pricing system. Convertible bonds are valued using this pricing system only on
days when there is no sale reported. Short-term debt securities are valued at
amortized cost, which approximates market. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith by or under the direction of the Board of Directors.
Foreign currency exchange rates are generally determined prior to the
close of trading of the regular session of the NYSE. Occasionally events
affecting the value of foreign investments and such exchange rates occur between
the time at which they are determined and the close of the regular session of
trading on the NYSE, which events will not be reflected in a computation of a
Fund's net asset value on that day. If events materially affecting the value of
such investments or currency exchange rates occur during such time period, the
investments will be valued at their fair value as determined in good faith by or
under the direction of the Board of Directors. The foreign currency exchange
transactions of a Fund conducted on a spot (i.e., cash) basis are valued at the
spot rate for purchasing or selling currency prevailing on the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to another.
Options and futures contracts purchased and held by a Fund are valued
at the last sales price thereof on the securities or commodities exchanges on
which they are traded, or, if there are no transactions, at the mean between bid
and asked prices. Ordinarily, the close of the regular session for option
trading on national securities exchanges is 4:10 p.m. Eastern time and the close
of the regular session for commodities exchanges is 4:15 p.m. Eastern time.
Futures contracts will be valued with reference to established futures
exchanges. The value of a futures contract purchased by a Fund will be either
the closing price of that contract or the bid price. Conversely, the value of a
futures contract sold by a Fund will be either the closing price or the asked
price.
When a Fund writes a put or call, an amount equal to the premium
received is included in the Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The deferred
credit is "marked-to-market" to reflect the current market value of the put or
call. If the call a Fund wrote is exercised, the proceeds received on the sale
of the related investment are increased by the amount of the premium the Fund
received. If a Fund exercised a call it purchased, the amount paid to purchase
the related investment is increased by the amount of the premium paid. If a put
written by a Fund is exercised, the amount that the Fund pays to purchase the
related investment is decreased by the amount of the premium it received. If a
Fund exercises a put it purchased, the amount the Fund receives from the sale of
the related investment is reduced by the amount of the premium it paid. If a put
or call written by a Fund expires, it has a gain in the amount of the premium;
if a Fund enters into a closing purchase transaction, it will have a gain or
loss depending on whether the premium was more or less than the cost of the
closing transaction.
Minimum Initial and Subsequent Investments
For Class B shares, initial investments must be at least $1,000 with
the exceptions described in this paragraph. A $100 minimum initial investment
pertains to exchanges of shares from one Fund to another Fund. A $50 minimum
initial investment pertains to purchases for certain retirement plan accounts
and to accounts for which an investor has arranged, at the time of initial
investment, to make subsequent purchases for the account by having regular
monthly withdrawals of $25 or more made from a bank account. A minimum initial
investment of $25 is applicable to purchases made through payroll deduction for
or by employees of WRIMCO, the Distributor, their affiliates or certain
retirement plan accounts. Except with respect to certain exchanges and automatic
withdrawals from a bank account, a shareholder may make subsequent investments
of any amount.
For Class Y shares, investments by government entities or authorities
or by corporations must total at least $1 million. There is no initial
investment minimum for other Class Y investors.
Flexible Withdrawal Service
If you qualify, you may arrange to receive through the Flexible
Withdrawal Service (the "Service") regular monthly, quarterly, semiannual or
annual payments by redeeming on an ongoing basis Class B shares. To qualify for
the Service, you must have invested at least $10,000 in Class B shares which you
still own of any of the Funds, or Class B shares of United Cash Management,
Inc., a fund in the United Group of Mutual Funds, or you must own Class B shares
having a value of at least $10,000. Applicable forms to start the Service are
available from Waddell & Reed, Inc.
The maximum amount of the withdrawal for monthly, quarterly, semiannual
and annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50. The Service, and this exclusion from
the deferred sales charge, does not apply to a one-time withdrawal.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to a
percentage of the value of the shares in your Account (you select the
percentage); or
3. a monthly or quarterly payment, which will change each month or
quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares ordinarily are redeemed on the 20th day of the month in which
the payment is to be made (or on the prior business day if the 20th is not a
business day). Payments are usually made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
The dividends and distributions on shares of a Fund that you have made
available for the Service are paid in additional Class B shares of that Fund.
All payments under the Service are made by redeeming Class B shares, which may
involve a gain or loss for tax purposes. To the extent that payments exceed
dividends and distributions, the number of Class B shares you own will decrease.
When all of the shares in your account are redeemed, you will not receive any
further payments. Thus, the payments are not an annuity or income or return on
your investment.
You may, at any time, change the manner in which you have chosen to
have shares redeemed to any of the other choices originally available to you.
Subject to the deferred sales charge, you may at any time redeem part or all of
the shares of a Fund in your account; if you redeem all of the shares, the
Service is terminated. The Fund can also terminate the Service by notifying you
in writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax return.
Exchange Privilege
Class B Share Exchanges
You may exchange Class B shares of one Fund of the Corporation for
Class B shares of another Fund of the Corporation, or for Class B shares of
United Cash Management, Inc., without charge.
The redemption of a Fund's Class B shares as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class A shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class B
shares of a Fund. The shares of United Cash Management, Inc. which you designate
must be worth at least $100, which may be allocated among different Funds so
long as each Fund receives a value of at least $25. Minimum initial investment
and minimum balance requirements apply to such service. These exchange and other
rights can in most instances be eliminated or modified at any time, upon notice
in certain circumstances, and any related request may not be accepted.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any
other Fund of the Corporation or for Class A shares of United Cash Management,
Inc.
General Exchange Information
The exchange will be made at the net asset values next determined after
receipt of your written request in good order by the Corporation. When you
exchange shares, the total shares you receive will have the same aggregate net
asset value as the total shares you exchange.
These exchange rights may be eliminated or modified at any time by the
Corporation, upon notice in certain circumstances.
Retirement Plans
As described in the Prospectus, your account may be set up as a funding
vehicle for a retirement plan. For individual taxpayers meeting certain
requirements, Waddell & Reed, Inc. offers model or prototype documents for the
following retirement plans. All of these plans involve investment in shares of
one or more of the Funds (other than Municipal Bond Fund).
Individual Retirement Accounts (IRAs). Investors having earned income
may set up a plan that is commonly called an IRA. Under a traditional IRA, an
investor can contribute each year up to 100% of his or her earned income, up to
an annual maximum of $2,000 (provided the investor has not reached age 70 1/2).
For a married couple, the annual maximum is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the taxable year, even if one
spouse had no earned income. Generally, the contributions are deductible unless
the investor (or, if married, either spouse) is an active participant in a
qualified retirement plan or if, notwithstanding that the investor or one or
both spouses so participate, their adjusted gross income does not exceed certain
levels. However, a married investor who is not an active participant, files
jointly with his or her spouse and whose combined adjusted gross income does not
exceed $150,000, is not affected by the spouse's active participant status.
An investor may also use a traditional IRA to receive a rollover
contribution that is either (a) a direct rollover distribution from an
employer's plan or (b) a rollover of an eligible distribution paid to the
investor from an employer's plan or another IRA. To the extent a rollover
contribution is made to a traditional IRA, the distribution will not be subject
to Federal income tax until distributed from the IRA. A direct rollover
generally applies to any distribution from an employer's plan (including a
custodial account under Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code"), but not an IRA) other than certain periodic payments,
required minimum distributions and other specified distributions. In a direct
rollover, the eligible rollover distribution is paid directly to the IRA, not to
the investor. If, instead, an investor receives payment of an eligible rollover
distribution, all or a portion of that distribution generally may be rolled over
to an IRA within 60 days after receipt of the distribution. Because mandatory
Federal income tax withholding applies to any eligible rollover distribution
which is not paid in a direct rollover, investors should consult their tax
advisers or pension consultants as to the applicable tax rules. If you already
have an IRA, you may have the assets in that IRA transferred directly to an IRA
offered by Waddell & Reed, Inc.
Roth IRAs. Investors whose adjusted gross income (or combined adjusted
gross income, if married) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for an investor
whose adjusted gross income does not exceed $100,000 (and who is not a married
person filing a separate return), certain distributions from traditional IRAs
may be rolled over to a Roth IRA and any of the investor's traditional IRAs may
be converted into a Roth IRA; these rollover distributions and conversions are,
however, subject to Federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject
to Federal income tax if the account has been held for at least five years and
the account holder has reached age 59 1/2 (or certain other conditions apply).
Education IRAs. Although not technically for retirement savings,
Education IRAs provide a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute to an
Education IRA, provided that no more than $500 may be contributed for any year
to Education IRAs for the same beneficiary. Contributions are not deductible and
may not be made after the beneficiary reaches age 18; however, earnings
accumulate tax-free, and withdrawals are not subject to tax if used to pay the
qualified higher education expenses of the beneficiary (or a member of his or
her family).
Simplified Employee Pension (SEP) plans. Employers can make
contributions to SEP-IRAs established for employees. An employer may contribute
up to 15% of compensation, or $24,000, whichever is less, per year for each
employee.
Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer
with 100 or fewer employees who does not sponsor another active retirement plan
may sponsor a SIMPLE to contribute to its employees' retirement accounts. A
SIMPLE plan can be funded by either an IRA or a 401(k) plan. In general, an
employer can choose to match employee contributions dollar-for-dollar
(generally, up to 3% of the employee's compensation) or may contribute to all
eligible employees 2% of their compensation, whether or not they defer salary to
their SIMPLE plans. SIMPLE plans involve fewer administrative requirements than
401(k) or other qualified plans generally.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit-sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government
or of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an
employee of a public school system or of certain types of charitable
organizations, he or she may be able to enter into a deferred compensation
arrangement through a custodian account under Section 403(b) of the Code. Some
organizations have adopted Title I plans, which are funded by employer
contributions in addition to employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms
are available from the Distributor. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures and
deferred sales charges. Redemption payments are made within seven days unless
delayed because of emergency conditions determined by the SEC, when the NYSE is
closed other than for weekends or holidays, or when trading on the NYSE is
restricted. Payment is made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities. Payment for redemptions of
shares of the Corporation may be made in portfolio securities when the
Corporation's Board of Directors determines that conditions exist making cash
payments undesirable. Redemptions made in securities will be made only in
readily marketable securities and the shareholder will incur commission or other
transaction charges in order to convert these securities into cash. Securities
used for payment of redemptions are valued at the value used in figuring net
asset value. The Corporation, however, has elected to be governed by Rule 18f-1
under the 1940 Act, pursuant to which it is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
As stated in the Prospectus for Class B shares, a deferred sales charge
is inapplicable in a variety of circumstances. The deferred sales charge is the
subject of an effective order of exemption issued by the staff of the SEC. For
purposes of determining application of the deferred sales charge, "employees"
include retired employees and "directors" includes retired directors. A retired
employee is an individual separated from service from the Distributor or any of
its affiliated companies with a vested interest in any employee benefit plan
sponsored by the Distributor or any of its affiliated companies. "Financial
advisors" includes retired financial advisors. A "retired financial advisor" is
any financial advisor who was, at the time of separation from service from the
Distributor, a Senior Financial Advisor. A custodian under the Uniform Gifts (or
Transfers) to Minors Act purchasing for the child of any employee or financial
advisor may redeem shares without a deferred sales charge whether or not the
custodian is an eligible purchaser.
Reinvestment Privilege
The Prospectus for Class B shares discusses the reinvestment privilege
for Class B shares under which you may reinvest in any one or more of the Funds
all or part of any amount of Class B shares you redeemed and have the
corresponding amount of the deferred sales charge, if any, which you paid
restored to your account by adding the amount of that charge to the amount you
are reinvesting. If Class B shares of a Fund are then being offered, you can put
all or part of your redemption payment back into the Class B shares of that Fund
at the net asset value next determined after you have returned the amount. Your
written request to do this must be received within 30 days after your
redemption. You can do this only once as to Class B shares of that Fund. For
purposes of determining future deferred sales charges, the reinvestment will be
treated as a new investment. You do not use up this privilege by redeeming Class
B shares to invest the proceeds at net asset value in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
Each of the Funds has the right to require the redemption of shares
held under any account or any plan if the aggregate net asset value of such
shares (taken at cost or value as the Board of Directors may determine) is less
than $500. The Board has no intent to require redemptions in the foreseeable
future. If it should elect to require redemptions, shareholders who are affected
will receive prior written notice and will be permitted 60 days to bring their
accounts up to the minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Corporation are handled by outside
organizations selected by the Board of Directors. The Board of Directors has
responsibility for establishing broad corporate policies for the Corporation and
for overseeing overall performance of the selected experts. It has the benefit
of advice and reports from independent counsel and independent auditors. The
majority of the Directors are not affiliated with Waddell & Reed, Inc.
The principal occupation during at least the past five years of each
Director and officer of the Corporation is given below. Each of the persons
listed through and including Mr. Vogel is a member of the Corporation's Board of
Directors. The other persons are officers but not members of the Board of
Directors. For purposes of this section, the term "Fund Complex" includes each
of the registered investment companies in the United Group of Mutual Funds,
Waddell & Reed Funds, Inc. and Target/United Funds, Inc. Each of the
Corporation's Directors is also a Director of each of the funds in the Fund
Complex and each of the Corporation's officers is also an officer of one or more
of the funds in the Fund Complex.
KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors, Chief Executive
Officer, Principal Financial Officer and Director of Waddell & Reed Financial,
Inc.; President, Chairman of the Board of Directors and Chief Executive Officer
of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Directors
of WRIMCO, Waddell & Reed, Inc. and Waddell & Reed Services Company; formerly,
President of the Fund and each of the other funds in the Fund Complex; formerly,
Chairman of the Board of Directors of Waddell & Reed Asset Management Company, a
former affiliate of Waddell & Reed Financial, Inc. Date of birth: February 11,
1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President, JoDill Corp., an agricultural company; President and
Director of Dillingham Enterprises Inc.; formerly, Director and consultant,
McDougal Construction Company; formerly, Instructor at Central Missouri State
University; formerly, Member of the Board of Police Commissioners, Kansas City,
Missouri; formerly, Senior Vice President-Sales and Marketing, Garney Companies,
Inc., a specialty utility contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
525 Middlefield Road, Suite 200
Menlo Park, California 94025
President of Hewlett Foundation and Chairman of George S. and Delores
Dori Eccles Foundation. Director of First Security Corp., a bank holding
company, and Director of Fluor Corp., a company with interests in coal. Date of
birth: March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas. Partner, Levy and Craig, P.C., a law firm. Date
of birth: July 29, 1953.
JOSEPH HARROZ, JR.
125 South Creekdale Drive
Norman, Oklahoma 73072
General Counsel of the Board of Regents and Adjunct Professor of Law at
the University of Oklahoma College of Law; formerly, Vice President for
Executive Affairs of the University of Oklahoma; formerly, an Attorney with
Crowe & Dunlevy, a law firm. Date of birth: January 17, 1967.
JOHN F. HAYES
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; Director of Central Properties, Inc.; Chairman of the Board of
Directors, Gilliland & Hayes, P.A., a law firm; formerly, President, Gilliland &
Hayes, P.A. Date of birth: December 11, 1919.
ROBERT L. HECHLER*
President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Executive Vice President, Chief Operating
Officer and Director of Waddell & Reed Financial, Inc.; Vice President, Chief
Operating Officer, Director and Treasurer of Waddell & Reed Financial Services,
Inc.; Executive Vice President, Principal Financial Officer, Director and
Treasurer of WRIMCO; President, Chief Executive Officer, Principal Financial
Officer, Director and Treasurer of Waddell & Reed, Inc.; President, Director and
Treasurer of Waddell & Reed Services Company; formerly, Vice President of the
Fund and each of the other funds in the Fund Complex; formerly, Director and
Treasurer of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: November 12, 1936.
HENRY J. HERRMANN*
Vice President of the Fund and each of the other funds in the Fund
Complex; President, Chief Investment Officer, Treasurer and Director of Waddell
& Reed Financial, Inc.; Vice President, Chief Investment Officer and Director of
Waddell & Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.;
President, Chief Executive Officer, Chief Investment Officer and Director of
WRIMCO; formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: December 8, 1942.
GLENDON E. JOHNSON
13635 Deering Bay Drive
Unit 284
Miami, Florida 33158
Retired; formerly, Director and Chief Executive Officer of John Alden
Financial Corporation and subsidiaries. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of
the Fund and each fund in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in the
Fund Complex then in existence on April 30, 1993); formerly, President, Director
and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly,
Chairman of the Board of Directors of Waddell & Reed Services Company.
Date of birth: April 27, 1928.
RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of Kansas
City; Director of Network Rehabilitation Services; formerly, Employment
Counselor and Director of McCue-Parker Center. Date of birth: August 3, 1934.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm. Date of
birth: April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Professor of Business Administration, University of Missouri-Kansas
City; formerly, Chancellor, University of Missouri-Kansas City. Date of birth:
January 1, 1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
Helge K. Lee
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Secretary and General Counsel of Waddell &
Reed Financial, Inc.; Vice President, Secretary, General Counsel and Director of
Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice President,
Secretary, General Counsel and Director of Waddell & Reed Services Company;
formerly, Executive Vice President, Secretary and Chief Compliance Officer of
LGT Asset Management, Inc. and affiliates; formerly, Senior Vice President,
General Counsel and Secretary of Strong Capital Management, Inc. and affiliates.
Date of birth: March 30, 1946.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund
and each of the other funds in the Fund Complex; Vice President of Waddell &
Reed Services Company. Date of birth: July 18, 1942.
Michael L. Avery
Vice President of the Corporation and three other Funds in the Fund
Complex; Senior Vice President of WRIMCO; formerly, Vice President of Waddell &
Reed Asset Management Company. Date of birth: September 15, 1953.
Abel Garcia
Vice President of the Corporation and two other funds in the Fund
Complex; Senior Vice President of WRIMCO; formerly, Vice President of Waddell &
Reed Asset Management Company. Date of birth: April 28, 1949.
John M. Holliday
Vice President of the Corporation and eight other funds in the Fund
Complex; Senior Vice President of WRIMCO; formerly, Senior Vice President of
Waddell & Reed Asset Management Company. Date of birth: June 11, 1935.
Thomas A. Mengel
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO; formerly, President of Sal. Oppenheim jr. &
Cie. Securities, Inc.; formerly, Vice President of Hauck and Hope Securities.
Date of birth: April 13, 1957.
Louise D. Rieke
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed
Asset Management Company. Date of birth: April 24, 1949.
Grant P. Sarris
Vice President of the Fund and one other Fund in the Fund Complex, and
Vice President of WRIMCO. Date of birth: September 14, 1966.
Mark G. Seferovich
Vice President of the Corporation and one other Fund in the Fund
Complex and Senior Vice President of the Manager; formerly, Vice President of,
and a portfolio manager for, Waddell & Reed Asset Management Company. Date of
birth: April 6, 1947.
W. Patrick Sterner
Vice President of the Corporation and one other fund in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed
Asset Management Company. Date of birth: January 11, 1949.
Daniel J. Vrabac
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed
Asset Management Company. Date of birth: July 24, 1954.
James D. Wineland
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed
Asset Management Company. Date of birth: September 25, 1951.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
The Directors who may be deemed to be "interested persons" as defined
in the 1940 Act of the Fund's underwriter, Waddell & Reed, Inc., or of WRIMCO
are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a Director may elect after resignation from the Board
of Directors provided the Director has attained the age of 70 and has served as
a Director of the Corporation for a total of at least five years. A Director
Emeritus receives fees in recognition of his or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Corporation.
Messrs. Henry L. Bellmon, Jay B. Dillingham, Doyle Patterson, Ronald K. Richey
and Paul S. Wise retired as Directors of the Corporation and of each of the
funds in the Fund Complex and elected a position as Director Emeritus.
The Corporation, the funds in the United Group and Target/United Funds,
Inc. pay to each Director a total of $48,000 per year, plus $2,500 for each
meeting of the Board of Directors attended plus reimbursement of expenses of
attending such meeting and $500 for each committee meeting attended which is not
in conjunction with a Board of Directors meeting, other than Directors who are
affiliates of Waddell & Reed, Inc. The fees to the Directors who receive them
are divided among the Corporation, the funds in the United Group and
Target/United Funds, Inc. based on the funds' relative size. During the
Corporation's fiscal year ended March 31, 1999, the Corporation's Directors
received the following fees for service as a director:
COMPENSATION TABLE
Total
Aggregate Compensation
Compensation From Corporation
From and Fund
Director Corporation Complex*
- -------- ------------ ------------
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon 2,494 58,000
John A. Dillingham 2,494 58,000
David P. Gardner 1,278 29,000
Linda K. Graves 2,494 58,000
Joseph Harroz, Jr. 1,188 26,500
John F. Hayes 2,494 58,000
Glendon E. Johnson 2,517 58,500
William T. Morgan 2,494 58,000
Ronald C. Reimer 662 14,500
Frank J. Ross, Jr. 2,494 58,000
Eleanor B. Schwartz 2,517 58,500
Frederick Vogel III 2,517 58,500
*No pension or retirement benefits have been accrued as a part of Corporation
expenses.
Mr. Gardner was elected as a Director on August 18, 1998. Messrs.
Harroz, Hechler, Herrmann and Reimer were elected as Directors on November 18,
1998. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of May 31, 1999, all of the Corporation's Directors and officers as
a group owned less than 1% of the outstanding shares of the Corporation. The
following table sets forth information with respect to the Corporation, as of
May 31, 1999, regarding the beneficial ownership of the series, and classes
thereof, of the Corporation's shares.
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class or of Record Percent
- ------------------- ---------- ------------ -------
Liberty National Life International Growth Fund
Insurance Company Class B %
2001 Third Avenue South
Birmingham AL 35233
Richard Voss TR Total Return Fund
Church TSA Archdiocese Class Y
of OK
FBO Unallocated Assets Growth Fund
Church Sponsored Class Y
403(B) Plan
P. O. Box 32180 Limited-Term Bond Fund
Oklahoma City OK 73123 Class Y
International Growth Fund
Class Y
Asset Strategy Fund
Class Y
Fiduciary Trust Co NH TR Total Return Fund
Corporate Money Pension Class Y
Plan
Okanogan County Hospital International Growth Fund
District 3 Class Y
FBO Unallocated Assets
Qualified Plan 1329481
P. O. Box 793
Omak WA 98841
M E. Collins Contracting Total Return Fund
Co Inc Class Y
401K and Profit Sharing
980 East 25th St Box 83 Growth Fund
Wahoo NE 68066 Class Y
Limited-Term Bond Fund
Class Y
International Growth Fund
Class Y
Asset Strategy Fund
Class Y
PAYMENTS TO SHAREHOLDERS
General
There are two (three, in the case of certain Funds) sources for the
payments a Fund makes to you as a shareholder of a class of shares of a Fund,
other than payments when you redeem your shares. The first source is net
investment income, which is derived from the dividends, interest and earned
discount on the securities a Fund holds, less expenses (which will vary by
class). The second source is net realized capital gains, which are derived from
the proceeds received from a Fund's sale of securities at a price higher than a
Fund's tax basis (usually cost) in such securities, less losses from sales of
securities at a price lower than the Fund's basis therein; these gains can be
either long-term or short-term, depending on how long a Fund has owned the
securities before it sells them. The third source (in the case of Total Return
Fund, Growth Fund, International Growth Fund, Asset Strategy Fund, Science and
Technology Fund and High Income Fund) is net realized gains from foreign
currency transactions. The payments made to shareholders from net investment
income, net short-term capital gains, and net realized gains from certain
foreign currency transactions are called dividends.
Each Fund pays distributions from net capital gains (the excess of net
long-term capital gains over net short-term capital losses). It may or may not
have such gains, depending on whether securities are sold and at what price. If
a Fund has net capital gains, it will pay distributions once each year, in the
latter part of the fourth calendar quarter, except to the extent it has net
capital losses carried over from a prior year or years to offset the gains. It
is the policy of each Fund to make annual capital gains distributions to the
extent that net capital gains are realized in excess of available capital loss
carryovers.
Income and expenses are earned and incurred separately by each Fund,
and gains and losses on portfolio transactions of each Fund are attributable
only to that Fund. For example, capital losses realized by one Fund would not
affect capital gains realized by another Fund.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions, however, a total dividend and/or
distribution amount less than ten dollars will be automatically paid in shares
of a Fund of the same class as that with respect to which they were paid (ii)
you want your dividends and distributions paid in shares of a Fund of the same
class as that with respect to which they were paid, or (iii) you want cash for
your dividends and want your distributions paid in shares of a Fund of the same
class as that with respect to which they were paid, however, a total dividend
amount less than ten dollars will be automatically paid in shares of a Fund of
the same class as that with respect to which it was paid. You can change your
instructions at any time. If you give no instructions, your dividends and
distributions will be paid in shares of a Fund of the same class as that with
respect to which they were paid. All payments in shares are at net asset value
without any sales charge. The net asset value used for this purpose is that
computed as of the payment date for the dividend or distribution, although this
could be changed by the Board of Directors.
TAXES
General
Each of the Funds have qualified for treatment as a regulated
investment company ("RIC") under the Code, so that it is relieved of Federal
income tax on that part of its investment company taxable income (consisting
generally of net investment income, net short-term capital gains and, for
certain Funds, net gains from certain foreign currency transactions) that is
distributed to its shareholders. To continue to qualify as a RIC, a Fund must
distribute to its shareholders for each taxable year at least 90% of the sum of
its investment company taxable income plus, in the case of Municipal Bond Fund,
its net interest income excludable from gross income under Section 103(a) of the
Code ("Distribution Requirement") and must meet several additional requirements.
With respect to each Fund, these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures contracts or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities that are limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities ("50% Diversification Requirement"); and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
Investments in precious metals would have adverse tax consequences for
Asset Strategy Fund and its shareholders if it either (1) derived more than 10%
of its gross income in any taxable year from the disposition of precious metals
and from other income that does not qualify under the Income Requirement or (2)
held precious metals in such quantities that the Fund failed to satisfy the 50%
Diversification Requirement for any quarter. Asset Strategy Fund intends to
manage its portfolio so as to avoid failing to satisfy those requirements for
these reasons.
Dividends and distributions declared by a Fund in October, November or
December of any year and payable to its shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to the shareholders for the year in which that December 31 falls.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the investor will receive some portion of the
purchase price back as a taxable dividend or distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gains net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the Fund's policy to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax. The Code permits
the Fund to defer into the next calendar year net capital losses incurred
between November 1 and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received, and gains realized, by a Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield and/or total
return on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors.
If more than 50% of the value of International Growth Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, that Fund will be eligible to, and may, file an election with the
Internal Revenue Service that will enable its shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign taxes
paid by it. Pursuant to any such election, International Growth Fund would treat
those taxes as dividends paid to its shareholders and each shareholder would be
required to (1) include in gross income, and treat as paid by the shareholder,
the shareholder's proportionate share of those taxes, (2) treat the
shareholder's share of those taxes and of any dividend paid by that Fund that
represents income from foreign or U.S. possessions sources as the shareholder's
own income from those sources and (3) either deduct the taxes deemed paid by the
shareholder in computing the shareholder's taxable income or, alternatively, use
the foregoing information in calculating the foreign tax credit against the
shareholder's Federal income tax. International Growth Fund will report to its
shareholders shortly after each taxable year their respective shares of that
Fund's income from sources within foreign countries and U.S. possessions and
foreign taxes paid, if it makes this election. If International Growth Fund
makes this election, then pursuant to the Taxpayer Relief Act of 1997 ("Tax
Act"), beginning in 1998 individuals who have no more than $300 ($600 for
married persons filing jointly) of creditable foreign taxes included on Forms
1099 and all of whose foreign source income is "qualified passive income" may
elect each year to be exempt from the extremely complicated foreign tax credit
limitation and will be able to claim a foreign tax credit without having to file
the detailed Form 1116 that otherwise is required.
Each of International Growth Fund, Asset Strategy Fund, Total Return
Fund, Growth Fund, Science and Technology Fund and High Income Fund may invest
in the stock of "passive foreign investment companies" ("PFICs"). A PFIC is a
foreign corporation -- other than a "controlled foreign corporation" (i.e., a
foreign corporation in which, on any day during its taxable year, more than 50%
of the total voting power of all voting stock therein or the total value of all
stock therein is owned, directly, indirectly, or constructively, by "U.S.
shareholders," defined as U.S. persons that individually own, directly,
indirectly, or constructively, at least 10% of that voting power) as to which
the Fund is a U.S. shareholder that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. Under certain circumstances, a Fund will be subject to Federal income
tax on a portion of any "excess distribution" received on the stock of a PFIC or
of any gain on disposition of the stock (collectively "PFIC income"), plus
interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gain --
which probably would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if those
earnings and gain were not distributed to the Fund by the QEF. In most instances
it will be very difficult, if not impossible, to make this election because of
certain requirements thereof.
A Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
a Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included by the Fund for
prior taxable years. A Fund's adjusted basis in each PFIC's stock with respect
to which it makes this election will be adjusted to reflect the amounts of
income included and deductions taken under the election. Regulations proposed in
1992 would provide a similar election with respect to the stock of certain
PFICs.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2)
from the disposition of debt securities denominated in a foreign currency that
are attributable to fluctuations in the value of the foreign currency between
the date of acquisition of the security and the date of disposition, and (3)
that are attributable to fluctuations in exchange rates that occur between the
time a Fund accrues interest, dividends or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders.
Income from Options, Futures and Forward Currency Contracts and Foreign
Currencies
The use of hedging and option income strategies, such as writing
(selling) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
a Fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures contracts and forward currency contracts derived
by a Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
Any income a Fund earns from writing options is treated as short-term
capital gains. If a Fund enters into a closing purchase transaction, it will
have short-term capital gains or losses based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by a Fund lapses without being exercised,
the premium it received also will be a short-term capital gain. If such an
option is exercised and the Fund thus sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale.
Certain options, futures and forward contracts in which the Funds may
invest may be "section 1256 contracts." Section 1256 contracts held by a Fund at
the end of its taxable year, other than contracts subject to a "mixed straddle"
election made by the Fund, are "marked-to-market" (that is, treated as sold at
that time for their fair market value) for Federal income tax purposes, with the
result that unrealized gains or losses are treated as though they were realized.
Sixty percent of any net gains or losses recognized on these deemed sales, and
60% of any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance are
treated as short-term capital gains or losses. That 60% portion will qualify for
the 20% (10% for taxpayers in the 15% marginal tax bracket) maximum tax rate on
net capital gains enacted by the Taxpayers Relief Act of 1997. Section 1256
contracts also may be marked-to-market for purposes of the Excise Tax and other
purposes. The Fund may need to distribute any mark-to-market gains to its
shareholders to satisfy the Distribution Requirement and/or avoid imposition of
the Excise Tax, even though it may not have closed the transactions and received
cash to pay the distributions.
Code section 1092 (dealing with straddles) may also affect the taxation
of options and futures contracts in which the Funds may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. The regulations under section
1092 also provide certain "wash sale" rules that apply to transactions where a
position is sold at a loss and a new offsetting position is acquired within a
prescribed period, and "short sale" rules applicable to straddles. If a Fund
makes certain elections, the amount, character and timing of the recognition of
gains and losses from the affected straddle positions will be determined under
rules that vary according to the elections made. Because only a few of the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Funds are not entirely clear.
If a Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward currency
contract or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward currency contract entered into by a
Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
Zero Coupon and Payment-in-Kind Securities
Certain Funds may acquire zero coupon or other securities issued with
OID. As the holder of those securities, a Fund must include in its income the
OID that accrues on the securities during the taxable year, even if the Fund
receives no corresponding payment on the securities during the year. Similarly,
a Fund must include in its gross income securities it receives as "interest" on
payment-in-kind securities. Because each Fund annually must distribute
substantially all of its investment company taxable income, including any
accrued OID and other non-cash income, in order to satisfy the Distribution
Requirement and to avoid imposition of the Excise Tax, a Fund may be required in
a particular year to distribute as a dividend an amount that is greater than the
total amount of cash it actually receives. Those distributions will be made from
a Fund's cash assets or from the proceeds of sales of portfolio securities, if
necessary. A Fund may realize capital gains or losses from those sales, which
would increase or decrease its investment company taxable income and/or net
capital gains.
Municipal Bond Fund
The aggregate dividends excludable from the gross income of the
Municipal Bond Fund's shareholders may not exceed the Fund's net tax-exempt
income. If the Fund's shares are sold at a loss after being held for six months
or less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares. Tax-exempt interest attributable to certain
private activity bonds ("PABs") (including a proportionate part of the
exempt-interest dividends paid by the Fund attributable thereto) is a tax
preference item for purposes of the AMT. Exempt-interest dividends received by a
corporate shareholder also may be indirectly subject to the AMT without regard
to whether the Fund's tax-exempt interest was attributable to those PABs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
tax-exempt income such as the Fund's exempt interest dividends) plus 50% of
their benefits exceeds certain base amounts. Exempt-interest dividends from the
Fund still are tax-exempt to the extent described in the Prospectus; they are
only included in the calculation of whether a recipient's income exceeds the
established amounts.
If the Fund invests in any instruments that generate taxable income,
under the circumstances described in the Prospectus, distributions of the income
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of its earnings and profits. Moreover, if the Fund realizes capital
gains as a result of market transactions, any distribution of those gains will
be taxable to its shareholders. There also may be collateral Federal income tax
consequences regarding the receipt of exempt-interest dividends by shareholders
such as S corporations, financial institutions, and property and casualty
insurance companies. A shareholder falling into any such category should consult
its tax adviser concerning its investment in shares of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange for the purchase and sale of securities for the
portfolio of each Fund. With respect to Limited-Term Bond Fund, Municipal Bond
Fund and High Income Fund, many purchases are made directly from issuers or from
underwriters, dealers or banks. Purchases from underwriters include a commission
or concession paid by the issuer to the underwriter. Purchases from dealers will
include the spread between the bid and the asked prices. Otherwise, transactions
in securities other than those for which an exchange is the primary market are
generally done with dealers acting as principals or market makers. Brokerage
commissions are paid primarily for effecting transactions in securities traded
on an exchange and otherwise only if it appears likely that a better price or
execution can be obtained. The individuals who manage the Funds may manage other
advisory accounts with similar investment objectives. It can be anticipated that
the manager will frequently place concurrent orders for all or most accounts for
which the manager has responsibility or WRIMCO may otherwise combine orders for
the Fund with those of other funds in the United Group and Target/United Funds,
Inc. or other accounts over which it has investment discretion. Transactions
effected pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each fund or
advisory account, except where the combined order is not filled completely. In
this case, WRIMCO will ordinarily allocate the transaction pro rata based on the
orders placed. Sharing in large transactions could affect the price a Fund pays
or receives or the amount it buys or sells. However, sometimes a better
negotiated commission is available through combined orders.
To effect the portfolio transactions of a Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on relevant
factors, will implement the policy of the Fund to seek "best execution" (prompt
and reliable execution at the best price obtainable) for reasonable and
competitive commissions. WRIMCO need not seek competitive commission bidding but
is expected to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund. Subject to review by the Board of Directors,
such policies include the selection of brokers which provide execution and/or
research services and or other services, including pricing or quotation
services, directly or through others ("research and brokerage services")
considered by WRIMCO to be useful or desirable for its investment management of
the Fund and/or the other funds and accounts over which WRIMCO has investment
discretion.
Such research and brokerage services are, in general, defined by
reference to Section 28(e) of the Securities Exchange Act of 1934 as including
(i) advice, either directly or through publications or writings, as to the value
of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers; (ii)
furnishing analyses and reports; or (iii) effecting securities transactions and
performing functions incidental thereto (such as clearance, settlement and
custody). "Investment discretion" is, in general, defined as having
authorization to determine what securities shall be purchased or sold for an
account, or making those decisions even though someone else has responsibility.
The commissions paid to brokers that provide such research and/or
brokerage services may be higher than another qualified broker would charge for
effecting comparable transactions if a good faith determination is made by
WRIMCO that the commission is reasonable in relation to the research or
brokerage services provided. Subject to the foregoing considerations, WRIMCO may
also consider sales of Fund shares as a factor in the selection of
broker-dealers to execute portfolio transactions. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of WRIMCO, and investment
research received for the commissions of those other accounts may be useful both
to the Corporation and one or more of such other accounts. To the extent that
electronic or other products provided by such brokers to assist WRIMCO in making
investment management decisions are used for administration or other
non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in a
Fund's portfolio or being considered for purchase.
The Corporation may also use its brokerage to pay for pricing or
quotation services to value securities.
The table below sets forth the brokerage commissions paid by each of
the Funds then in existence during the fiscal years ended March 31, 1999, 1998
and 1997. These figures do not include principal transactions or spreads or
concessions on principal transactions, i.e., those in which a Fund sells
securities to a broker-dealer firm or buys from a broker-dealer firm securities
owned by it.
1999 1998 1997
---- ----- -----
Asset Strategy Fund $ 51,488 $26,334 $18,737
Growth Fund 172,608 82,603 136,278
High Income Fund 616 ---*
International Growth Fund 475,534 386,865 254,192
Limited-Term Bond Fund --- --- ---
Municipal Bond Fund --- 1,371 ---
Science and Technology Fund 16,836 4,802*
Total Return Fund 355,480 288,547 200,131
---------- -------- --------
Total $1,072,562 $790,522 $609,338
========== ======== ========
*For the period from July 31, 1997, the date of the initial public offering, to
March 31, 1998.
The next table shows for each of the Funds the transactions, other than
principal transactions, which were directed to broker-dealers who provided
research as well as execution and the brokerage commissions paid during the
fiscal year ended March 31, 1999 for each of the Funds. These transactions were
allocated to these broker-dealers by the internal allocation procedures
described above.
Amount of Brokerage
Transactions Commissions
------------ -----------
Asset Strategy Fund ............... $ 12,992,281 $ 21,383
Growth Fund ....................... 77,596,279 120,639
High Income Fund* ................. 688,037 600
International Growth Fund ......... 4,966,740 4,548
Limited-Term Bond Fund ............ --- ---
Municipal Bond Fund ............... --- ---
Science and Technology Fund*....... 3,287,341 4,584
Total Return Fund ................. 276,025,025 312,947
------------ --------
Total ........................ $375,555,703 $464,701
============ ========
As of March 31, 1999, Waddell & Reed Total Return Fund owned Morgan
Stanley, Dean Witter, Discover & Co. securities in the aggregate amount of
$559,650. Morgan Stanley, Dean Witter, Discover & Co. is a regular broker of the
Fund. Waddell & Reed Limited-Term Bond Fund owned Salomon Inc. securities in the
aggregate amount of $511,575. Salomon Inc. is a regular broker of the Fund.
The Corporation, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
OTHER INFORMATION
General
The Corporation was organized on January 29, 1992.
The Shares of the Funds
The shares of each of the Funds represents an interest in that Fund's
securities and other assets and in its profits or losses. Each fractional share
of a class has the same rights, in proportion, as a full share of that class.
Each Fund offers two classes of its shares: Class B and Class Y. Each
class of a Fund represents an interest in the same assets of the Fund and differ
as follows: each class of shares has exclusive voting rights on matters
pertaining to matters appropriately limited to that class; Class B shares are
subject to a contingent deferred sales charge; Class Y shares are not subject to
a contingent deferred sales charge but are subject to an ongoing distribution
and service fee that differs in amount from that of the Class B shares; each
class may bear differing amounts of certain class-specific expenses; and each
class has a separate exchange privilege. The Funds do not anticipate that there
will be any conflicts between the interests of holders of the different classes
of shares of the same Fund by virtue of those classes. On an ongoing basis, the
Board of Directors will consider whether any such conflict exists and, if so,
take appropriate action. Each share of a Fund is entitled to equal voting,
dividend, liquidation and redemption rights, except that due to the differing
expenses borne by the two classes, dividends and liquidation proceeds of Class B
shares are expected to be lower than for Class Y shares of the same Fund. Shares
are fully paid and nonassessable when purchased.
The Funds do not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by a Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the bylaws are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at time which the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to a Fund, the directors are required to call a meeting of shareholders
for the purpose of voting upon the question of removal of any director when
requested in writing to do so by the shareholders of record of not less than 10%
of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of a Fund
vote together as a single class, except as to any matter for which a separate
vote of any class is required by the 1940 Act, and except as to any matter which
affects the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class.
Each share of each Fund (regardless of class) is entitled to one vote.
On certain matters such as the election of Directors, all shares of the eight
Funds vote together as a single class. On other matters affecting a particular
Fund, the shares of that Fund vote together as a separate class, such as with
respect to a change in an investment restriction of a particular Fund, except
that as to matters for which a separate vote of a class is required by the 1940
Act or which affects the interests of one or more particular classes, the
affected shareholders vote as a separate class. In voting on a Management
Agreement, approval by the shareholders of a Fund is effective as to that Fund
whether or not enough votes are received from the shareholders of the other
Funds to approve the Management Agreement for the other Funds.
Initial Investment
On April 24, 1992, the Distributor purchased for investment 2,000 Class
B shares of each Fund (other than Asset Strategy Fund, Science and Technology
Fund and High Income Fund) at a net asset value of $10.00 per share.
On April 20, 1995, the Distributor purchased for investment 2,000 Class
B shares of Asset Strategy Fund at a net asset value of $10.00 per share.
On July 31, 1997, the Distributor purchased for investment 2,000 Class
B shares and 2,000 Class Y shares of Science and Technology Fund and High Income
Fund at a net asset value of $10.00 per share.
APPENDIX A
The following are descriptions of some of the ratings of securities
which the Corporation may use. The Corporation may also use ratings provided by
other nationally recognized statistical rating organizations in determining the
securities eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. A
Standard & Poor's ("S&P") corporate bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment of creditworthiness may take into consideration obligors such as
guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the
issuer or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default -- capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to
pay interest and repay principal is very strong, and debt rated AA differs from
AAA issues only in a small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace periods. The D rating will also be used upon a filing of
a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws of
various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service ("MIS") rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Description of Preferred Stock Ratings
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
preferred stock rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the debt rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the
obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA -- This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of
preferred stock quality, the rating from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to S&P by the issuer or obtained by S&P from other sources
it considers reliable. S&P does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
aaa and aa classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba -- An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF NOTE RATINGS
Standard and Poor's, a division of The McGraw-Hill Companies, Inc. An
S&P note rating reflects the liquidity factors and market access risks unique to
notes. Notes maturing in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics are given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. MIS Short-Term Loan Ratings -- MIS
ratings for state and municipal short-term obligations will be designated MIS
Investment Grade (MIG). This distinction is in recognition of the differences
between short-term credit risk and long-term risk. Factors affecting the
liquidity of the borrower are uppermost in importance in short-term borrowing,
while various factors of major importance in bond risk are of lesser importance
over the short run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security
elements are accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
commercial paper rating is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant market. Ratings are graded
into several categories, ranging from "A-1" for the highest quality obligations
to D for the lowest. Issuers rated A are further referred to by use of numbers
1, 2 and 3 to indicate the relative degree of safety. Issues assigned an A
rating (the highest rating) are regarded as having the greatest capacity for
timely payment. An A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. An A-2
rating indicates that capacity for timely payment is satisfactory; however, the
relative degree of safety is not as high as for issues designated A-1. Issues
rated A-3 have adequate capacity for timely payment; however, they are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations. Issues rated B are regarded as having only
speculative capacity for timely payment. A C rating is assigned to short-term
debt obligations with a doubtful capacity for payment. Debt rated D is in
payment default, which occurs when interest payments or principal payments are
not made on the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace period.
Moody's Investors Service, Inc. commercial paper ratings are opinions
of the ability of issuers to repay punctually promissory obligations not having
an original maturity in excess of nine months. MIS employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on Funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation; capitalization
characteristics, while still appropriate, may be more affected by external
conditions; and ample alternate liquidity is maintained. Issuers rated Prime 3
have an acceptable capacity for repayment of short-term promissory obligations,
as will normally be evidenced by many of the characteristics above for Prime 1
issuers, but to a lesser degree. The effect of industry characteristics and
market composition may be more pronounced; variability in earnings and
profitability may result in changes in the level of debt protection measurements
and requirement for relatively high financial leverage; and adequate alternate
liquidity is maintained.
WADDELL & REED FUNDS, INC...........................................1
STATEMENT OF ADDITIONAL INFORMATION.................................1
TABLE OF CONTENTS...................................................1
PERFORMANCE INFORMATION.............................................2
Total Return.....................................................2
Yield............................................................4
Performance Rankings.............................................6
GOALS AND INVESTMENT POLICIES.......................................6
Asset Allocation.................................................7
Securities - General.............................................8
Specific Securities and Investment Practices....................11
U.S. Government Securities....................................11
Zero Coupon Securities........................................12
Municipal Bonds...............................................13
Mortgage-Backed and Asset-Backed Securities...................15
Variable or Floating Rate Instruments.........................18
Bank Deposits.................................................18
Indexed Securities............................................19
Loans and Other Direct Debt Instruments.......................20
Foreign Securities and Currency...............................21
Restricted Securities.........................................23
Lending Securities............................................24
Repurchase Agreements.........................................25
Warrants and Rights...........................................26
When-Issued and Delayed-Delivery Transactions.................26
Precious Metals...............................................27
Illiquid Investments..........................................28
Options, Futures and Other Strategies.........................28
Investment Restrictions.........................................45
Portfolio Turnover..............................................51
INVESTMENT MANAGEMENT AND OTHER SERVICES...........................52
The Management Agreement........................................52
Torchmark Corporation and Waddell & Reed Financial, Inc.........53
Shareholder Services............................................53
Accounting Services.............................................53
Payments for Management, Accounting and Shareholder Services....54
Distribution Arrangement........................................56
Custodial and Auditing Services.................................58
Year 2000 Issue.................................................59
PURCHASE, REDEMPTION AND PRICING OF SHARES.........................60
Determination of Offering Price.................................60
Minimum Initial and Subsequent Investments......................62
Flexible Withdrawal Service.....................................62
Exchange Privilege..............................................63
Class B Share Exchanges.......................................63
Class Y Share Exchanges.......................................64
General Exchange Information..................................64
Retirement Plans................................................64
Redemptions.....................................................67
Reinvestment Privilege..........................................68
DIRECTORS AND OFFICERS.............................................68
Shareholdings...................................................77
PAYMENTS TO SHAREHOLDERS...........................................79
General.........................................................79
Choices You Have on Your Dividends and Distributions............79
TAXES..............................................................80
General.........................................................80
Income from Foreign Securities..................................81
Foreign Currency Gains and Losses...............................83
Income from Options, Futures and Forward Currency
Contracts and Foreign Currencies................................83
Zero Coupon and Payment-in-Kind Securities......................85
Municipal Bond Fund.............................................86
PORTFOLIO TRANSACTIONS AND BROKERAGE...............................86
OTHER INFORMATION..................................................90
General.........................................................90
The Shares of the Funds.........................................90
Initial Investment..............................................91
<PAGE>
22. Financial Statements
--------------------
(a) Financial Statements -- Waddell & Reed Funds, Inc.
Included in Part B:
-------------------
As of March 31, 1999
Statement of Assets and Liabilities
For the year ended March 31, 1999
Statement of Operations
For each of the two years in the period ended March 31, 1999
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of March 31, 1999
Report of Independent Accountants
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
1
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
2
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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 .
</TABLE>
3
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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)
<CAPTION>
Principal
Amount in
Thousands
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
4
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
5
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
6
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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 .
</TABLE>
7
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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)
<CAPTION>
Principal
Amount in
Thousands
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
8
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
9
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
10
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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)
<CAPTION>
Principal
Amount in
Thousands
<S> <C> <C>
SHORT-TERM SECURITIES
Commercial Paper
Engineering and Management Services - 7.63%
Halliburton Co.,
4.84%, 4-21-99 ...................................................... $3,400 3,390,858
</TABLE>
See Notes to Schedules of Investments on page .
11
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
12
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
13
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
14
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
15
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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)
</TABLE>
See Notes to Schedules of Investments on page .
16
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Value
<S> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
17
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
18
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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)
</TABLE>
See Notes to Schedules of Investments on page .
19
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
20
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
21
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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 .
</TABLE>
22
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
23
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
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)
<CAPTION>
Principal
Amount in
Thousands
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
24
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
25
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
26
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
27
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
28
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
29
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
30
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
31
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
32
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
33
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
34
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
35
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
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
</TABLE>
See Notes to Schedules of Investments on page .
36
<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.
37
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1999
(In Thousands Except for Per Share and Share Amounts)
<TABLE>
<CAPTION>
Total Science and
Return Growth Technology
Fund Fund Fund
Assets ------------ ----------- -----------
<S> <C> <C> <C>
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
</TABLE>
See notes to financial statements.
38
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1999
(In Thousands Except for Per Share and Share Amounts)
<TABLE>
<CAPTION>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
Assets ------------ ----------- -----------
<S> <C> <C> <C>
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
</TABLE>
See notes to financial statements.
39
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1999
(In Thousands Except for Per Share and Share Amounts)
<TABLE>
<CAPTION>
High Municipal
Income Bond
Fund Fund
Assets ------- ---------
<S> <C> <C>
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
</TABLE>
See notes to financial statements.
40
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
<TABLE>
<CAPTION>
(In Thousands) Total Science and
Return Growth Technology
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
See notes to financial statements.
41
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
<S> <C> <C> <C>
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
======= ==== ======
</TABLE>
See notes to financial statements.
42
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
High Municipal
Income Bond
Fund Fund
Investment Income (Loss) ------------ -----------
<S> <C> <C>
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
====== ======
</TABLE>
See notes to financial statements.
43
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(Dollars In Thousands)
<TABLE>
<CAPTION>
Total Science and
Return Growth Technology
Fund Fund Fund
------------ ----------- -----------
<S> <C> <C> <C>
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 $--- $---
====== ==== ====
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
44
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(Dollars In Thousands)
<TABLE>
<CAPTION>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
------------- ----------- -----------
<S> <C> <C> <C>
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 $---
==== ======== ====
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
45
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(Dollars In Thousands)
<TABLE>
<CAPTION>
High Municipal
Income Bond
Fund Fund
------------ -----------
<S> <C> <C>
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 ...................... $--- $---
==== ====
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
46
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Total Science and
Return Growth Technology
Fund Fund Fund
------------ ----------- -----------
<S> <C> <C> <C>
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)................ $--- $--- $---
==== ==== ====
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
47
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
------------- ----------- -----------
<S> <C> <C> <C>
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 $---
==== ======= ====
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
48
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
High Municipal
Income Bond
Fund Fund
------------ -----------
<S> <C> <C>
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 ...................... $--- $---
==== ====
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
49
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
See notes to financial statements.
50
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
---------------------------------- 12/29/95**
1999 1998 1997 to 3/31/96
-------- -------- ------- -------------
<S> <C> <C> <C> <C>
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%***
</TABLE>
*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.
51
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
See notes to financial statements.
52
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
---------------------------------- 12/29/95**
1999 1998 1997 to 3/31/96
-------- -------- ------- -----------
<S> <C> <C> <C> <C>
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%***
</TABLE>
*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.
53
<PAGE>
FINANCIAL HIGHLIGHTS OF
SCIENCE AND TECHNOLOGY FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the For the
fiscal period from
year 7/31/97*
ended to
3/31/99 3/31/98
------------ --------------
<S> <C> <C>
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%
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
54
<PAGE>
FINANCIAL HIGHLIGHTS OF
SCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
<TABLE>
<CAPTION>
For the
period from
6/9/98*
to
3/31/99
-----------
<S> <C>
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%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
55
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995. See notes to financial
statements.
56
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal For the
year ended March 31, period from
------------------------------------ 12/29/95*
1999 1998 1997 to 3/31/96
-------- ------- --------
<S> <C> <C> <C> <C>
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%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
57
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the
period
For the fiscal year from
year ended March 31, 4/20/95*
---------------------------------- to
1999 1998 1997 3/31/96
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
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%
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
58
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the
For the fiscal period
year ended March 31, from
--------------------------------- 12/29/95*
1999 1998 1997 to 3/31/96
------- -------- -------- ----------
<S> <C> <C> <C> <C>
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%***
</TABLE>
*Commencement of operations.
**Annualized.
***Portfolio turnover is for the period from April 20, 1995 to March 31, 1996.
See notes to financial statements.
59
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
See notes to financial statements.
60
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the
For the fiscal period
year ended March 31, from
--------------------------------- 12/29/95*
1999 1998 1997 to 3/31/96
------- -------- ------- ---------
<S> <C> <C> <C> <C>
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%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
61
<PAGE>
FINANCIAL HIGHLIGHTS OF
HIGH INCOME FUND
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the For the
fiscal period from
year 7/31/97*
ended to
3/31/99 3/31/98
--------- ---------
<S> <C> <C>
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%
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
62
<PAGE>
FINANCIAL HIGHLIGHTS OF
HIGH INCOME FUND
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
<TABLE>
<CAPTION>
For the
period
from
12/30/98*
to
3/31/99
---------
<S> <C>
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%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
63
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
See notes to financial statements.
64
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For
the For For the
period the fiscal For the
from period year period from
12/30/98*** ended ended 12/29/95*
to 3/31/99 6/23/97** 3/31/97 to 3/31/96
---------- --------- -------- ------------
<S> <C> <C> <C> <C>
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%****
</TABLE>
*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.
65
<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
66
<PAGE>
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:
<TABLE>
<CAPTION>
Increase(Decrease) Increase(Decrease) Increase
Accumulated Accumulated (Decrease)
Undistributed Undistributed Additional
Net Investment Net Realized Paid-In
Fund Income Capital Gains Capital
- ---- ------------------- ------------------- -------------
<S> <C> <C> <C>
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) ---
</TABLE>
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).
67
<PAGE>
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.
<TABLE>
<CAPTION>
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ -------------------
<S> <C>
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
</TABLE>
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,
68
<PAGE>
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:
69
<PAGE>
<TABLE>
<CAPTION>
Total Science and
Return Growth Technology
Fund Fund Fund
----------- ---------- -----------
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ---------- -----------
<S> <C> <C> <C>
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
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
High Municipal
Income Bond
Fund Fund
----------- ----------
<S> <C> <C>
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
</TABLE>
For Federal income tax purposes, cost of investments owned at March 31,
1999 and the related unrealized appreciation (depreciation) were as follows:
<TABLE>
<CAPTION>
Aggregate
Appreciation
Cost Appreciation Depreciation (Depreciation)
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
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 Fund 21,019,048 239,527 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
</TABLE>
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
71
<PAGE>
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.
72
<PAGE>
<TABLE>
<CAPTION>
Total Science and
Return Growth Technology
Fund* Fund* Fund
----------- ------------ ------------
<S> <C> <C> <C>
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
======== ======= =======
</TABLE>
*Share transactions prior to June 27, 1998 have been adjusted to effect the 100%
stock dividend of June 26, 1998.
73
<PAGE>
<TABLE>
<CAPTION>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ------------ ------------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
High Municipal
Income Bond
Fund Fund
----------- -----------
<S> <C> <C>
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
======= =======
</TABLE>
Transactions in capital stock for the periods ended March 31, 1998 are
summarized below. Dollar amounts are in thousands.
75
<PAGE>
<TABLE>
<CAPTION>
Total Science and
Return Growth Technology
Fund* Fund* Fund
----------- ------------ ------------
Shares issued from sale of shares:
<S> <C> <C> <C>
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
======= ======= ========
</TABLE>
*Share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
76
<PAGE>
<TABLE>
<CAPTION>
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ------------ ------------
<S> <C> <C> <C>
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
======= ====== ========
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
High Municipal
Income Bond
Fund Fund
----------- ----------
<S> <C> <C>
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
======= =========
</TABLE>
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
78
<PAGE>
March 31, 1999, the Fund derived approximately $39,704 of income, net of related
expenses, from its securities lending activities.
79
<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
80
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits:
(a) Articles of Incorporation, as amended, filed by EDGAR on May 16,
1997 as EX-99.B1-charter to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A*
Articles Supplementary, filed by EDGAR on May 16, 1997 as
EX-99.B1-wrartsup to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A*
(b) Bylaws, as amended, filed by EDGAR on June 27, 1996 as
EX-99.B2-wrbylaw to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A*
Amendment to Bylaws filed by EDGAR on April 30, 1999 as
EX-99.B(b)-wrbylaw2 to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement with amended fee schedule to reflect
the addition of Science and Technology Fund and High Income Fund,
filed by EDGAR on May 16, 1997 as EX-99.B5-wrima to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A*
Fee Schedule (Exhibit A) to the Investment Management Agreement, as
amended, attached hereto as EX-99.B(d)wrimafee
(e) Underwriting Agreement filed by EDGAR on June 27, 1995 as
EX-99.B6-wrua to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement, as amended, filed by EDGAR on April 30, 1999 as
EX-99.B(g)-wrca to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
(h) Shareholder Servicing Agreement, filed by EDGAR on April 30, 1999 as
EX-99.B(h)-wrssa to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
Accounting Services Agreement filed by EDGAR on October 3, 1995, as
EX-99.B9-wrasa to Post-Effective Amendment No. 6 to the
<PAGE>
Registration Statement on Form N-1A*
Fund NAV Application filed by EDGAR on February 3, 1995 as
EX-99.B9-wrnavapp to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A*
Fund Class B Application, as amended, filed by EDGAR on May 16, 1997
as EX-99.B9-wrappcb to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A*
Fund Class Y Application, filed by EDGAR on October 3, 1995, as
EX-99.B9-wrappcy to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A*
Class Y Letter of Understanding, filed by EDGAR on June 27, 1996 as
EX-99.B9-wrlou to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A*
(i) Opinion and Consent of Counsel, attached hereto as
EX-99.B(i)wrlegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants, attached
hereto as EX-99.B(j)-wrconsnt
(k) Not applicable
(l) Agreement with initial shareholder, Waddell & Reed, Inc. filed by
EDGAR on June 2, 1992 as Exhibit (b)(13) to Pre-Effective Amendment
No. 1 to the initial Registration Statement on Form N-1A*.
Agreement with Initial Shareholder of Waddell & Reed Funds, Inc.
Asset Strategy Fund, filed by EDGAR on June 27, 1995 as
EX-99.B13-wragree to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A*
(m) Distribution and Service Plan for Class B shares, filed by EDGAR on
October 3, 1995 as EX-99.B15-wrdspcb to Post-Effective Amendment No.
6 to the Registration Statement on Form N-1A*
Distribution and Service Plan for Class Y shares, filed by EDGAR on
October 3, 1995 as EX-99.B15-wrdspcy to Post-Effective Amendment No.
6 to the Registration Statement on Form N-1A*
(n) Not applicable
(o) Multiple Class Plan, filed by EDGAR on June 27, 1996 as
EX-99.B18-wrmcp to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A*
24. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
<PAGE>
None
25. Indemnification
---------------
Reference is made to Article 10.2 of the Registrant's Articles of
Incorporation, filed May 16, 1997 as EX-99.B1-charter to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A*; Article IX of
the Bylaws, filed June 27, 1996 as EX-99.B2-wrbylaw to Post-Effective
Amendement No. 7 to the Registration Statement on Form N-1A*; and Article
V of the Underwriting Agreement filed June 27, 1995 as EX-99.B6-wrua to
the Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A*, each of which provides indemnification. Also refer to Section 2-418
of the Maryland General Corporation Law regarding indemnification of
directors, officers, employees and agents.
26. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the Investment Manager of
the Registrant under the terms of an Investment Management Agreement
whereby it provides investment management services to the Registrant.
Waddell & Reed Investment Management Company is not engaged in any
business other than the provision of investment management services to
those registered investment companies as described in Part A and Part B of
this Post-Effective Amendment and to other investment advisory clients.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation or
employment during the past two years only his duties as an executive
officer and/or employee of Waddell & Reed Investment Management Company or
its predecessors, except as to persons who are directors and/or officers
of the Registrant and have served in the capacities shown in the Statement
of Additional Information of the Registrant The address of the officers is
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to Part A and Part B of this Post-Effective
Amendment.
27. Principal Underwriter and Distributor
-------------------------------------
(a) Waddell & Reed, Inc. is the principal underwriter and
distributor of the Registrant's shares. It is also the
principal underwriter to the following investment companies:
<PAGE>
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
Advantage I
Advantage II
Advantage Plus
(b) The information contained in the underwriter's application on Form
BD, under the Securities Exchange Act of 1934, is herein
incorporated by reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or an
affiliated person of such affiliated person.
28. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Kristen A. Richards, as officers of the Registrant, each
of whose business address is Post Office Box 29217, Shawnee Mission,
Kansas 66201-9217.
29. Management Services
-------------------
There are no service contracts other than as discussed in Part A and B of
this Post-Effective Amendment and listed in response to Items 23.(h) and
23.(m) hereof.
30. Undertakings
------------
Not applicable
- ---------------------------------
*Incorporated herein by reference
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED
FUNDS, INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND,
INC., UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TARGET/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, HELGE K. LEE and KRISTEN A. RICHARDS, and each of them individually,
their true and lawful attorneys and agents to take any and all action and
execute any and all instruments which said attorneys and agents may deem
necessary or advisable to enable each Corporation to comply with the Securities
Act of 1933 and/or the Investment Company Act of 1940, as amended, and any
rules, regulations, orders or other requirements of the United States Securities
and Exchange Commission thereunder, in connection with the registration under
the Securities Act of 1933 and/or the Investment Company Act of 1940, as
amended, including specifically, but without limitation of the foregoing, power
and authority to sign the names of each of such directors and officers in
his/her behalf as such director or officer as indicated below opposite his/her
signature hereto, to any Registration Statement and to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement or amendment or
supplement thereto; and each of the undersigned hereby ratifies and confirms all
that said attorneys and agents shall do or cause to be done by virtue hereof.
Date: May 19, 1999 /s/Robert L. Hechler
----------------------------
Robert L. Hechler, President
/s/Keith A. Tucker Chairman of the Board May 19, 1999
- --------------------- ------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal May 19, 1999
- --------------------- Financial Officer and ------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and May 19, 1999
- --------------------- Director ------------
Henry J. Herrmann
<PAGE>
/s/Theodore W. Howard Vice President, Treasurer May 19, 1999
- --------------------- and Principal Accounting ------------
Theodore W. Howard Officer
/s/James M. Concannon Director May 19, 1999
- --------------------- ------------
James M. Concannon
/s/John A. Dillingham Director May 19, 1999
- --------------------- ------------
John A. Dillingham
/s/David P. Gardner Director May 19, 1999
- --------------------- ------------
David P. Gardner
/s/Linda K. Graves Director May 19, 1999
- --------------------- ------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director May 19, 1999
- --------------------- ------------
Joseph Harroz, Jr.
/s/John F. Hayes Director May 19, 1999
- --------------------- ------------
John F. Hayes
/s/Glendon E. Johnson Director May 19, 1999
- --------------------- ------------
Glendon E. Johnson
/s/William T. Morgan Director May 19, 1999
- --------------------- ------------
William T. Morgan
/s/Ronald C. Reimer Director May 19, 1999
- --------------------- ------------
Ronald C. Reimer
<PAGE>
/s/Frank J. Ross, Jr. Director May 19, 1999
- --------------------- ------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director May 19, 1999
- --------------------- ------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director May 19, 1999
- --------------------- ------------
Frederick Vogel III
Attest:
/s/Kristen A. Richards
- --------------------------------
Kristen A. Richards
Assistant Secretary
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment pursuant to Rule
485(b) of the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Overland Park, and State of Kansas, on the 28th day
of June, 1999.
WADDELL & REED FUNDS, INC.
(Registrant)
By /s/ Robert L. Hechler*
----------------------------
Robert L. Hechler, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C> <C>
/s/Keith A. Tucker* Chairman of the Board June 28, 1999
- --------------------- -------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal June 28, 1999
- --------------------- Financial Officer and -------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and June 28, 1999
- --------------------- Director -------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer June 28, 1999
- ---------------------- and Principal Accounting -------------
Theodore W. Howard Officer
/s/James M. Concannon* Director June 28, 1999
- ---------------------- -------------
James M. Concannon
/s/John A. Dillingham* Director June 28, 1999
- ---------------------- -------------
John A. Dillingham
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/David P. Gardner* Director June 28, 1999
- --------------------- -------------
David P. Gardner
/s/Linda K. Graves* Director June 28, 1999
- --------------------- -------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director June 28, 1999
- --------------------- -------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director June 28, 1999
- --------------------- -------------
John F. Hayes
/s/Glendon E. Johnson* Director June 28, 1999
- --------------------- -------------
Glendon E. Johnson
/s/William T. Morgan* Director June 28, 1999
- --------------------- -------------
William T. Morgan
/s/Ronald C. Reimer* Director June 28, 1999
- --------------------- -------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director June 28, 1999
- ---------------------- -------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director June 28, 1999
- ---------------------- -------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director June 28, 1999
- ---------------------- -------------
Frederick Vogel III
</TABLE>
*By
Helge K. Lee
<PAGE>
Attorney-in-Fact
ATTEST:
Kristen A. Richards
Assistant Secretary
EX-99.B(d)wrimafee
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
WADDELL & REED FUNDS, INC.
FEE SCHEDULES
A cash fee computed each day on net asset value for each Fund at the annual
rates listed below:
Waddell & Reed Asset Strategy Fund
<TABLE>
<CAPTION>
Net Assets Fee
- ---------- ---
<S> <C>
Up to $1 billion 0.70% of net assets
Over $1 billion and up to $2 billion 0.65% of net assets
Over $2 billion and up to $3 billion 0.60% of net assets
Over $3 billion 0.55% of net assets
</TABLE>
Waddell & Reed Growth Fund
Net Assets Fee
- ---------- ---
Up to $1 billion 0.85% of net assets
Over $1 billion and up to $2 billion 0.83% of net assets
Over $2 billion and up to $3 billion 0.80% of net assets
Over $3 billion 0.76% of net assets
Waddell & Reed High Income Fund
<TABLE>
<CAPTION>
Net Assets Fee
- ---------- ---
<S> <C>
Up to $500 million 0.625% of net assets
Over $500 million and up to $1 billion 0.60% of net assets
Over $1 billion and up to $1.5 billion 0.55% of net assets
Over $1.5 billion 0.50% of net assets
</TABLE>
<PAGE>
Waddell & Reed International Growth Fund
<TABLE>
<CAPTION>
Net Assets Fee
- ---------- ---
<S> <C>
Up to $1 billion 0.85% of net assets
Over $1 billion and up to $2 billion 0.83% of net assets
Over $2 billion and up to $3 billion 0.80% of net assets
Over $3 billion 0.76% of net assets
</TABLE>
Limited-Term Bond Fund
<TABLE>
<CAPTION>
Net Assets Fee
- ---------- ---
<S> <C>
Up to $500 million 0.50% of net assets
Over $500 million and up to $1 billion 0.45% of net assets
Over $1 billion and up to $1.5 billion 0.40% of net assets
Over $1.5 billion 0.35% of net assets
</TABLE>
Municipal Bond Fund
<TABLE>
<CAPTION>
Net Assets Fee
- ---------- ---
<S> <C>
Up to $500 million 0.525% of net assets
Over $500 million and up to $1 billion 0.50% of net assets
Over $1 billion and up to $1.5 billion 0.45% of net assets
Over $1.5 billion 0.40% of net assets
</TABLE>
Science and Technology Fund
<TABLE>
<CAPTION>
Net Assets Fee
- ---------- ---
<S> <C>
Up to $1 billion 0.85% of net assets
Over $1 billion and up to $2 billion 0.83% of net assets
Over $2 billion and up to $3 billion 0.80% of net assets
Over $3 billion 0.76% of net assets
</TABLE>
2
<PAGE>
Total Return Fund
<TABLE>
<CAPTION>
Net Assets Fee
- ---------- ---
<S> <C>
Up to $1 billion 0.70% of net assets
Over $1 billion and up to $2 billion 0.65% of net assets
Over $2 billion and up to $3 billion 0.60% of net assets
Over $3 billion 0.55% of net assets
</TABLE>
As Amended and Effective June 30, 1999.
4
EX-99.B(i)wrlegopn
June 28, 1999
Waddell & Reed Funds, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
RE: Waddell & Reed Funds, Inc.
Post-Effective Amendment No. 12
Dear Sir or Madam:
In connection with the public offering of shares of Capital Stock of Waddell &
Reed Funds, Inc. (the "Fund"), I have examined such corporate records and
documents and have made such further investigation and examination as I deemed
necessary for the purpose of this opinion.
It is my opinion that the indefinite number of shares of such Capital Stock
covered by the Fund's Registration Statement on Form N-1A, when issued and paid
for in accordance with the terms of the offering, as set forth in the Prospectus
and Statement of Additional Information forming a part of the Registration
Statement, will be, when such Registration shall have become effective, legally
issued, fully paid and non-assessable by the Fund.
I hereby consent to the filing of this opinion as an Exhibit to the said
Registration Statement and to the reference to me in such Statement of
Additional Information.
Yours truly,
Helge K. Lee
General Counsel
HKL/fr
EX-99.B(j)-wrconsnt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 12 to Registration
Statement No. 33-45961 of Waddell & Reed Funds, Inc. on Form N-1A of our report
dated May 7, 1999, appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the caption "Financial
Highlights" in such Prospectus.
Deloitte & Touche LLP
Kansas City, Missouri
June 24, 1999
