485BPOS
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. 15
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 15
WADDELL & REED FUNDS, INC.
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(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
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Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on June 30, 2000 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, 2000 was filed on June 27, 2000.
<PAGE>
Prospectus
June 30, 2000
W&R Funds
EQUITY, GROWTH AND INCOME
& ASSET ALLOCATION FUNDS
Asset Strategy Fund
International Growth Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Science and Technology Fund
Small Cap Growth Fund
Tax-Managed Equity Fund
Total Return Fund
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.
CONTENTS
3 An Overview of the Funds
3 Asset Strategy Fund
10 International Growth Fund
16 Large Cap Growth Fund
20 Mid Cap Growth Fund
24 Science and Technology Fund
30 Small Cap Growth Fund
36 Tax-Managed Equity Fund
40 Total Return Fund
46 The Investment Principles of the Funds
55 Your Account
77 The Management of the Funds
81 Financial Highlights
AN OVERVIEW OF THE FUND
GOAL
W&R Asset Strategy Fund (formerly, Waddell & Reed 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, bonds and short-term instruments.
_ The stock class includes equity securities of all types, although Waddell
& Reed Investment Management Company ("WRIMCO"), the Fund's investment
manager, 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
Fund may invest in the securities of any size company.
_ The bond class includes all varieties of fixed-income instruments, such as
corporate or U.S. Government debt securities, with remaining maturities of
more than three years. This asset class may include a significant amount
of junk bonds, up to 35% of the Fund's total assets, which are bonds rated
BB and below by Standard & Poor's ("S&P") and Ba and below by Moody's
<PAGE>
Investors Service, Inc. ("MIS") or unrated bonds deemed by WRIMCO to be of
comparable quality.
_ 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 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 WRIMCO changes the Fund's holdings
based on its 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
- Stocks 70%
(can range
from
0-100%)
- Bonds 25%
(can range
from
0-100%)
- Short-term 5%
(can range from
0-100%)
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:
_ the skill of WRIMCO in allocating the Fund's assets among different types
of investments;
_ the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
_ an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to
decline;
_ prepayment of higher-yielding bonds held by the Fund;
_ the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds; and
_ 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.
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.
<PAGE>
As well, the Fund may invest a significant portion of its assets in foreign
securities. 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. You should consider whether the Fund fits
your investment objectives.
PERFORMANCE
Asset Strategy Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A or Class B shares since these classes
do not have annual returns for at least one calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1996 3.92%
1997 10.84%
1998 8.64%
1999 21.22%
In the period shown in the chart, the highest quarterly return was 15.52%
(the fourth quarter of 1999) and the lowest quarterly return was -4.97% (the
first quarter of 1997). The Class C return for the year through March 31,
2000 was 15.58%.
<PAGE>
_ The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year Life of Class2
Class C Shares of Asset Strategy Fund1 21.22% 10.05%
S&P 500 Index 21.09% 27.53%
Salomon Brothers Broad
Investment Grade Index -0.83% 6.86%
Salomon Brothers Short-Term Index
for 1 Month Certificates of Deposit 5.32% 5.62%
Lipper Flexible Portfolio Funds
Universe Average 12.50% 16.21%
Class Y Shares of Asset Strategy Fund 22.24% 11.90%
S&P 500 Index 21.09% 26.45%
Salomon Brothers Broad
Investment Grade Index -0.83% 5.20%
Salomon Brothers Short-Term Index
for 1 Month Certificates of Deposit 5.32% 5.55%
Lipper Flexible Portfolio
Funds Universe Average 12.50% 14.44%
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 returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current contingent deferred sales charge ("CDSC") structure applicable to
Class C.
_ Since April 20, 1995 for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above indexes are not
available, index performance is calculated from April 30, 1995 and
December 31, 1995, respectively.
FEES AND EXPENSES
Asset Strategy Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
<PAGE>
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.51% 0.51% 0.51% 0.38%
Total Annual Fund
Operating Expenses 1.46% 2.21% 2.21% 1.33%
1 The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2 A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3 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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $715 $1,010 $1,327 $2,221
Class B Shares $624 $ 991 $1,285 $2,353(1)
Class C Shares $324 $ 691 $1,185 $2,544
Class Y Shares $135 $ 421 $ 729 $1,601
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $715 $1,010 $1,327 $2,221
Class B Shares $224 $ 691 $1,185 $2,353(1)
Class C Shares $224 $ 691 $1,185 $2,544
Class Y Shares $135 $ 421 $ 729 $1,601
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
<PAGE>
AN OVERVIEW OF THE FUND
GOALS
W&R International Growth Fund (formerly, Waddell & Reed 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 within a country or
region and/or represented by the privatization and/or restructuring of
particular industries. The Fund emphasizes growth stocks, which are
securities of companies whose earnings WRIMCO believes are likely to grow
faster than the economy. The Fund primarily invests in issuers of developed
countries, and the Fund may invest in companies of any size.
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;
_ industry position; and
_ applicable economic and market conditions.
Generally, in determining whether to sell a security, WRIMCO uses the same
type of analysis that it uses in buying securities of that type. For example,
WRIMCO may sell a security if it believes the security has ceased to offer
significant growth potential. WRIMCO may also sell a security to take
advantage of more attractive investment opportunities or to raise cash.
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 are more likely to have
<PAGE>
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
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.
PERFORMANCE
International Growth Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for at least one calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 3.62%
1994 0.12%
1995 8.34%
1996 19.11%
1997 16.89%
1998 31.72%
1999 88.66%
In the period shown in the chart, the highest quarterly return was 67.07%
(the fourth quarter of 1999) and the lowest quarterly return was -18.21% (the
third quarter of 1998). The Class C return for the year through March 31,
2000 was 8.88%.
<PAGE>
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
International Growth Fund1 88.66% 30.25% 19.91%
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 13.55%
Lipper International
Funds Universe Average 40.80% 15.05% 14.91%
Class Y Shares of
International Growth Fund 90.62% 37.56%
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 13.24%
Lipper International
Funds Universe Average 40.80% 15.05% 16.81%
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.
1 The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2 Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above index are not
available, index performance is calculated from September 30, 1992 and
December 31, 1995, respectively.
FEES AND EXPENSES
International Growth Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
<PAGE>
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.52% 0.52% 0.52% 0.35%
Total Annual Fund
Operating Expenses 1.62% 2.37% 2.37% 1.45%
1 The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any
payment for the purchase of shares, all payments during a month are
totaled and deemed to have been made on the first day of the month.
2 A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3 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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $730 $1,057 $1,406 $2,386
Class B Shares $640 $1,039 $1,365 $2,517(1)
Class C Shares $340 $ 739 $1,265 $2,706
Class Y Shares $148 $ 459 $ 792 $1,735
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $730 $1,057 $1,406 $2,386
Class B Shares $240 $ 739 $1,265 $2,517(1)
Class C Shares $240 $ 739 $1,265 $2,706
Class Y Shares $148 $ 459 $ 792 $1,735
(1)Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
<PAGE>
AN OVERVIEW OF THE FUND
GOAL
W&R Large Cap Growth Fund
seeks the appreciation of your investment.
Principal Strategies
Large Cap Growth Fund seeks to achieve its goal by investing primarily in a
diversified portfolio of common stocks issued by growth-oriented large to
medium sized U.S. and foreign companies that WRIMCO believes have
appreciation possibilities. Growth stocks are those whose earnings WRIMCO
believes are likely to grow faster than the economy. The Fund may invest in
companies of any size.
WRIMCO attempts to select securities with appreciation possibilities by
looking at many factors. These include:
_ changes in economic and political conditions;
_ the short-term and long-term outlook for the industry being analyzed;
_ the management capability of the company being considered; and
_ the company's market position, product line, technological position and
prospects for increased earnings.
WRIMCO may also analyze the demands of investors for the security relative to
its price. Securities may be chosen when WRIMCO anticipates a development
that might have an effect on the value of a security.
Generally, in determining whether to sell a security, WRIMCO uses the same
type of analysis that it uses in buying securities. For example, WRIMCO may
sell a security if it determines that the security no longer presents
sufficient appreciation potential. WRIMCO may also sell a security to take
advantage of more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because Large Cap 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;
_ the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
_ 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 evaluating and selecting securities for the Fund.
Market risk for medium sized companies may be greater than the market risk
for large companies. Such companies are more likely to have limited financial
resources and inexperienced management. As well, stock of these companies may
experience volatile trading and price fluctuations.
As well, the Fund may invest a portion of its assets in foreign securities.
Foreign securities present additional risks such as currency fluctuations and
political or economic conditions affecting the foreign countries.
<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
Large Cap Growth Fund is designed for investors seeking long-term investment
growth. You should consider whether the Fund fits your particular investment
objectives.
PERFORMANCE
Large Cap Growth Fund
The Fund has not been in operation for a full calendar year, therefore it
does not have performance information of at least one calendar year to
include a bar chart or performance table.
FEES AND EXPENSES
Large Cap Growth Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.18% 0.18% 0.18% 0.18%
Total Annual Fund
Operating Expenses 1.13% 1.88% 1.88% 1.13%
1 The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
<PAGE>
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2 A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3 The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25
million, subject to WRIMCO's right to change or terminate this waiver. The
expense ratios for Other Expenses are based on estimated amounts for the
current fiscal year. Actual expenses may be greater or less than those
shown.
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 A, Class
B, Class C 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:
If shares are redeemed at end of period: 1 Year 3 Years
Class A Shares $684 $913
Class B Shares $591 $891
Class C Shares $291 $591
Class Y Shares $115 $359
If shares are not redeemed at end of period: 1 Year 3 Years
Class A Shares $684 $913
Class B Shares $191 $591
Class C Shares $191 $591
Class Y Shares $115 $359
AN OVERVIEW OF THE FUND
W&R Mid Cap Growth Fund
seeks the growth of your investment.
Principal Strategies
Mid Cap Growth Fund seeks to achieve its goal by investing primarily in
common stocks of U.S. and foreign companies whose market capitalizations are
within the range of capitalizations of companies comprising the Russell Mid-
Cap Growth Index ("Russell Mid-Cap") and that WRIMCO believes offer above-
average growth potential.
In selecting companies, WRIMCO may look at a number of factors, such as:
_ new or innovative products or services;
_ adaptive or creative management;
_ strong financial and operational capabilities to sustain growth;
_ market potential; and
<PAGE>
_ profit potential.
Generally, in determining whether to sell a stock, WRIMCO uses the same type
of analysis that it uses when buying stocks. For example, WRIMCO may sell a
holding if the company no longer meets the desired capitalization range or if
the company position weakens in the industry or market. WRIMCO may also sell
a security to take advantage of more attractive investment opportunities or
to raise cash.
Principal Risks of Investing in the Fund
Because Mid Cap 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's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy; and
_ the skill of WRIMCO in evaluating and selecting securities for the Fund.
Market risk for medium sized companies may be greater than that for large
companies. Medium sized companies may have limited financial resources and
less experienced management compared to large companies. Stocks of medium
sized companies may experience volatile trading and price fluctuations.
Also, the Fund may invest, to a lesser extent, in foreign securities, which
present additional risks such as currency fluctuations and political or
economic conditions affecting the foreign country.
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
Mid Cap Growth Fund is designed for investors who are willing to accept
greater risks than are present with many other mutual funds. The Fund is not
intended for investors who desire assured income and conservation of capital.
You should consider whether the Fund fits your particular investment
objectives.
PERFORMANCE
Mid Cap Growth Fund
The Fund has not been in operation for a full calendar year, therefore it
does not have performance information of at least one calendar year to
include a bar chart or performance table.
FEES AND EXPENSES
Mid Cap Growth Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
<PAGE>
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.26% 0.56% 0.47% 0.20%
Total Annual Fund
Operating Expenses 1.36% 2.41% 2.32% 1.30%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25
million, subject to WRIMCO's right to change or terminate this waiver. The
expense ratios for Other Expenses are based on estimated amounts for the
current fiscal year. Actual expenses may be greater or less than those
shown.
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 A, Class
B, Class C 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:
If shares are redeemed at end of period: 1 Year 3 Years
Class A Shares $706 $ 981
<PAGE>
Class B Shares $644 $1,051
Class C Shares $335 $ 724
Class Y Shares $132 $ 412
If shares are not redeemed at end of period: 1 Year 3 Years
Class A Shares $706 $ 981
Class B Shares $244 $ 751
Class C Shares $235 $ 724
Class Y Shares $132 $ 412
AN OVERVIEW OF THE FUND
GOAL
W&R Science and Technology Fund
(formerly, Waddell & Reed Science and Technology Fund) seeks long-term
capital growth.
Principal Strategies
Science and Technology Fund seeks to achieve its goal of growth by
concentrating its investments primarily in the equity securities of U.S. and
foreign science and technology companies. Science and technology companies
are companies whose products, processes or services, in the opinion of
WRIMCO, 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. WRIMCO typically
emphasizes growth potential in selecting stocks; that is WRIMCO seeks
companies in which earnings are likely to grow faster than the economy.
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.
Generally, in determining whether to sell a stock, WRIMCO uses the same type
of analysis that it uses in buying stocks in order to determine whether the
security has ceased to offer significant growth potential. WRIMCO may also
sell a security to take advantage of more attractive investment opportunities
or to raise cash.
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;
_ government regulation in the science and technology industry;
<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
_ 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, stocks of smaller companies
may experience volatile trading and price fluctuations.
The Fund may invest, to a lesser extent, in foreign securities. Investments
in foreign securities present additional risks such as currency fluctuations
and political or economic conditions affecting the foreign country.
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
securities of science and technology companies. This Fund is not suitable for
all investors. You should consider whether the Fund fits your investment
objectives.
PERFORMANCE
Science and Technology Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing the Fund's performance and by
showing how the Fund's average annual total returns for the periods shown
compare with those of a broad measure of market performance and a peer group
average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows the Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for a full calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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.
<PAGE>
CHART OF RETURNS
as of December 31 each year (%)1
1998 44.03%
1999 177.01%2
In the period shown in the chart, the highest quarterly return was 82.61%
(the fourth quarter of 1999) and the lowest quarterly return was -12.63% (the
third quarter of 1998). The Class C return for the year through March 31,
2000, was 11.16%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
2.
A substantial portion of the Fund's returns during recent periods is
attributable to investments in initial public offerings (IPOs). No
assurance can be given that the Fund will continue to be able to invest in
IPOs to the same extent as it has in the past or that future IPOs in which
the Fund invests will have as equally benefical an impact on performance.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year Life of Class2
Class C Shares of
Science and Technology Fund1 177.01% 78.78%
Goldman Sachs Technology
Industry Composite Index 88.86% 53.80%
S&P 400 Industrials Index 26.05% 24.64%
Lipper Science and Technology
Funds Universe Average 134.77% 59.78%
Class Y Shares of
Science and Technology Fund 175.81% 117.27%
Goldman Sachs Technology
Industry Composite Index 88.86% 84.62%
S&P 400 Industrials Index 26.05% 26.27%
Lipper Science and Technology
Funds Universe Average 134.77% 99.09%
The indexes shown are broad-based, securities market indexes that are
unmanaged. The Goldman Sachs Technology Industry Composite Index will replace
the S&P 400 Industrials Index. WRIMCO believes that the Goldman Sachs
Technology Industry Composite Index provides a more accurate basis for
comparing the Fund's performance to the performance of the types of
securities in which the Fund invests. Both indexes are presented for
comparison purposes. The Lipper average is a composite of mutual funds with
goals similar to the goal of the Fund.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
Since July 31, 1997 for Class C shares (based on the prior Class B shares)
and June 9, 1998 for Class Y shares. Because Class Y commenced operations
on a date other than at the end of a month, and partial month calculations
of the performance of the above indexes are not available, index
performance is calculated from June 30, 1998.
FEES AND EXPENSES
Science and Technology Fund
<PAGE>
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested
or redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 0.99% 0.25%
Other Expenses 0.38% 0.38% 0.38% 0.30%
Total Annual Fund
Operating Expenses 1.48% 2.23% 2.22% 1.40%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
<PAGE>
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $717 $1,016 $1,336 $2,242
Class B Shares $626 $ 997 $1,295 $2,373(1)
Class C Shares $325 $ 694 $1,190 $2,554
Class Y Shares $143 $ 443 $ 766 $1,680
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $717 $1,016 $1,336 $2,242
Class B Shares $226 $ 697 $1,195 $2,373(1)
Class C Shares $225 $ 694 $1,190 $2,554
Class Y Shares $143 $ 443 $ 766 $1,680
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R Small Cap Growth Fund
(formerly Waddell & Reed Growth Fund) seeks growth of capital.
Principal Strategies
Small Cap Growth Fund seeks to achieve its goal by investing primarily in
common stocks of domestic and foreign companies whose market capitalizations
are within the range of capitalizations of companies included in the Lipper,
Inc. Small Cap Category ("small cap stocks"). The Fund emphasizes relatively
new or unseasoned companies in their early stages of development or smaller
companies positioned in new or emerging industries where there is opportunity
for rapid growth.
In selecting companies, WRIMCO seeks companies whose earnings, it believes,
are likely to grow faster than the economy. 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; and
_ entry into new or emerging industries.
In general, WRIMCO may sell a security if it determines that the stock no
longer offers significant growth potential, which may be due to a change in
the business or management of the company or a change in the industry of the
company. As well, WRIMCO may sell a security to take advantage of more
attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because Small Cap Growth Fund owns different types of securities, 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;
<PAGE>
_ the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries;
_ 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 companies may be greater than that for medium and
large companies. Smaller companies are more likely to have limited
financial resources and inexperienced management. Stock of smaller
companies may also experience volatile trading and price fluctuations.
Due to the nature of the Fund's permitted investments, primarily the small
cap stocks of new and/or unseasoned companies, companies in their early
stages of development or smaller companies in new or emerging industries, the
Fund may be subject to the following additional risks:
_ products offered may fail to sell as anticipated;
_ a period of unprofitability may be experienced before a company develops
the expertise and clientele to succeed in an industry;
_ the company may never achieve profitability; and
_ economic, market and technological factors may cause the new industry
itself to lose favor with the public.
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
Small Cap Growth Fund is designed for investors willing to accept greater
risks than are present with many other mutual funds. It is not intended for
those investors who desire assured income and conservation of capital. You
should consider whether the Fund fits your particular investment objectives.
PERFORMANCE
Small Cap Growth Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for at least one calendar year.
<PAGE>
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 24.20%
1994 12.75%
1995 32.14%
1996 2.30%
1997 21.12%
1998 44.57%
1999 61.42%
In the period shown in the chart, the highest quarterly return was 40.97%
(the fourth quarter of 1999) and the lowest quarterly return was -13.74% (the
third quarter of 1998). The Class C return for the year through March 31,
2000, was 10.41%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
Small Cap Growth Fund1 61.42% 30.75% 28.84%
Russell 2000 Growth Index 43.08% 18.95% 16.94%
Nasdaq Industrials Index 71.67% 24.33% 19.35%
Class Y Shares of
Small Cap Growth Fund 62.79% 31.67%
Russell 2000 Growth Index 43.08% 18.95% 16.12%
Nasdaq Industrials Index 71.67% 24.33% 23.43%
The indexes shown are broad-based, securities market indexes that are
unmanaged. The Russell 2000 Growth Index will replace the Nasdaq Industrials
Index. WRIMCO believes that the Russell 2000 Growth Index provides a more
accurate basis for comparing the Fund's performance to the types of
securities in which the Fund invests. Both indexes are presented for
comparison purposes.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above indexes are not
available, index performance is calculated from September 30, 1992 and
December 31, 1995, respectively.
FEES AND EXPENSES
<PAGE>
Small Cap Growth Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.26% 0.26% 0.26% 0.26%
Total Annual Fund
Operating Expenses 1.36% 2.11% 2.11% 1.36%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
<PAGE>
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $706 $981 $1,277 $2,116
Class B Shares $614 $961 $1,234 $2,248(1)
Class C Shares $314 $661 $1,134 $2,441
Class Y Shares $138 $431 $ 745 $1,635
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $706 $981 $1,277 $2,116
Class B Shares $214 $661 $1,134 $2,248(1)
Class C Shares $214 $661 $1,134 $2,441
Class Y Shares $138 $431 $ 745 $1,635
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R Tax-Managed Equity Fund
seeks long-term growth of capital while minimizing taxable gains and income
to shareholders.
Principal Strategies
Tax-Managed Equity Fund seeks to achieve its goal by investing primarily in a
diversified portfolio of common stocks of U.S. and foreign companies that
WRIMCO considers to be high in quality and attractive in their long-term
investment potential. The Fund seeks stocks that are favorably priced in
relation to their fundamental value and will likely grow over time. While the
Fund typically invests in the common stock of large to medium sized U.S.
companies, it may invest in companies of any size, any industry or any
country in order to achieve its goal.
WRIMCO manages the Fund using an investment strategy that is sensitive to the
potential impact of Federal income tax on shareholders' investment returns.
The Fund's tax-sensitive investment strategy is intended to lead to lower
distributions of income and realized capital gains than funds managed without
regard to Federal income tax consequences.
In selecting companies, WRIMCO typically invests for the long term and
chooses securities that it believes offer strong opportunities for long-term
growth of capital and that are attractively valued. While WRIMCO primarily
invests in growth stocks, it may also purchase value stocks. Value stocks are
those that WRIMCO believes are currently selling below their true worth.
When deciding to sell a security, WRIMCO considers the negative tax impact of
realized capital gains and, if applicable, the positive tax impact of
realizing capital losses. However, WRIMCO may sell a security at a realized
gain if it determines that the potential tax cost is outweighed by the risk
of owning the security, or if more attractive investment opportunities are
available. In addition, redemptions by shareholders may force the Fund to
sell securities at an inappropriate time, potentially resulting in realized
gains.
Principal Risks of Investing in the Fund
<PAGE>
Because Tax-Managed Equity Fund owns different types of investments, a
variety of factors can affect its investment performance, such as:
_ the skill of WRIMCO in evaluating and selecting securities for the Fund;
_ the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
_ the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries that may result in
performance less favorable than another investment mix might have
produced;
_ 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 Fund's tax-sensitive investment strategy not limiting taxable income
and realized capital gains as contemplated.
Market risk for small companies may be greater than that for medium and large
companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. Stock of smaller companies, and
growth stock in general, may also 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.
Who May Want to Invest
Tax-Managed Equity Fund is designed for long-term taxable investors. If you
are investing for the short-term (less than one year), you may suffer
negative tax consequences. Market conditions may limit the Fund's ability to
generate tax losses or to avoid dividend income. While the Fund tries to
reduce the extent to which shareholders incur taxes on Fund distributions of
income and net realized gains, the Fund does expect to distribute taxable
income and/or capital gains from time to time. Investors may realize capital
gains when they sell their shares. You should consider whether the Fund fits
your particular investment objectives.
PERFORMANCE
Tax-Managed Equity Fund
The Fund has not been in operation for a full calendar year; therefore, it
does not have performance information of at least one calendar year to
include a bar chart or performance table.
FEES AND EXPENSES
Tax-Managed Equity Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
<PAGE>
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.65% 0.65% 0.65% 0.65%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.40% 0.40% 0.40% 0.20%
Total Annual Fund
Operating Expenses 1.30% 2.05% 2.05% 1.10%
3.
The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25
million, subject to WRIMCO's right to change or terminate this waiver. The
expense ratios for Other Expenses are based on estimated amounts for the
current fiscal year. Actual expenses may be greater or less than those
shown.
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 A, Class
B, Class C 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:
If shares are redeemed at end of period: 1 Year 3 Years
Class A Shares $700 $963
Class B Shares $608 $943
Class C Shares $308 $643
Class Y Shares $112 $350
If shares are not redeemed at end of period: 1 Year 3 Years
<PAGE>
Class A Shares $700 $963
Class B Shares $208 $643
Class C Shares $208 $643
Class Y Shares $112 $350
AN OVERVIEW OF THE FUND
GOAL
W&R Total Return Fund
(formerly Waddell & Reed Total Return Fund) seeks to provide capital growth
and income
Principal Strategies
Total Return Fund seeks to achieve its goal by investing primarily in common
stocks of U.S. and foreign companies with dominant market positions in their
industries and with a record of paying regular dividends on common stock, or
that 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.
WRIMCO attempts to select securities with growth and income possibilities by
looking at many factors including the company's:
_ profitability record;
_ history of improving sales and profits;
_ management;
_ leadership position in its industry;
_ stock price value; and
_ dividend payment history.
Generally, 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. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
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, especially bonds with longer maturities, to
decline; and
_ WRIMCO's skill in evaluating and selecting securities for the Fund.
<PAGE>
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.
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 capital growth and
income. You should consider whether the Fund fits your investment objectives.
PERFORMANCE
Total Return Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A or Class B shares since these classes
do not have annual returns for at least one calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 14.03%
1994 -2.07%
1995 29.65%
1996 18.12%
1997 24.61%
1998 20.73%
1999 12.15%
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 C return for the year through March 31,
2000, was 11.33%.
<PAGE>
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
Total Return Fund1 12.15% 20.91% 16.66%
S&P 500 Index 21.09% 28.59% 21.55%
Lipper Growth and Income
Funds Universe Average 13.76% 21.34% 16.80%
Class Y Shares of
Total Return Fund 12.96% 19.68%
S&P 500 Index 21.09% 28.59% 26.45%
Lipper Growth and Income
Funds Universe Average 13.76% 21.34% 19.03%
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.
1.
1The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
2Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above index are not
available, index performance is calculated from September 30, 1992 and
December 31, 1995, respectively.
FEES AND EXPENSES
Total Return Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
<PAGE>
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.28% 0.28% 0.28% 0.22%
Total Annual Fund
Operating Expenses 1.23% 1.98% 1.98% 1.17%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $693 $943 $1,212 $1,978
Class B Shares $601 $921 $1,168 $2,1111
Class C Shares $301 $621 $1,068 $2,306
Class Y Shares $119 $372 $ 644 $1,420
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $693 $943 $1,212 $1,978
Class B Shares $201 $621 $1,068 $2,1111
Class C Shares $201 $621 $1,068 $2,306
Class Y Shares $119 $372 $ 644 $1,420
1.
Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
<PAGE>
THE INVESTMENT PRINCIPLES OF THE FUNDS
Investment Goals, Principal Strategies and Other Investments
W&R Asset Strategy Fund
The goal of Asset Strategy Fund is to seek 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 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,
as a percentage of total assets of the Fund, are listed below. Some types of
investments, such as indexed securities, can fall into more than one asset
class.
Mix Range
--------- ------
Stock
class 0-100%
70%
Bond
class 0-100%
25%
Short-term
class 0-100%
5%
WRIMCO 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.
<PAGE>
Although WRIMCO may seek to preserve appreciation in the Fund by taking a
defensive position, doing so may prevent the Fund from achieving its
investment objective.
W&R International Growth Fund
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 of foreign issuers. There is no guarantee that the Fund will
achieve its goals.
The Fund may also invest, to a lesser extent, in preferred stocks and debt
securities. The debt securities may be of any maturity and will typically be
investment grade.
Under normal conditions, the Fund invests at least 80% of its total assets in
foreign securities and at least 65% of its total 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. As well, the Fund will invest at least 65% of its total
assets in growth securities (primarily in common stock) during normal market
conditions. Growth securities are those whose earnings, WRIMCO believes, are
likely to have strong growth over several years.
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may invest 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, and may also invest up to all of the Fund's assets in U.S.
securities. By taking a temporary defensive position the Fund may not achieve
its investment objectives.
W&R Large Cap Growth Fund
The goal of the Large Cap Growth Fund is the appreciation of your investment.
The Fund seeks to achieve this goal through a diversified holding of
securities, primarily those issued by large to medium sized U.S. and foreign
companies that WRIMCO believes have appreciation possibilities. There is no
guarantee that the Fund will achieve its goal. The Fund will, under normal
market conditions, invest at least 65% of its total assets in large cap
growth securities.
The Fund invests primarily in common stock but may also own, to a limited
extent, preferred stock and debt securities, typically of investment grade
and of any maturity. The Fund may also own convertible securities. As well,
the Fund may invest, to a lesser extent, in foreign securities.
At times, as a temporary defensive measure, the Fund may invest up to all of
its assets in either debt securities (which may include money market
instruments held as cash reserves) or preferred stocks or both. By taking a
temporary defensive position in either or both of these ways the Fund may not
achieve its investment objective.
W&R Mid Cap Growth Fund
The goal of the Mid Cap Growth Fund is the growth of your investment. The
Fund seeks to achieve its goal by investing primarily in a diversified
portfolio of common stocks of U.S. and foreign companies whose market
capitalizations are within the range of capitalizations of companies
comprising the Russell Mid-Cap and that WRIMCO believes offer above-average
growth potential. For this purpose, the Fund considers a company's
capitalization at the time the Fund acquires the company's securities, and
the company need not be listed in the Russell Mid-Cap. Companies whose
capitalization falls outside the range of the Russell Mid-Cap after purchase
continue to be considered medium capitalization companies for purpose of the
<PAGE>
Fund's investment policy. There is no guarantee that the Fund will achieve
its goal. The Fund will, under normal market conditions, invest at least 65%
of its total assets in mid cap securities.
In addition to common stocks, the Fund may invest in convertible securities,
preferred stocks and debt securities of any maturity and mostly of investment
grade. The Fund may also invest up to 25% of its total assets in foreign
securities.
When WRIMCO believes that a temporary defensive position is desirable, the
Fund may invest up to all of its assets in debt securities (including
commercial paper, short-term securities issued by the U.S. Government or its
agencies or instrumentalities and other money market instruments) and/or
preferred stocks. The Fund may also use options and futures contracts for
defensive purposes. By taking a defensive position the Fund may not achieve
its investment objective.
W&R Science and Technology Fund
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, to a lesser
extent, in preferred stock, debt securities and convertible securities. The
Fund may invest a limited amount of its assets in foreign securities.
Under normal economic and market conditions, the Fund will not invest more
than 20% of its total assets in securities other than those of science or
technology companies. 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.
By taking a temporary defensive position the Fund may not achieve its
investment objective.
<PAGE>
W&R Small Cap Growth Fund
The goal of Small Cap Growth Fund (formerly, Growth Fund) is growth of
capital. The Fund seeks to achieve its goal by investing primarily in common
stocks of small capitalization companies that are relatively new or
unseasoned, companies in their early stages of development, or smaller
companies positioned in new or emerging industries where there is an
opportunity for rapid growth. The Fund considers a company's capitalization
at the time the Fund acquires the company's common stock. Common stock of a
company whose capitalization exceeds the range of the Lipper, Inc. Small Cap
Category after purchase will not be sold solely because of its increased
capitalization. There is no guarantee that the Fund will achieve its goal.
The Fund will, under normal market conditions, invest at least 65% of its
total assets in small cap securities. In addition to common stocks, the Fund
may also invest in securities convertible into common stocks, preferred
stocks and debt securities that are mostly of investment grade. The Fund may
also buy foreign securities; however, it may not invest more than 10% of its
total assets in foreign securities.
When WRIMCO believes that a temporary defensive position is desirable, the
Fund may invest up to all of its assets in debt securities (including
commercial paper or short-term U.S. Government securities) or preferred
stocks, or both. By taking a temporary defensive position, the Fund may not
achieve its investment objective.
W&R Tax-Managed Equity Fund
The goal of Tax-Managed Equity Fund is long-term growth of capital while
minimizing taxable gains and income to shareholders. The Fund seeks to
achieve its goal by investing primarily in a diversified portfolio of common
stocks of U.S. and foreign companies that WRIMCO considers to be high in
quality and attractive in their long-term investment potential. The Fund
seeks stocks that are favorably priced in relation to their fundamental value
and will likely grow over time.
The Fund attempts to achieve high after-tax returns for its shareholders by
balancing investment considerations and tax considerations. The Fund seeks to
minimize income distributions and distributions of realized short-term gains
(taxed as ordinary income), as well as distributions of realized long-term
gains. The Fund seeks to achieve returns primarily in the form of price
appreciation (not subject to current tax until shares are redeemed). There is
no guarantee that the Fund will achieve its goal.
WRIMCO ordinarily uses one or more of the following strategies in its
management of the Fund:
_ a long-term, low turnover approach to investing;
_ an emphasis on lower-yielding securities to require distribution of
little, if any, taxable income;
_ an attempt to avoid net realized short-term gains;
_ in the sale of portfolio securities, selection of the most tax-favored
lots; and
_ selective tax-advantaged hedging techniques as an alternative to taxable
sales.
The Fund will, under normal market conditions, invest at least 65% of its
total assets in equity securities, primarily common stocks. The Fund
emphasizes growth stocks; however, it may also invest in value stocks. In
addition to common stocks, the Fund may also invest in securities convertible
into common stocks, preferred stocks and debt securities that are mostly of
<PAGE>
investment grade. The Fund may also buy foreign securities; however, it may
not invest more than 25% of its total assets in foreign securities.
When WRIMCO believes that a temporary defensive position is desirable, the
Fund may invest up to all of its assets in debt securities (including
commercial paper or short-term U.S. Government securities) or preferred
stocks, or both. By taking a temporary defensive position, the Fund may not
achieve its investment objective.
W&R Total Return Fund
The goal of Total Return Fund is to provide capital growth and income. 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. and foreign companies that have a record of paying regular dividends or
have the potential for capital appreciation. The Fund may invest a limited
amount of its assets in foreign securities. There is no guarantee that the
Fund will achieve its goals.
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.
By taking a temporary defensive position the Fund may not achieve its
investment objective.
All Funds
Each Fund may also invest in and use certain other types of instruments in
seeking to achieve its goal(s). 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 about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in the Statement
of Additional Information ("SAI").
Risk Considerations of Principal Strategies and Other Investments
Risks exist in any investment. Each Fund is subject to equity and market risk
and financial risk.
_ Market risk is the possibility of a change in the price of the security.
The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. A Fund may lose a
substantial part, or even all, of its investment in a company's stock.
Growth stocks may experience greater price volatility than value stocks.
To the extent a Fund invests in fixed income securities, the price of a
fixed income security may be affected by 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. The financial risk of a Fund may depend, for example, on the
<PAGE>
earnings performance of the issuer of stock held by the Fund. To the
extent a Fund invests in debt securities, the financial risk of the Fund
may also depend on the credit quality of the securities in which it
invests.
Notwithstanding Tax-Managed Equity Fund's use of tax management investment
strategies, the Fund may have taxable income and may realize taxable capital
gains from time to time. In addition, investors purchasing Fund shares when
the Fund has large accumulated capital gains could receive a significant part
of the purchase price of their shares back as a taxable capital gain
distribution. Over time, securities with unrealized gains may comprise a
substantial portion of the Fund's assets. As well, state or Federal tax laws
or regulations may be amended at any time which could include adverse changes
to applicable tax rates or capital gains holding periods.
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, to foreign taxes, and to 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.
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 investments
and, with respect to Asset Strategy Fund, on WRIMCO's skill in allocating
assets.
Asset Strategy Fund and International Growth 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.
YOUR ACCOUNT
Choosing a Share Class
Each Fund offers four classes of shares: Class A, Class B, Class C and Class
Y. Each class has its own sales charge, if any, and expense structure. The
decision as to which class of shares is best suited to your needs depends on
a number of factors that you should discuss with your financial advisor. Some
factors to consider are how much you plan to invest and how long you plan to
hold your investment. If you are investing a substantial amount and plan to
hold your shares for a long time, Class A shares may be the most appropriate
for you. Class B and Class C shares are not available for investments of $2
million or more. If you are investing a lesser amount, you may want to
consider Class B shares (if investing for at least seven years) or Class C
shares (if investing for less than seven years). Class Y shares are designed
for institutional investors and others investing through certain
intermediaries, as described below.
Since your objectives may change over time, you may want to consider another
class when you buy additional Fund shares. 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 a future
investment.
<PAGE>
General Comparison of Class A, Class B and Class C Shares
Class A Class B Class C
Initial sales charge No initial sales charge No initial sales charge
No deferred sales Deferred sales charge on A 1% deferred sales
charge1 shares you sell within charge on shares you
six years after purchase sell within twelve
months after
purchase
Maximum distribution Maximum distribution Maximum distribution
and service (12b-1) and service (12b-1) fees and service (12b-1)
fees of 0.25% of 1.00% fees of 1.00%
For an investment of Converts to Class A Does not convert
$2 million or more, shares 8 years after the to Class A shares,
only Class A shares month in which the shares so annual expenses
are available were purchased, thus do not decrease
reducing future annual
expenses
For an investment of
$300,000 or more,
your financial
advisor typically will
recommend purchase of
Class A shares due to a
reduced sales charge and
lower annual expenses
1.
A 1% CDSC may apply to purchases of $2 million or more of Class A shares
that are redeemed within twelve months of purchase.
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, ("Rule 12b-
1") for each of its Class A, Class B, Class C and Class Y shares. Under the
Class A Plan, each Fund may pay Waddell & Reed, Inc. (the "Distributor") a
fee of up to 0.25%, on an annual basis, of the average daily net assets of
the Class A shares. This fee is to compensate the Distributor for the amounts
it spends for, either directly or through third parties, distributing the
Fund's Class A shares, providing personal service to Class A shareholders
and/or maintaining Class A shareholder accounts. Under the Class B Plan and
the Class C Plan, each Fund may pay Waddell & Reed, Inc. a fee of up to
0.75%, on an annual basis, of the average daily net assets of the shares of
the class to compensate the Distributor for, either directly or through third
parties, distributing the shares of that class and a fee of up to 0.25%, on
an annual basis, of the average daily net assets of the shares of that class
to compensate the Distributor for, either directly or through third parties,
providing personal service to shareholders of that class and/or maintaining
shareholder accounts for that class. 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 or Class C shares would exceed the maximum
amount of such charges that the Distributor is permitted to receive under
NASD rules as then in effect.
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, either directly or through
third parties, distributing the Class Y shares of that Fund, providing
personal service to Class Y shareholders and/or maintaining Class Y
shareholder accounts.
<PAGE>
Because the Plan fees are paid out of the assets of the applicable class on
an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Class A shares are subject to an initial sales charge when you buy them,
based on the amount of your investment, according to the table below. Class A
shares pay an annual 12b-1 fee of up to 0.25% of average Class A net assets.
The ongoing expenses of this class are lower than those for Class B or Class
C shares.
Size of Purchase
Sales Charge Reallowance
as Approx. to Dealers
Sales Charge Percent of as Percent
as Percent of Amount of Offering
Offering Price Invested Price
Under $100,000 5.75% 6.10% 5.00%
$100,000 to less than $200,000 4.75 4.99 4.00
$200,000 to less than $300,000 3.50 3.63 2.80
$300,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 1.50 1.52 1.20
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
$2,000,000 and over 0.001 0.001 0.50
1.
No sales charge is payable at the time of purchase on investments of $2
million or more, although for such investments a Fund may impose a CDSC of
1% on redemptions made within twelve months of the purchase. The CDSC is
assessed on an amount equal to the lesser of the then current market value
or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value ("NAV") above the initial purchase
price.
Waddell & Reed, Inc. or its affiliate(s) may pay additional compensation from
its own resources to securities dealers based upon the value of shares of a
Fund owned by the dealer for its own account or for its customers. Waddell &
Reed, Inc. or its affiliate(s) may also provide compensation from its own
resources to securities dealers with respect to shares of the Funds purchased
by customers of such dealers without payment of a sales charge.
Sales Charge Reductions and Waivers
Lower sales charges are available by:
_ Combining additional purchases of Class A shares of any of the funds in
the W&R Funds and/or the Waddell & Reed Advisors Funds, except Class A
shares of Money Market Fund or Cash Management (formerly known as United
Cash Management) unless acquired by exchange for Class A shares on which a
sales charge was paid (or as a dividend or distribution on such acquired
shares), with the NAV of Class A shares already held ("Rights of
Accumulation");
_ Grouping all purchases of Class A shares, except shares of Cash Management
or Money Market Fund made during a thirteen-month period ("Letter of
Intent"); and
_ Grouping purchases by certain related persons.
Additional information and applicable forms are available from your financial
advisor.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
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_ The Directors and officers of the Fund or of any affiliated entity of
Waddell & Reed, Inc., employees of Waddell & Reed, Inc., employees of its
affiliates, financial advisors of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each;
_ Certain retirement plans and certain trusts for these persons; and
_ Until March 31, 2001, clients of Legend Equities Corporation ("Legend") if
the purchase is made with the proceeds of the redemption of shares of a
mutual fund which is not within the Waddell & Reed Advisors Funds or W&R
Funds, and the purchase is made within 60 days of such redemption.
You will find more information in the SAI about sales charge reductions and
waivers.
Contingent Deferred Sales Charge. A CDSC may be assessed against your
redemption amount of Class B, Class C or certain Class A shares and paid to
the Distributor, as further described below. The purpose of the CDSC is to
compensate the Distributor for the costs incurred by it in connection with
the sale of the Fund's Class B or Class C shares or with Class A investments
of $2 million or more at NAV. The CDSC will not be imposed on shares
representing payment of dividends or other 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 the shares purchased during
the CDSC period. Solely for purposes of determining the number of months or
years from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day of
the month. The CDSC is applied to the lesser of amount invested or redemption
value.
To keep your CDSC as low as possible, each time you place a request to redeem
shares, the Fund assumes that a redemption is made first of shares not
subject to a deferred sales charge (including shares which represent
appreciation on shares held, reinvested dividends and distributions), and
then of shares that represent the lowest sales charge.
Unless instructed otherwise, a Fund, when requested to redeem a specific
dollar amount, will redeem additional shares of the applicable class that are
equal in value to the CDSC. For example, should you request a $1,000
redemption and the applicable CDSC is $27, the Fund will redeem shares having
an aggregate NAV of $1,027, absent different instructions.
Class B shares are not subject to an initial sales charge when you buy them.
However, you may pay a CDSC if you sell your Class B shares within six years
of their purchase, based on the table below. Class B shares pay an annual
12b-1 service fee of up to 0.25% of average net assets and a distribution fee
of up to 0.75% of average net assets. Over time, these fees will increase the
cost of your investment and may cost you more than if you had purchased Class
A shares. Class B shares and any dividends and distributions paid on such
shares automatically convert to Class A shares eight years after the end of
the month in which the shares were purchased. Such conversion will be on the
basis of the relative net asset values per share, without the imposition of
any sales load, fee or other charge. The Class A shares have lower ongoing
expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the
CDSC discussed below.
Contingent Deferred Sales Charge
on Shares Sold within Year As % of Amount Subject to Charge
1 5.0%
2 4.0%
3 3.0%
4 3.0%
5 2.0%
<PAGE>
6 1.0%
7+ 0.0%
In the table, a "year" is a 12-month period. In applying the sales charge,
all purchases are considered to have been made on the first day of the month
in which the purchase was made.
For example, if a shareholder opens an account on July 14, 2000, then redeems
all Class B shares on July 12, 2001, the shareholder will pay a CDSC of 4%,
the rate applicable to redemptions made within the second year of purchase.
Class C shares are not subject to an initial sales charge when you buy them,
but if you sell your Class C shares within twelve months after purchase, you
will pay a 1% CDSC. For purposes of the CDSC, purchases of Class C shares
within a month will be considered as being purchased on the first day of the
month. Class C shares pay an annual 12b-1 service fee of up to 0.25% of
average net assets and an annual distribution fee of up to 0.75% of average
net assets. Over time, these fees will increase the cost of your investment
and may cost you more than if you had purchased Class A shares. Class C
shares do not convert to any other class.
For Class C shares, the CDSC will be applied to the lesser of the amount
invested or redemption value of shares that have been held for twelve months
or less.
The CDSC will not apply in the following circumstances:
_ redemptions of shares requested within one year of the shareholder's death
or disability, provided the Fund is notified of the death or disability at
the time of the request and furnished proof of such event satisfactory to
the Distributor.
_ redemptions of shares made to satisfy required minimum distributions after
age 70 1/2 from a qualified retirement plan, a required minimum
distribution from an individual retirement account, Keogh plan or
custodial account under section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), 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.
_ redemptions of shares purchased by current or retired Directors of the
Fund, Directors of affiliated companies, current or retired officers or
employees of the Fund, WRIMCO, the Distributor or their affiliated
companies, financial advisors of Waddell & Reed, Inc., and by the members
of immediate families of such persons.
_ redemptions of shares made pursuant to a shareholder's participation in
any systematic withdrawal service adopted for a Fund. (The service and
this exclusion from the CDSC do not apply to a one-time withdrawal.)
_ redemptions of which the proceeds are reinvested in shares (must be
reinvested in the same class as that which was redeemed) of the Fund
within forty-five days after such redemption.
_ the exercise of certain exchange privileges.
_ redemptions effected pursuant to the Fund's right to liquidate a
shareholder's shares if the aggregate NAV of those shares is less than
$500.
_ 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 shares of the Fund acquired pursuant to such
reorganization.
<PAGE>
These exceptions may be modified or eliminated by the Fund at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Fund's right to liquidate a shareholder's shares,
which requires certain notice.
Class Y shares are not subject to a sales charge. Class Y shares pay an
annual 12b-1 distribution and/or service fee of up to 0.25% of average net
assets.
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 of the Code, including 401(k)
plans, when the plan has 100 or more eligible employees and holds the
shares in an omnibus account on the Fund's records, and an unaffiliated
third party provides administrative, distribution and/or other support
services to the plan;
_ 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 administrative, distribution and/or other support
services;
_ government entities or authorities and corporations whose investment is
$10 million or more and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support
services; and
_ certain retirement plans and trusts for employees and financial advisors
of Waddell & Reed, Inc. and its affiliates.
Ways to Set Up Your Account
The different ways to set up (register) your account are listed below.
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 Plans
To shelter your retirement savings from income taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current income taxes. In addition, contributions to these accounts
(other than Roth IRAs and Education IRAs) may be tax-deductible.
_ Individual Retirement Accounts (IRAs) allow a certain individual under age
70 1/2, with earned income, to invest up to $2,000 per tax year. The
maximum for an investor and his or her spouse is $4,000 ($2,000 for each
spouse) or, if less, the couple's combined earned income for the taxable
year.
<PAGE>
_ IRA Rollovers retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Roth IRAs allow certain individuals to make nondeductible contributions up
to $2,000 per year. The maximum annual contribution for an investor and
his or her spouse is $4,000 ($2,000 for each spouse) or, if less, the
couple's combined earned income for the taxable 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
nondeductible contributions, up to $500 per year, and permit tax-free
withdrawals to pay the higher education expenses of the beneficiary.
_ Simplified Employee Pension Plans (SEP-IRAs) provide business owners or
those with self-employed income (and their eligible employees) with many
of the same advantages as a Profit Sharing Plan, but with fewer
administrative requirements.
_ Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to and allow their employees
to contribute a portion of their wages pre-tax to retirement accounts.
This plan type generally involves fewer administrative requirements than
401(k) or other qualified plans.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves of up to 25% of their annual earned income,
with a maximum of $30,000 per year.
_ Pension and Profit-Sharing Plans, including 401(k) Plans, allow
corporations and nongovernmental tax-exempt organizations of all sizes
and/or their employees to contribute a percentage of the employees' wages
or other amounts 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, churches and 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 Transfers to Minors Act ("UTMA") or the
Uniform Gifts to Minors Act ("UGMA").
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 financial advisor
for the form.
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and its
financial advisors or through advisors of Legend. To open your account you
<PAGE>
must complete and sign an application. Your Waddell & Reed financial advisor
or Legend advisor can help you with any questions you might have.
To purchase any class of 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
To purchase Class Y shares by wire, you must first obtain an account number
by calling 800-366-2520, then mail a completed application to Waddell & Reed,
Inc., at the above address, 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, for the account of
Waddell & Reed Number 9800007978, Special Account for Exclusive Benefit of
Customers FBO Customer Name and Account Number.
You may also buy Class Y shares of a 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 regarding the purchase of Class
Y shares.
The price to buy a share of a Fund, called the offering price, is calculated
every business day.
The offering price of a share (the price to buy one share of a particular
class) is the next NAV calculated per share of that class plus, for Class A
shares, the sales charge shown in the table.
In the calculation of a Fund's NAV:
_ The securities in a 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 NAVs as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by a 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 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:
<PAGE>
_ 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 in the Waddell & Reed Advisors Funds
and/or W&R Funds, the payment may be delayed for up to ten days to ensure
that your previous investment has cleared.
_ If you purchase 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 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 Funds reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500 (per Fund)
For certain exchanges $100 (per Fund)
For certain retirement accounts and accounts
opened with Automatic Investment Service $50 (per Fund)
For certain retirement accounts and accounts opened
through payroll deductions for or by employees of
WRIMCO, Waddell & Reed, Inc. and their affiliates $25 (per Fund)
To Add to an Account Any amount
For certain exchanges $100 (per Fund)
For Automatic Investment Service $25 (per Fund)
For Class Y:
To Open an Account
For a government entity or authority $10 million
or for a corporation (within first twelve months)
For other investors Any amount
To Add to an Account Any amount
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
<PAGE>
To add to your account, make your check payable to Waddell & Reed, Inc. Mail
the check to Waddell & Reed, Inc., 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, the Fund
and the class of shares that you wish to purchase.
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, for the account of Waddell & Reed Number
9800007978, Special Account for Exclusive Benefit of Customers FBO Customer
Name and Account Number.
If you purchase shares of the Funds 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 redemption price (price to sell one share of a particular class of a
Fund) is the NAV per share of that Fund class, subject to any CDSC applicable
to Class B, Class C shares or certain Class A shares.
To sell shares by written request: Complete an Account Service Request form,
available from your 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 financial advisor, or mail it to:
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed Services Company will send a
check to the address on the account.
To sell Class Y shares by telephone or fax: If you have elected this method
in your application or by subsequent authorization, call 888-WADDELL, or fax
your request to 913-236-1599, and give your instructions to redeem Class Y
shares and make payment by wire to your predesignated bank account or by
check to you at the address on the account.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated, subject to any applicable CDSC, after receipt of a written
request for redemption in good order by Waddell & Reed Services Company at
the address listed above. Note the following:
_ If more than one person owns the shares, each owner must sign the written
request.
<PAGE>
_ If you recently purchased the shares by check, the Fund may delay payment
of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If you do not, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund 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 when the Fund's Board of
Directors determines that conditions exist making cash payments
undesirable. A Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of its NAV during any 90-day period for any one
shareholder.
_ If you purchased shares of a Fund 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 shares when that firm (or its designee) has received
your order. Your order will receive the NAV of the applicable class
subject to any applicable CDSC 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 shares at that day's price.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must be signed by all
Joint Tenant persons required to sign for transactions, exactly
as their names appear on the account.
Sole Proprietorship The written instructions must be signed by the
individual owner of the business.
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
Retirement Account The written instructions must be signed by a
properly authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's
name
is not in the account registration, provide a
currently
certified copy of the trust document.
Business or At least one person authorized by corporate
Organization resolution to act on the account must sign the
written instructions.
Conservator, Guardian The written instructions must be signed by the
or Other Fiduciary person properly authorized by court order to act
in the particular fiduciary capacity.
The Fund may require a signature guarantee in certain situations such as:
_ a redemption request made by a corporation, partnership or fiduciary;
<PAGE>
_ 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 Funds reserve the right to redeem at NAV all shares of a Fund owned by
you having an aggregate NAV of less than $500. The Fund 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 or Class C shares, these redemptions
are not subject to the deferred sales charge. The Fund will not apply its
redemption right to individual retirement plan accounts or accounts which
have an aggregate NAV of less than $500 due to market forces.
You may reinvest in any one of the Funds, without charge, all or part of the
amount of Class A shares you redeemed by sending to the applicable Fund the
amount you want to reinvest. The reinvested amounts must be received by the
Fund within forty-five days after the date of your redemption.
The CDSC will not apply to the proceeds of Class B, Class C or, where
otherwise applicable to certain Class A shares of a Fund which are redeemed
and then reinvested in shares of the same class of the Fund within forty-five
days after such redemption. The Distributor will, with your reinvestment,
restore an amount equal to the deferred sales charge attributable to the
amount reinvested by adding the deferred sales charge amount to your
reinvestment. For purposes of determining future deferred sales charges, the
reinvestment will be treated as a new investment. You may do this only once
as to Class B, Class C and Class A shares of a Fund. This privilege may be
eliminated or modified at any time without prior notice to shareholders.
Payments of principal and interest on loans made pursuant to a 401(a)
qualified plan (if such loans are permitted by the plan) may be reinvested 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 financial advisor is available to provide personal service.
Additionally, a toll-free call, 800-366-5465, connects you to a Client
Services Representative or our automated customer telephone service. During
normal business hours, our Client Services staff is available to answer your
0questions or update your account records. At almost any time of the day or
night, you may access your account information from a touch-tone phone, or
from our web site, www.waddell.com, to:
<PAGE>
_ obtain information about your accounts;
_ obtain price information about other funds in W&R Funds or
Waddell & Reed Advisors Funds; 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 of the Funds may be mailed to your household, even if you have more
than one account with a Fund. Call the telephone number listed for Client
Services if you need additional copies of annual or semiannual reports or
account information.
Exchanges
You may sell your shares and buy shares of the same class of any of the funds
within the W&R Funds or of any of the funds within the Waddell & Reed
Advisors Funds without the payment of an additional sales charge if you buy
Class A shares or payment of a CDSC when you exchange Class B shares or Class
C shares or Class A shares to which the CDSC would otherwise apply. For Class
B and Class C shares and Class A shares to which the CDSC would otherwise
apply, the time period for the CDSC 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 Money Market Fund.
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 Funds reserve the right to terminate or modify these exchange privileges
at any time, upon notice in certain instances.
Automatic Transactions for Class A, Class B and Class C Shareholders
Flexible Withdrawal Service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account,
or between Fund accounts, automatically. While Regular Investment Plans do
not guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account with W&R
Funds
<PAGE>
Minimum Amount Minimum Frequency
$25 (per Fund) Monthly
Funds Plus Service
To move money from Money Market Fund to another Fund in W&R Funds whether in
the same or a different Fund account
Minimum Amount Minimum Frequency
$100 (per Fund) Monthly
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, Mid Cap Growth Fund, Tax-Managed Equity Fund, Small Cap
Growth Fund, International Growth Fund, Large Cap Growth Fund, and Science
and Technology Fund, annually in December; and Asset Strategy Fund, quarterly
in March, June, September and December. 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 two options:
1.
Share Payment Option. Your dividends, 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. If you do
not indicate a choice on your application, you will be assigned this
option.
2.
Cash Option. You will be sent a check for your dividends, capital gains
and other distributions if the total distribution is five dollars or
greater. If the distribution total is less than five 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 shares of the same class 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 (which includes net short-term gains), if any, generally are taxable
to you as ordinary income, whether received in cash or paid in additional
Fund shares. 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 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.
<PAGE>
A portion of the dividends paid by a 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 a 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.
Taxes on transactions. Your redemption of Fund shares will result in a
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than what you paid for the redeemed shares (which normally
includes any sales charge paid). An exchange of Fund shares for shares of any
other fund in the W&R Funds or in the Waddell & Reed Advisors Funds generally
will have similar tax consequences. However, special rules apply when you
dispose of a Fund's Class A shares through a redemption or exchange within
ninety days after your purchase and then reacquire Class A shares of that
Fund or acquire Class A shares of another Fund in the W&R Funds or the
Waddell & Reed Advisors Funds without paying a sales charge due to the forty-
five day reinvestment privilege or exchange privilege. See "Your Account." In
these cases, any gain on the disposition of the original Class A Fund shares
will be increased, or loss decreased, by the amount of the sales charge you
paid when those shares were acquired, and that amount will increase the
adjusted basis of the shares subsequently acquired. 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.
Withholding. Each Fund must withhold 31% of all taxable dividends, capital
gains and other 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, capital gains and other distributions also is required for
shareholders subject to backup withholding.
State and local income taxes. The portion of the dividends paid by a Fund
attributable to interest earned on 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 income 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.
THE MANAGEMENT OF THE FUNDS
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Funds' Board
of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO and/or its predecessor has served
as investment manager to each of the registered investment companies in the
Waddell & Reed Advisors Funds, W&R Funds and Target/United Funds since the
inception of each investment company. WRIMCO is located at 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Michael L. Avery is primarily responsible for the management of the equity
portion of the Asset Strategy Fund. Mr. Avery has held his Fund
responsibilities since January 1997. He is Senior Vice President of WRIMCO,
<PAGE>
Vice President of the Fund 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 Company, a former affiliate of WRIMCO. 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 for 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 Asset Strategy Fund. Mr. Vrabac has held his Fund
responsibilities since January 1997. He is Vice President of the Fund 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 had served as an investment analyst with WRIMCO since May
1994 and has been an employee of such since May 1994.
Mark G. Seferovich and Grant P. Sarris are primarily responsible for the
management of the Small Cap Growth Fund (formerly, Growth Fund). Mr.
Seferovich has held his Fund responsibilities since September 1992. He is
Senior Vice President of WRIMCO, Vice President of the Fund 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 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 Small Cap Growth Fund from January 1, 1996
until May 1998. He has been an employee of WRIMCO since October 1, 1991.
Thomas A. Mengel is primarily responsible for the management of the
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 Fund 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.
Daniel P. Becker is primarily responsible for the management of the Large Cap
Growth Fund. Mr. Becker has held his Fund responsibilities since the
inception of the Fund. He is Vice President of WRIMCO, Vice President of the
Fund and Vice President of other investment companies for which WRIMCO serves
as investment manager. From January 1995 to March 1998, Mr. Becker was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Mr. Becker has been an employee of WRIMCO and its predecessors since
October 1989, initially serving as an investment analyst, and has served as a
portfolio manager for WRIMCO since January 1997.
Zachary H. Shafran is primarily responsible for the management of the Mid Cap
Growth Fund. Mr. Shafran has held his responsibilities since the inception of
the Fund. He is Vice President of WRIMCO, Vice President of the Fund and Vice
President of another investment management company for which WRIMCO serves as
investment manager. Mr. Shafran served as an investment analyst with WRIMCO
from June 1990 to January 1996 and has served as a portfolio manager since
January 1996.
Henry J. Herrmann is primarily responsible for the management of the Science
and Technology Fund. Mr. Herrmann has held his Fund responsibilities since
April 17, 2000. He is Vice President and Director of each of the Funds in the
Waddell & Reed Advisors Funds, W&R Funds and Target/United Funds; President,
Chief Investment Officer, and Director of Waddell & Reed Financial, Inc.;
Vice President, Chief Investment Officer and Director of Waddell & Reed
<PAGE>
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO. Mr.
Herrmann has been an employee of Waddell & Reed, Inc. and its successor,
WRIMCO, since March 15, 1971.
Cynthia P. Prince-Fox is primarily responsible for the management of the Tax-
Managed Equity Fund. Ms. Prince-Fox has held her Fund responsibilities since
the inception of the Fund. She is Vice President of WRIMCO, Vice President of
the Fund and Vice President of other investment companies for which WRIMCO
serves as investment manager. From January 1993 to March 1998, Ms. Prince-Fox
was Vice President of, and a portfolio manager for, Waddell & Reed Asset
Management Company. Ms. Prince-Fox is a Vice President and Portfolio Manager
for Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO. She has served as
the portfolio manager for investment companies managed by WRIMCO since
January 1993. From 1983 to January, 1993 Ms. Prince-Fox served as an
investment analyst for WRIMCO.
James D. Wineland is primarily responsible for the management of the Total
Return Fund. Mr. Wineland has held his Fund responsibilities since July 1,
1997. He is Vice President of WRIMCO, Vice President of the Fund 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. 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.
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.
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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.72%;
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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.84%;
for Large Cap Growth 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 Mid Cap 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 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
<PAGE>
$2 billion and up to $3 billion, and 0.76% of net assets over $3 billion.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.83%;
for Small Cap 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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.84%;
for Tax-Managed Equity Fund, 0.65% of net assets up to $1 billion, 0.60% of
net assets over $1 billion and up to $2 billion, 0.55% of net assets over $2
billion and up to $3 billion, and 0.50% of net assets over $3 billion; 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 and 0.55% of net assets over $3 billion.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.70%.
WRIMCO has voluntarily agreed to waive its management fee for any day that a
Fund's net assets are less than $25 million, subject to WRIMCO's right to
change or modify this waiver.
FINANCIAL HIGHLIGHTS
The following information is to help you understand the financial performance
of each Fund's Class C 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 each Fund's financial
statements for the fiscal year ended March 31, 2000, is included in the SAI,
which is available upon request.
ASSET STRATEGY FUND
For a Class C share outstanding throughout each period1:
For the
period from
For the fiscal year ended March 31, 4/20/952 to
2000 1999 1998 1997 3/31/96
Class C Per-Share Data
Net asset value,
beginning of period $11.20 $11.42 $9.73 $10.15 $10.00
Income from investment operations:
Net investment
income 0.03 0.15 0.21 0.23 0.16
Net realized and
unrealized gain
(loss) on investments 4.33 0.05 2.16 (0.30) 0.14
Total from investment
operations 4.36 0.20 2.37 (0.07) 0.30
Less distributions:
<PAGE>
From net investment
income (0.05) (0.16) (0.22) (0.21) (0.15)
From capital gains (0.30) (0.26) (0.46) (0.14) (0.00)
Total distributions (0.35) (0.42) (0.68) (0.35) (0.15)
Net asset value,
end of period $15.21 $11.20 $11.42 $9.73 $10.15
Class C Ratios/Supplemental Data
Total return 39.60% 1.79% 24.94% -0.86% 3.00%
Net assets, end
of period (in thousands) $52,208 $30,473 $19,415 $13,398 $13,221
Ratio of expenses
to average net assets 2.24% 2.32% 2.44% 2.52% 2.54%3
Ratio of net investment
income to average
net assets 0.24% 1.38% 2.02% 2.21% 2.14%3
Portfolio turnover rate 204.12% 168.17% 220.67% 109.92% 75.02%
1.
The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
2.
Commencement of operations.
3.
Annualized.
ASSET STRATEGY FUND
For a Class Y share outstanding throughout each period:
For the
period from
For the fiscal year ended March 31,12/29/952 to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $11.21 $11.43 $9.73 $10.16 $10.23
Income from investment operations:
Net investment
income 0.15 0.26 0.31 0.27 0.07
Net realized and
unrealized gain
(loss) on investments 4.33 0.05 2.16 (0.26) (0.08)
Total from investment
operations 4.48 0.31 2.47 0.01 (0.01)
Less distributions:
<PAGE>
From net investment
income (0.13) (0.27) (0.31) (0.30) (0.06)
From capital gains (0.30) (0.26) (0.46) (0.14) (0.00)
Total distributions (0.43) (0.53) (0.77) (0.44) (0.06)
Net asset value,
end of period $15.26 $11.21 $11.43 $9.73 $10.16
Class Y Ratios/Supplemental Data
Total return 40.85% 2.75% 26.06% 0.05% -0.25%
Net assets, end of
period (in thousands) $508 $307 $225 $116 $1
Ratio of expenses
to average net assets 1.33% 1.45% 1.58% 1.61% 1.95%2
Ratio of net investment
income to average
net assets 1.14% 2.25% 2.90% 2.97% 2.34%2
Portfolio turnover rate 204.12% 168.17% 220.67% 109.92% 75.02%3
1.
Commencement of operations.
2.
Annualized.
3.
Portfolio turnover is for the period from April 20, 1995 to March 31,
1996.
INTERNATIONAL GROWTH FUND1
For a Class C share outstanding throughout each period2:
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $15.58 $15.04 $12.40 $9.94 $9.36
Income from investment operations:
Net investment
income (loss) (0.34) (0.07) (0.10) (0.03) 0.08
Net realized and
unrealized gain
on investments 15.14 1.55 4.12 2.50 0.63
Total from investment
operations 14.80 1.48 4.02 2.47 0.71
Less distributions:
From net investment
income (0.00) (0.00) (0.00) (0.01) (0.11)
In excess of net
investment income (0.00) (0.00) (0.00) (0.00) (0.02)
<PAGE>
From capital gains (1.80) (0.94) (1.38) (0.00) (0.00)
Total distributions (1.80) (0.94) (1.38) (0.01) (0.13)
Net asset value,
end of period $28.58 $15.58 $15.04 $12.40 $9.94
Class C Ratios/Supplemental Data
Total return 97.89% 10.36% 35.24% 24.85% 7.64%
Net assets, end of
period (in thousands) $233,280 $99,764 $87,041 $50,472 $20,874
Ratio of expenses to
average net assets 2.37% 2.35% 2.35% 2.46% 2.50%
Ratio of net investment
income (loss) to average
net assets -1.48% -0.53% -0.82% -0.52% 0.63%
Portfolio turnover rate 125.71% 116.25% 105.11% 94.76% 88.55%
1.
International Growth Fund (formerly Global Income Fund) changed its name
and investment objective effective April 20, 1995.
2.
The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
INTERNATIONAL GROWTH FUND
For a Class Y share outstanding throughout each period:
For the
period from
For the fiscal year ended March 31, 12/29/951 to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $16.08 $15.35 $12.52 $9.95 $9.70
Income from investment operations:
Net investment
income (loss) (1.41) 0.05 0.01 0.02 0.02
Net realized and
unrealized gain
on investments 16.99 1.62 4.20 2.56 0.23
Total from investment
operations 15.58 1.67 4.21 2.58 0.25
Less distributions:
From net investment
income (0.00) (0.00) (0.00) (0.01) (0.00)
From capital gains (1.80) (0.94) (1.38) (0.00) (0.00)
<PAGE>
Total distributions (1.80) (0.94) (1.38) (0.01) (0.00)
Net asset value,
end of period $29.86 $16.08 $15.35 $12.52 $9.95
Class Y Ratios/Supplemental Data
Total return 99.74% 11.41% 36.45% 25.93% 2.58%
Net assets, end of
period (in thousands) $5,296 $629 $419 $227 $7
Ratio of expenses
to average net assets 1.48% 1.44% 1.51% 1.59% 1.84%2
Ratio of net investment
income (loss) to average
net assets -0.80% 0.36% 0.07% 0.05% 1.07%2
Portfolio turnover rate 125.71% 116.25% 105.11% 94.76% 88.55%2
1.
Commencement of operations.
2.
Annualized.
SCIENCE AND TECHNOLOGY FUND
For a Class C share outstanding throughout each period1:
For the For the
fiscal year period from
ended March 31, 7/31/972 to
2000 1999 3/31/98
Class C Per-Share Data
Net asset value, beginning of period $17.45 $12.01 $10.00
Income from investment operations:
Net investment loss (0.95) (0.09) (0.07)
Net realized and unrealized
gain on investments 28.77 5.53 2.08
Total from investment operations 27.82 5.44 2.01
Less distributions from capital gains (0.24) (0.00) (0.00)
Net asset value, end of period $45.03 $17.45 $12.01
Class C Ratios/Supplemental Data
Total return 159.75% 45.30% 20.10%
Net assets, end of
period (in thousands) $282,873 $44,371 $7,615
Ratio of expenses to
average net assets 2.20% 2.57% 3.20%3
Ratio of net investment loss
to average net assets -1.68% -1.26% -1.66%3
Portfolio turnover rate 44.19% 51.00% 26.64%
<PAGE>
1.
The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.
2.
Commencement of operations.
3.
Annualized.
SCIENCE AND TECHNOLOGY FUND
For a Class Y share outstanding throughout each period:
For the For the
fiscal year period from
ended 6/9/981 to
3/31/00 3/31/99
Class Y Per-Share Data
Net asset value, beginning of period $17.65 $12.20
Income from investment operations:
Net investment income (loss) (6.09) 0.01
Net realized and unrealized gain
on investments 34.04 5.44
Total from investment operations 27.95 5.45
Less distributions from capital gains (0.24) (0.00)
Net asset value, end of period $45.36 $17.65
Class Y Ratios/Supplemental Data
Total return 158.67% 44.67%
Net assets, end of period (in thousands) $2,108 $53
Ratio of expenses to average net assets 1.36% 0.62%2
Ratio of net investment income (loss)
to average net assets -0.96% 0.54%2
Portfolio turnover rate 44.19% 51.00%2
1.
Commencement of operations.
2.
Annualized.
SMALL CAP GROWTH FUND (formerly, GROWTH FUND)
For a Class C share outstanding throughout each period1:
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $14.74 $14.29 $9.08 $10.50 $8.45
<PAGE>
Income from investment operations:
Net investment loss (0.18) (0.11) (0.13) (0.03) (0.01)
Net realized and
unrealized gain
(loss) on investments 10.22 2.91 5.91 (1.09) 2.25
Total from investment
operations 10.04 2.80 5.78 (1.12) 2.24
Less distribution
from capital gains (3.14) (2.35) (0.57) (0.30) (0.19)
Net asset value,
end of period $21.64 $14.74 $14.29 $9.08 $10.50
Class C Ratios/Supplemental Data
Total return 73.38% 21.61% 65.37% -10.97% 26.57%
Net assets, end of
period (in thousands) $800,576 $424,612 $329,514 $198,088 $202,557
Ratio of expenses
to average net assets 2.11% 2.10% 2.13% 2.12% 2.14%
Ratio of net investment
loss to average net assets -0.90% -0.90% -1.12% -0.27% -0.25%
Portfolio turnover rate 82.24% 51.41% 33.46% 37.20% 31.84%
1.
The financial data shown for a Class C share are based on the financial
data for a shares of the Fund's prior Class B. On March 24, 2000 that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. Per-share amounts have been adjusted
retroactively to reflect the 100% stock dividend effected June 26, 1998.
SMALL CAP GROWTH FUND (formerly, GROWTH FUND)
For a Class Y share outstanding throughout each period1:
For the
period from
For the fiscal year ended March 31,12/29/952 to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $15.21 $14.55 $9.16 $10.52 $10.11
Income from investment operations:
Net investment
income (loss) (0.15) 0.00 (0.03) 0.01 0.02
Net realized and
unrealized gain
(loss) on investments 10.73 3.01 5.99 (1.07) 0.39
Total from investment
operations 10.58 3.01 5.96 (1.06) 0.41
<PAGE>
Less distribution
from capital gains (3.14) (2.35) (0.57) (0.30) (0.00)
Net asset value,
end of period $22.65 $15.21 $14.55 $9.16 $10.52
Class Y Ratios/Supplemental Data
Total return 74.71% 22.73% 66.78% -10.37% 4.11%
Net assets, end
of period (in thousands) $16,770 $7,942 $633 $264 $1
Ratio of expenses to
average net assets 1.30% 1.18% 1.30% 1.17% 1.17%3
Ratio of net investment
income (loss) to average
net assets -0.09% 0.08% -0.30% 0.31% 0.78%3
Portfolio turnover rate 82.24% 51.41% 33.46% 37.20% 31.84%3
1.
Per-share amounts have been adjusted retroactively to reflect the 100%
stock dividend effected June 26, 1998.
2.
Commencement of operations.
3.
Annualized.
TOTAL RETURN FUND
For a Class C share outstanding throughout each period1:
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $11.52 $12.24 $9.09 $8.17 $6.37
Income from investment operations:
Net investment
income (loss) (0.01) 0.03 (0.02) (0.01) (0.01)
Net realized and
unrealized gain
on investments 2.71 0.82 3.56 0.98 1.84
Total from investment
operations 2.70 0.85 3.54 0.97 1.83
Less distributions:
From net investment
income (0.03) (0.01) (0.00) (0.00) (0.00)
From capital gains (0.43) (1.56) (0.39) (0.05) (0.03)
Total distributions (0.46) (1.57) (0.39) (0.05) (0.03)
Net asset value,
end of period $13.76 $11.52 $12.24 $9.09 $8.17
Class C Ratios/Supplemental Data
<PAGE>
Total return 23.98% 7.47% 39.57% 11.93% 28.75%
Net assets, end of
period (in thousands) $585,293 $508,210 $472,970 $317,453 $208,233
Ratio of expenses
to average net assets 1.98% 1.93% 1.92% 1.95% 1.99%
Ratio of net investment
income (loss) to average
net assets -0.12% 0.30% -0.23% -0.17% -0.11%
Portfolio turnover rate 75.64% 54.73% 36.94% 26.23% 16.78%
1.
The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares. Per-share amounts have been
adjusted retroactively to reflect the 100% stock dividend effected June
26, 1998.
TOTAL RETURN FUND
For a Class Y share outstanding throughout each period1:
For the
period from
For the fiscal year ended March 31,12/29/952 to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $11.78 $12.46 $9.18 $8.19 $7.66
Income from investment operations:
Net investment
income 0.06 0.12 0.05 0.02 0.02
Net realized and
unrealized gain
on investments 2.80 0.84 3.62 1.02 0.51
Total from investment
operations 2.86 0.96 3.67 1.04 0.53
Less distributions:
From net investment
income (0.13) (0.08) (0.00) (0.00) (0.00)
From capital gains (0.43) (1.56) (0.39) (0.05) (0.00)
Total distributions (0.56) (1.64) (0.39) (0.05) (0.00)
Net asset value,
end of period $14.08 $11.78 $12.46 $9.18 $8.19
Class Y Ratios/Supplemental Data
Total return 24.96% 8.37% 40.63% 12.69% 6.92%
<PAGE>
Net assets, end of
period (in thousands) $2,152 $1,381 $943 $504 $87
Ratio of expenses
to average net assets 1.16% 1.15% 1.20% 1.18% 0.96%3
Ratio of net investment
income to average
net assets 0.67% 1.10% 0.50% 0.65% 1.04%3
Portfolio turnover rate 75.64% 54.73% 36.94% 26.23% 16.78%3
1.
Per-share amounts have been adjusted retroactively to reflect the 100%
stock dividend effected June 26, 1998.
2.
Commencement of operations.
3.
Annualized.
This space is intended for your notes and calculations.
W&R FUNDS
Custodian
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64141
Legal Counsel
Kirkpatrick & Lockhart llp
1800 Massachusetts Avenue, N. W.
Washington, D. C. 20036
Independent Auditors
Deloitte & Touche llp
1010 Grand Boulevard
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
888-WADDELL
Underwriter
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
Shareholder Servicing Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
<PAGE>
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
Accounting Services Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
W&R FUNDS
You can get more information about each Fund in the O
_ Statement of Additional Information (SAI), which contains detailed
information about the 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).
_ 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 the Funds' performance during the year covered by
the report.
To request a copy of the Funds' current SAI or copies of the 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. Copies of the SAI, Annual and/or Semiannual reports may also be
requested via e-mail at [email protected].
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 may also be obtained, after paying a duplicating fee,
by electronic request at [email protected] or 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 202-942-
8090.
The Funds' SEC file number is: 811-6569.
Waddell & Reed, Inc.
6300 Lamar Avenue, P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
Investing. With a plan.TM
NUP3200(6-00)
<PAGE>
Prospectus
June 30, 2000
W&R Funds
FIXED INCOME &
MONEY MARKET FUNDS
High Income Fund
Limited-Term Bond Fund
Municipal Bond Fund
Money Market Fund
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.
CONTENTS
3 An Overview of the Funds
3 High Income Fund
10 Limited-Term Bond Fund
16 Municipal Bond Fund
22 Money Market Fund
26 The Investment Principles of the Funds
32 Your Account
56 The Management of the Funds
58 Financial Highlights
AN OVERVIEW OF THE FUND
GOALS
W&R High Income Fund(formerly, Waddell & Reed 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 Waddell & Reed Investment Management Company
("WRIMCO"), the Fund's investment manager, consistent with the Fund's goals.
The Fund invests primarily in lower quality bonds, commonly called "junk
bonds," which are bonds rated BB and below by Standard & Poor's ("S&P") and Ba
and below by Moody's Investors Service ("MIS") or, if unrated, deemed by
WRIMCO to be of comparable quality. 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 and in companies of any size.
The Fund may invest up to 20% of its total assets in common stock in order to
seek capital growth. The Fund will emphasize a blend of value and growth in
its selection of common stock. Value stocks are those whose earnings 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.
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.
Generally, in determining whether to sell a debt security, WRIMCO uses 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, or is
anticipated to decline, to an unacceptable level, or if management of the
company weakens. As well, WRIMCO may choose to sell an equity security if the
issuer's growth potential has diminished. WRIMCO may sell a security if the
competitive conditions of a particular industry have increased and WRIMCO
<PAGE>
believes the Fund should, therefore, reduce its exposure to such industry.
WRIMCO may also sell a security if, in its opinion, the price of the security
has risen to fully reflect the company's improved creditworthiness and other
investments with greater potential exist. WRIMCO may also sell a security to
take advantage of more attractive investment opportunities or to raise cash.
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,
price volatility and lack of liquidity compared to higher-rated bonds;
_ an increase in interest rates, which may cause the value of bonds held by
the Fund, especially bonds with longer maturities, to decline;
_ the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries;
_ 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, 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 the goal of income, through a diversified portfolio. The Fund
is not suitable for all investors. You should consider whether the Fund fits
your particular investment objectives.
PERFORMANCE
High Income Fund
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing the Fund's performance and by showing how
the Fund's average annual total returns for the periods shown compare with
those of a broad measure of market performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the return would be less than that
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these
classes do not have annual returns for a full calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance table
is based on calendar-year periods, while the information shown in the
<PAGE>
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 (%)1
1998 3.64%
1999 4.83%
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 C return for the year through March 31, 2000 was
-3.20%.
1.
The returns shown are based on the performance of the Fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class
C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year Life of Class2
Class C Shares of High Income Fund1 4.83% 5.44%
Salomon Brothers High
Yield Market Index 1.73% 4.05%
Salomon Brothers High Yield
Composite Index 1.24% 4.26%
Lipper High Current Yield
Funds Universe Average 4.53% 2.73%
Class Y Shares of High Income Fund 5.64% 6.63%
Salomon Brothers High
Yield Market Index 1.73% 1.73%
Solomon Brothers High Yield
Composite Index 1.24% 1.24%
Lipper High Current Yield
Funds Universe Average 4.53% 4.53%
The indexes shown are broad-based, securities market indexes that are
unmanaged. The Salomon Brothers High Yield Market Index replaces the Salomon
Brothers High Yield Composite Index. The new index provides a more accurate
basis for comparing the Fund's performance to the types of securities in which
the Fund invests. The Lipper average is a composite of mutual funds with goals
similar to the goals of the Fund.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4, 1999.
The prior Class B's performance has been adjusted to reflect the current
contingent deferred sales charge ("CDSC") structure applicable to Class C.
2.
Since July 31, 1997 for Class C shares (based on the prior Class B shares)
and December 30, 1998 for Class Y shares. Because Class Y commenced
operations on a date other than at the end of a month, and partial month
calculations of the performance of the above indexes are not available,
index performance is calculated from December 31, 1998.
FEES AND EXPENSES
High Income Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
<PAGE>
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of
lesser of amount invested
or redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.63% 0.63% 0.63% 0.63%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.63% 0.63% 0.63% 0.73%
Total Annual Fund
Operating Expenses 1.51% 2.26% 2.26% 1.61%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day of
the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the expenses
attributable to those classes that are anticipated for the current year.
Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $720 $1,025 $1,351 $2,273
Class B Shares $629 $1,006 $1,310 $2,404(1)
Class C Shares $329 $ 706 $1,210 $2,595
Class Y Shares $164 $ 508 $ 876 $1,911
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $720 $1,025 $1,351 $2,273
Class B Shares $229 $ 706 $1,210 $2,404(1)
Class C Shares $229 $ 706 $1,210 $2,595
Class Y Shares $164 $ 508 $ 876 $1,911
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares were
purchased.
<PAGE>
AN OVERVIEW OF THE FUND
GOAL
W&R Limited-Term Bond Fund
(formerly, Waddell & Reed 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 (rated BBB and higher by S&P and Baa and
higher by MIS or, if unrated, deemed by WRIMCO to be of comparable quality) of
U.S. issuers, including corporate bonds, mortgage-backed securities and U.S.
Government securities. The Fund maintains a dollar-weighted average maturity
of not less than two years and not more than five years. The Fund may invest
in companies of any size.
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.
Generally, in determining whether to sell a security, WRIMCO uses the same
type of analysis that it uses in buying securities. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
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, especially bonds with longer maturities, to
decline;
_ the credit quality, earnings performance and other conditions of the
issuers whose securities the Fund holds;
_ prepayment of higher-yielding bonds and mortgage-backed securities 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 are more likely to 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
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.
PERFORMANCE
Limited-Term Bond Fund
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from
<PAGE>
year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these
classes do not have annual returns for at least one calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 7.32%
1994 -3.04%
1995 12.39%
1996 3.04%
1997 5.64%
1998 5.36%
1999 0.43%
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 C return for the year through March 31, 2000, was
0.74%.
1.
The returns shown are based on the performance of the Fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class
C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
Limited-Term Bond Fund1 0.43% 5.30% 3.99%
Salomon Brothers 1-5 Years
Treasury/Government
Sponsored/Corporate Index 2.15% 6.84% 5.54%
Lipper Short-Intermediate Investment
Grade Debt Funds Universe Average 0.89% 6.23% 5.17%
Class Y Shares of
Limited-Term Bond Fund 1.36% 4.46%
Salomon Brothers 1-5 Years
Treasury/Government
Sponsored/Corporate Index 2.15% 6.84% 5.38%
Lipper Short-Intermediate Investment
Grade Debt Funds Universe Average 0.89% 6.23% 4.41%
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.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4, 1999.
<PAGE>
The prior Class B's performance has been adjusted to reflect the current
CDSC structure applicable to Class C.
2.
Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above indexes are not
available, index performance is calculated from September 30, 1992 and
December 31, 1995, respectively.
FEES AND EXPENSES
Limited-Term Bond Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 4.25% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.50% 0.50% 0.50% 0.50%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.67% 0.67% 0.67% 0.47%
Total Annual Fund
Operating Expenses 1.42% 2.17% 2.17% 1.22%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day of
the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the expenses
attributable to those classes that are anticipated for the current year.
Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C or Class Y shares for each time period specified, (b) your
<PAGE>
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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $563 $855 $1,168 $2,055
Class B Shares $620 $979 $1,264 $2,311(1)
Class C Shares $320 $679 $1,164 $2,503
Class Y Shares $124 $387 $ 670 $1,477
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $563 $855 $1,168 $2,055
Class B Shares $220 $679 $1,164 $2,311(1)
Class C Shares $220 $679 $1,164 $2,503
Class Y Shares $124 $387 $ 670 $1,477
Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares were
purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R Municipal Bond Fund
(formerly, Waddell & Reed 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. 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 Federal 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 certain private activity bonds ("PABs") and industrial
development bonds ("IDBs"), which finance privately operated facilities.
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 or of the private company
involved; and
_ the structure of the security, including whether it has a put or a call
feature.
Generally, in determining whether to sell a security, WRIMCO uses 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. WRIMCO
may also sell a security to take advantage of more attractive investment
opportunities or to raise cash.
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, especially bonds with longer maturities, to decline;
_ prepayment of higher-yielding bonds held by the Fund ("prepayment risk");
<PAGE>
_ 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;
_ legislation affecting the tax status of municipal bond interest;
_ 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.
A significant portion of the Fund's municipal bond interest may subject
investors to the AMT; 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 diversified portfolio. You
should consider whether the Fund fits your particular investment objectives.
PERFORMANCE
Municipal Bond Fund
_ The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average
annual total returns for the periods shown compare with those of a broad
measure of market performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these
classes do not have annual returns for at least one calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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.
<PAGE>
CHART OF YEAR-BY-YEAR RETURNS
as of December 31 each year (%)1
1993 13.73%
1994 -8.83%
1995 19.14%
1996 3.53%
1997 9.17%
1998 5.12%
1999 -7.04%
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 C return for the year through March 31, 2000 was
1.46%.
1.
The returns shown are based on the performance of the Fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class
C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
Municipal Bond Fund1 -7.04% 5.64% 4.70%
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 5.89%
Lipper General Municipal
Debt Funds Universe Average -4.63% 5.76% 5.06%
Class Y Shares of
Municipal Bond Fund -6.56% -6.15%
Lehman Brothers Municipal
Bond Index -2.07% 6.92% -2.07%
Lipper General Municipal Bond
Debt Funds Universe Average -4.63% 5.76% -4.63%
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.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4, 1999.
The prior Class B's performance has been adjusted to reflect the current
CDSC structure applicable to Class C.
2.
Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 30, 1998 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above index are not
available, index performance is calculated from September 30, 1992 and
December 31, 1998, respectively.
FEES AND EXPENSES
Municipal Bond Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 4.25% None None None
Maximum Deferred
<PAGE>
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.53% 0.53% 0.53% 0.53%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.21%
Other Expenses 0.43% 0.43% 0.43% 0.64%
Total Annual Fund
Operating Expenses 1.21% 1.96% 1.96% 1.38%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day of
the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the expenses
attributable to those classes that are anticipated for the current year.
Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $543 $793 $1,062 $1,829
Class B Shares $599 $915 $1,157 $2,089(1)
Class C Shares $299 $615 $1,057 $2,285
Class Y Shares $140 $437 $ 755 $1,657
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $543 $793 $1,062 $1,829
Class B Shares $199 $615 $1,057 $2,089(1)
Class C Shares $199 $615 $1,057 $2,285
Class Y Shares $140 $437 $ 755 $1,657
1.
Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares were
purchased.
AN OVERVIEW OF THE FUND
GOAL
<PAGE>
W&R Money Market Fund
seeks maximum current income consistent with stability
of principal.
Principal Strategies
Money Market Fund seeks to achieve its goal by investing in U.S. dollar-
denominated, high-quality money market obligations and instruments. High
quality indicates that the securities will be rated A-1 or A-2 by S&P or
Prime-1 or Prime-2 by MIS, or if unrated, will be of comparable quality as
determined by WRIMCO. The Fund seeks, as well, to maintain a net asset value
("NAV") of $1.00 per share. The Fund maintains a dollar-weighted average
maturity of 90 days or less, and the Fund invests only in securities with a
remaining maturity of not more than 397 calendar days.
Principal Risks of Investing in the Fund
Because Money Market Fund owns different types of money market obligations and
instruments, a variety of factors can affect its investment performance, such
as:
_ an increase in interest rates, which can cause the value of the Fund's
holdings, especially securities with longer maturities, to decline;
_ the credit quality and other conditions of the issuers whose securities
the Fund holds;
_ adverse 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 evaluating and managing the interest rate and
credit risks of the Fund.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
Who May Want to Invest
Money Market Fund is designed for investors who are risk-averse and seek to
preserve principal while earning current income and saving for short-term
needs. You should consider whether the Fund fits your particular investment
objectives.
PERFORMANCE
Money Market Fund
The Fund has not been in operation for a full calendar year, therefore no
performance information is included in this prospectus.
FEES AND EXPENSES
Money Market Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C
your investment) Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None 5% 1%
Annual Fund Operating Expenses2
(expenses that are deducted Class A Class B Class C
from Fund assets) Shares Shares Shares
Management Fees 0.40% 0.40% 0.40%
Distribution and Service
<PAGE>
(12b-1) Fees None 1.00% 1.00%
Other Expenses 0.44% 0.44% 0.44%
Total Annual Fund
Operating Expenses 0.84% 1.84% 1.84%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day of
the month.
2.
The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25
million, subject to WRIMCO's right to change or terminate this waiver. The
expense ratios for Other Expenses are based on estimated amounts for the
current fiscal year. Actual expenses may be greater or less than those
shown.
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 A, Class B
or Class C 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:
If shares are redeemed at end of period: 1 Year 3 Years
Class A Shares $ 86 $268
Class B Shares $587 $879
Class C Shares $287 $579
If shares are not redeemed at end of period: 1 Year 3 Years
Class A Shares $ 86 $268
Class B Shares $187 $579
Class C Shares $187 $579
THE INVESTMENT PRINCIPLES OF THE FUNDS
Investment Goals, Principal Strategies and Other Investments
W&R High Income Fund
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, to a lesser
degree, 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. 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 65% of its total assets to seek a high
<PAGE>
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.
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, it may
take any one or more of the following steps with respect to 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/or
_ emphasize high-grade debt securities.
By taking a temporary defensive position the Fund may not achieve its
investment objectives. 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 also invest in options and futures
contracts.
W&R Limited-Term Bond Fund
The goal of Limited-Term Bond Fund is to provide a high level of current
income consistent with preservation of capital. The Fund seeks to achieve its
goal by investing primarily in a diversified portfolio of investment-grade,
limited-term debt securities (securities with a dollar-weighted average
maturity of two to five years) 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 at least 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, to a lesser extent,
common stocks and convertible securities, including convertible preferred
stock in certain circumstances.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to 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.
By taking a temporary defensive position the Fund may not achieve its
investment objective.
W&R Municipal Bond Fund
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 primarily
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 and WRIMCO rely on the opinion of bond counsel for the issuer in
determining whether obligations are municipal bonds. 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.
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
<PAGE>
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 and PABs
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.
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;
_ commercial paper rated at least A by S&P or MIS; and/or
_ any of the foregoing obligations subject to repurchase agreements.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to 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;
_ emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
_ hedge exposure to interest rate risk by investing in futures contracts
and options on futures contracts.
By taking a defensive position, the Fund may not achieve its investment
objective.
W&R Money Market Fund
The goal of Money Market Fund is maximum current income consistent with
stability of principal. The Fund seeks to achieve its goal by investing in a
diversified portfolio of high-quality money market instruments in accordance
with the requirements of Rule 2a-7 under the Investment Company Act of 1940,
as amended (the "1940 Act"). There is no guarantee that the Fund will achieve
its goal.
The Fund invests only in the following U.S. dollar-denominated money market
obligations and instruments:
_ U.S. government obligations (including obligations of U.S. government
agencies and instrumentalities);
_ bank obligations and instruments secured by bank obligations, such as
letters of credit;
_ commercial paper;
_ corporate debt obligations, including variable amount master demand
notes;
_ Canadian government obligations; and
_ certain other obligations (including municipal obligations) guaranteed as
to principal and interest by a bank in whose obligations the Fund may
invest or a by corporation in whose commercial paper the Fund may invest.
The Fund only invests in bank obligations if they are obligations of a bank
subject to regulation by the U.S. Government (including foreign branches of
these banks) or obligations of a foreign bank having total assets of at least
$500 million, and instruments secured by any such obligations.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
_ the credit quality of the particular issuer or guarantor of the security;
_ the maturity of the security; and
_ the relative value of the security.
Generally, in determining whether to sell a security, WRIMCO uses the same
<PAGE>
analysis that it uses in buying securities to determine if the security no
longer offers adequate return or does not comply with Rule 2a-7. WRIMCO may
also sell a security to take advantage of more attractive investment
opportunities or to raise cash.
All Funds
Each Fund may also invest in and use certain other types of instruments in
seeking to achieve its goal(s). For example, each Fund (other than Money
Market 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 about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in the Statement
of Additional Information ("SAI").
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 (other than Money Market 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.
Certain types of a 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.
For PABs and IDBs in which Municipal Bond Fund may invest, credit quality is
generally dependent on the credit standing of the company involved. To the
extent that this Fund invests in municipal bonds the payment of principal and
interest which is derived from revenue of similar projects, or in municipal
bonds of issuers located in the same geographic area, the Fund may be more
susceptible to the risks associated with economic, political or regulatory
occurrences that might adversely affect particular projects or areas. You will
find more information in the SAI about the types of projects in which
Municipal Bond Fund may invest from time to time and a discussion of the risks
associated with such projects.
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 investments.
<PAGE>
YOUR ACCOUNT
Choosing a Share Class
Each Fund offers four classes of shares: Class A, Class B, Class C and Class Y
(Money Market Fund does not offer Class Y). Each class has its own sales
charge, if any, and expense structure. The decision as to which class of
shares is best suited to your needs depends on a number of factors that you
should discuss with your financial advisor. Some factors to consider are how
much you plan to invest and how long you plan to hold your investment. If you
are investing a substantial amount and plan to hold your shares for a long
time, Class A shares may be the most appropriate for you. Class B and Class C
shares are not available for investments of $2 million or more. If you are
investing a lesser amount, you may want to consider Class B shares (if
investing for at least seven years) or Class C shares (if investing for less
than seven years). Class Y shares are designed for institutional investors and
others investing through certain intermediaries, as described below.
Since your objectives may change over time, you may want to consider another
class when you buy additional Fund shares. 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 a future investment.
General Comparison of Class A, Class B and Class C Shares
Class A Class B Class C
Initial sales charge No initial sales charge No initial sales
charge
No deferred sales charge1 Deferred sales charge on A 1% deferred sales
shares you sell within six charge on shares you
years after purchase sell within twelve
months after purchase
Maximum distribution Maximum distribution Maximum distribution
and service (12b-1) fees and service (12b-1) fees and service (12b-1)
of 0.25% of 1.00% fees of 1.00%
For an investment of Converts to Class A shares Does not convert to
$2 million or more, 8 years after the month in Class A shares, so
only Class A shares which the shares were annual expenses do
are available purchased, thus reducing not decrease
future annual expenses
For an investment of $300,000
or more, your financial
advisor typically will
recommend purchase of
Class A shares due to a
reduced sales charge and
lower annual expenses
1.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
General Comparison of Class A, Class B and Class C Shares
Money Market Fund
Class A Class B Class C
No initial sales charge No initial sales charge No initial sales
charge
Funds Plus Funds Plus Service Funds Plus Service
Service optional required for direct required for direct
investment investment
Deferred sales charge A 1% deferred sales
on shares you sell charge on shares you
within six years sell within twelve
months after purchase
No distribution and Maximum distribution Maximum distribution
service (12b-1) fees and service (12b-1) fees and service (12b-1)
<PAGE>
of 1.00% fees of 1.00%
For an investment of Converts to Class A shares Does not convert to
$2,000,000 or more 8 years after the month Class A shares, so
only Class A shares in which the shares were annual expenses do
are available purchased, thus reducing not decrease
future annual expenses
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, ("Rule 12b-
1") for each of its Class A (except Money Market Fund Class A), Class B, Class
C and Class Y shares. Under the Class A Plan, each Fund (except Money Market
Fund) may pay Waddell & Reed, Inc. (the "Distributor") a fee of up to 0.25%,
on an annual basis, of the average daily net assets of the Class A shares.
This fee is to compensate the Distributor for the amounts it spends for,
either directly or through third parties, distributing the Fund's Class A
shares, providing personal service to Class A shareholders and/or maintaining
Class A shareholder accounts. Under the Class B Plan and the Class C Plan,
each Fund may pay Waddell & Reed, Inc. a fee of up to 0.75%, on an annual
basis, of the average daily net assets of the shares of the class to
compensate the Distributor for, either directly or through third parties,
distributing the shares of that class and a fee of up to 0.25%, on an annual
basis, of the average daily net assets of the shares of that class to
compensate the Distributor for, either directly or through third parties,
providing personal service to shareholders of that class and/or maintaining
shareholder accounts for that class. 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 or Class C shares would exceed the maximum
amount of such charges that the Distributor is permitted to receive under NASD
rules as then in effect.
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, either directly or through third
parties, distributing the Class Y shares of that Fund, providing personal
service 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
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Class A shares (except Class A shares of Money Market Fund) are subject to an
initial sales charge when you buy them, based on the amount of your
investment, according to the table below. Class A shares pay an annual 12b-1
fee of up to 0.25% of average Class A net assets. The ongoing expenses of this
class are lower than those for Class B or Class C shares.
High Income Fund
Size of Purchase
Sales Charge Reallowance
as Approx. to Dealers
Sales Charge Percent of as Percent
as Percent of Amount of Offering
Offering Price Invested Price
Under $100,000 5.75% 6.10% 5.00%
$100,000 to less than $200,000 4.75 4.99 4.00
$200,000 to less than $300,000 3.50 3.63 2.80
$300,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 1.50 1.52 1.20
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
$2,000,000 and over 0.001 0.001 0.50
<PAGE>
Limited-Term Bond Fund
Municipal Bond Fund
Size of Purchase
Sales Charge Reallowance
as Approx. to Dealers
Sales Charge Percent of as Percent
as Percent of Amount of Offering
Offering Price Invested Price
Under $100,000 4.25% 4.44% 3.60%
$100,000 to less than $300,000 3.25 3.36 2.75
$300,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 1.50 1.52 1.20
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
$2,000,000 and over 0.001 0.001 0.50
1.
No sales charge is payable at the time of purchase on investments of $2
million or more, although for such investments the Fund may impose a CDSC
on certain redemptions made within twelve months of the purchase. The CDSC
is assessed on an amount equal to the lesser of the then current market
value or the cost of the shares being redeemed. Accordingly, no sales
charge is imposed on increases in net asset value above the initial
purchase price.
Waddell & Reed, Inc. or its affilate(s) may pay additional compensation from
its own resources to securities dealers based upon the value of shares of a
Fund owned by the dealer for its own account or for its customers. Waddell &
Reed, Inc. or its affiliate(s) may also provide compensation from its own
resources to securities dealers with respect to shares of the Funds purchased
by customers of such dealers without payment of a sales charge.
Sales Charge Reductions and Waivers
Lower sales charges are available by:
_ Combining additional purchases of Class A shares of any of the Funds in
the W&R Funds and/or the Waddell & Reed Advisors Funds, except Class A
shares of Money Market Fund or Waddell & Reed Advisors Cash Management
(formerly United Cash Management) unless acquired by exchange for Class A
shares on which a sales charge was paid (or as a dividend or distribution
on such acquired shares), with the NAV of Class A shares already held
("Rights of Accumulation");
_ Grouping all purchases of Class A shares of W&R Funds and/or Class A
shares of Waddell & Reed Advisors Funds, except shares of Money Market
Fund and Cash Management, made during a thirteen-month period ("Letter of
Intent"); and
_ Grouping purchases by certain related persons.
Additional information and applicable forms are available from your financial
advisor.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
_ The Directors and officers of the Fund or of any affiliated entity of
Waddell & Reed, Inc., employees of Waddell & Reed, Inc., employees of its
affiliates, financial advisors of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each;
_ Certain retirement plans and certain trusts for these persons; and
_ Until March 31, 2001, clients of Legend Equities Corporation ("Legend")
if the purchase is made with the proceeds of the redemption of shares of
a mutual fund which is not within the Waddell & Reed Advisors Funds or
W&R Funds and the purchase is made within 60 days of such redemption.
You will find more information in the SAI about sales charge reductions and
waivers.
Contingent Deferred Sales Charge. A CDSC may be assessed against your
redemption amount of Class B, Class C or certain Class A shares and paid to
<PAGE>
Waddell & Reed, Inc. (the "Distributor"), as further described below. The
purpose of the CDSC is to compensate the Distributor for the costs incurred by
it in connection with the sale of the Fund's Class B or Class C shares or with
Class A investments of $2 million or more at NAV. The CDSC will not be imposed
on shares representing payment of dividends or other 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 the shares
purchased during the CDSC period. Solely for purposes of determining the
number of months or years from the time of any payment for the purchase of
shares, all payments during a month are totaled and deemed to have been made
on the first day of the month. The CDSC is applied to the lesser of amount
invested or redemption value.
To keep your CDSC as low as possible, each time you place a request to redeem
shares, the Fund assumes that a redemption is made first of shares not subject
to a deferred sales charge (including shares which represent appreciation on
shares held, reinvested dividends and distributions), and then of shares that
represent the lowest sales charge.
Unless instructed otherwise, a Fund, when requested to redeem a specific
dollar amount, will redeem additional shares of the applicable class that are
equal in value to the CDSC. For example, should you request a $1,000
redemption and the applicable CDSC is $27, the Fund will redeem shares having
an aggregate NAV of $1,027, absent different instructions.
Class B shares are not subject to an initial sales charge when you buy them.
However, you may pay a CDSC if you sell your Class B shares within six years
of their purchase, based on the table below. Class B shares pay an annual 12b-
1 service fee of up to 0.25% of average net assets and a distribution fee of
up to 0.75% of average net assets. Over time, these fees will increase the
cost of your investment and may cost you more than if you had purchased Class
A shares. Class B shares and any dividends and distributions paid on such
shares automatically convert to Class A shares eight years after the end of
the calendar month in which the shares were purchased. Such conversion will be
on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The Class A shares have
lower ongoing expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
discussed below.
Contingent Deferred Sales Charge
on Shares Sold Within Year As % of Amount Subject to Charge
1 5.0%
2 4.0%
3 3.0%
4 3.0%
5 2.0%
6 1.0%
7+ 0.0%
In the table, a "year" is a 12-month period. In applying the sales charge, all
purchases are considered to have been made on the first day of the month in
which the purchase was made.
For example, if a shareholder opens an account on July 14, 2000, then redeems
all Class B shares on July 12, 2001, the shareholder will pay a CDSC of 4%,
the rate applicable to redemptions made within the second year of purchase.
Class C shares are not subject to an initial sales charge when you buy them,
but if you sell your Class C shares within twelve months after purchase, you
will pay a 1% CDSC. For purposes of the CDSC, purchases of Class C shares
within a month will be considered as being purchased on the first day of the
month. Class C shares pay an annual 12b-1 service fee of up to 0.25% of
average net assets and an annual distribution fee of up to 0.75% of average
net assets. Over time, these fees will increase the cost of your investment
<PAGE>
and may cost you more than if you had purchased Class A shares. Class C shares
do not convert to any other class.
For Class C shares, the CDSC will be applied to the lesser of the amount
invested or redemption value of shares that have been held for twelve months
or less.
The CDSC will not apply in the following circumstances:
_ redemptions of shares requested within one year of the shareholder's
death or disability, provided the Fund is notified of the death or
disability at the time of the request and furnished proof of such event
satisfactory to the Distributor.
_ redemptions of shares made to satisfy required minimum distributions
after age 70 1/2 from a qualified retirement plan, a required minimum
distribution from an individual retirement account, Keogh plan or
custodial account under section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), 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.
_ redemptions of shares purchased by current or retired Directors of the
Fund, Directors of affiliated companies, current or retired officers or
employees of the Fund, WRIMCO, the Distributor or their affiliated
companies, financial advisors of Waddell & Reed, Inc., and by the members
of immediate families of such persons.
_ redemptions of shares made pursuant to a shareholder's participation in
Funds Plus Service or other systematic withdrawal service adopted for a
Fund. (The service and this exclusion from the CDSC do not apply to a
one-time withdrawal.)
_ redemptions of which the proceeds are reinvested in shares (must be
reinvested in the same class as that which was redeemed) of the Fund
within forty-five days after such redemption.
_ the exercise of certain exchange privileges.
_ redemptions effected pursuant to the Funds' right to liquidate a
shareholder's shares if the aggregate NAV of those shares is less than
$500.
_ 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 shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Fund at any time without
prior notice to shareholders, except with respect to redemptions effected
pursuant to the Funds' right to liquidate a shareholder's account, which
requires certain notice.
Class Y shares are not subject to a sales charge. Class Y shares pay an annual
12b-1 distribution and/or service fee of up to 0.25% of average net assets.
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 of the Code, including
401(k) plans, when the plan has 100 or more eligible employees and holds
the shares in an omnibus account on the Fund's records, and an
unaffiliated third party provides administrative, distribution and/or
other support services to the plan;
_ 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 administrative, distribution and/or
other support services;
<PAGE>
_ government entities or authorities and corporations whose investment is
$10 million or more and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support
services; and
_ certain retirement plans and trusts for employees and financial advisors
of Waddell & Reed, Inc. and its affiliates.
Ways to Set Up Your Account
The different ways to set up (register) your account are listed below.
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 Plans
To shelter your retirement savings from income taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current income taxes. In addition, contributions to these accounts
(other than Roth IRAs and Education IRAs) may be tax-deductible.
_ Individual Retirement Accounts (IRAs) allow a certain individual under
age 70 1/2, with earned income, to invest up to $2,000 per tax year. The
maximum for an investor and his or her spouse is $4,000 ($2,000 for each
spouse) or, if less, the couple's combined earned income for the taxable
year.
_ IRA Rollovers retain special tax advantages for certain distributions
from employer-sponsored retirement plans.
_ Roth IRAs allow certain individuals to make nondeductible contributions
up to $2,000 per year. The maximum annual contribution for an investor
and his or her spouse is $4,000 ($2,000 for each spouse) or, if less, the
couple's combined earned income for the taxable 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
nondeductible contributions, up to $500 per year, and permit tax-free
withdrawals to pay the higher education expenses of the beneficiary.
_ Simplified Employee Pension Plans (SEP-IRAs) provide business owners or
those with self-employed income (and their eligible employees) with many
of the same advantages as a Profit Sharing Plan, but with fewer
administrative requirements.
_ Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to and allow their employees
to contribute a portion of their wages pre-tax to retirement accounts.
This plan-type generally involves fewer administrative requirements than
401(k) or other qualified plans.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves of up to 25% of their annual earned income,
with a maximum of $30,000 per year.
_ Pension and Profit-Sharing Plans, including 401(k) Plans, allow
corporations and nongovernmental tax-exempt organizations of all sizes
and/or their employees to contribute a percentage of the employees' wages
or other amounts 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, churches and 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.
<PAGE>
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 Transfers to Minors Act ("UTMA") or the
Uniform Gifts to Minors Act ("UGMA").
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 or through advisors of Legend. To open your account you
must complete and sign an application. Your Waddell & Reed financial advisor
or Legend advisor can help you with any questions you might have.
To purchase any class of 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
To purchase Class Y shares (or Class A shares of Money Market Fund) by wire,
you must first obtain an account number by calling 800-366-2520, then mail a
completed application to Waddell & Reed, Inc., at the above address, 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, for the account of Waddell & Reed Number 9800007978, Special
Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
You may also buy Class Y shares of a 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 regarding the purchase of Class Y
shares.
The price to buy a share of a Fund, called the offering price, is calculated
every business day.
The offering price of a share (the price to buy one share of a particular
class) is the next NAV calculated per share of that class plus, for Class A
shares, the sales charge shown in the tables.
In the calculation of a Fund's NAV:
_ The securities in a 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 NAVs as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by a 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
<PAGE>
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 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:
_ 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 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 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 Funds reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500 (per Fund)
For certain exchanges $100 (per Fund)
For certain retirement accounts and accounts
opened with Automatic Investment Service $50 (per Fund)
For certain retirement accounts, and accounts opened
through payroll deductions for or by employees of
WRIMCO, Waddell & Reed, Inc. and their affiliates $25 (per Fund)
To Add to an Account Any amount
For certain exchanges $100 (per Fund)
For Automatic Investment Service $25 (per Fund)
For Class Y:
To Open an Account
For a government entity or authority $10 million
or for a corporation (within first twelve months)
For other investors Any amount
To Add to an Account Any amount
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 to Waddell & Reed, Inc., 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, the Fund
and the class of shares that you wish to purchase.
To add to your Class Y account (or Class A account in Money Market Fund) by
<PAGE>
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, for the account of Waddell & Reed Number 9800007978, Special
Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
If you purchase shares of the Funds 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 redemption price (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to
Class B, Class C shares or certain Class A shares.
To sell shares by written request: Complete an Account Service Request form,
available from your 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 financial advisor, or mail it to:
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed Services Company will send a check
to the address on the account.
To sell Class Y shares (and Class A shares of Money Market Fund) by telephone
or fax: If you have elected this method in your application or by subsequent
authorization, call 888-WADDELL, or fax your request to 913-236-1599, and give
your instructions to redeem Class Y shares of any Fund or Class A shares of
Money Market Fund and make payment by wire to your predesignated bank account
or by check to you at the address on the account.
To sell Class A shares of Money Market Fund by check: If you have elected this
method in your application or by subsequent authorization, the Fund will
provide you with forms or checks drawn on UMB Bank, n.a. You may make these
checks payable to the order of any payee in any amount of $250 or more.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated, subject to any applicable CDSC, after receipt of a written
request for redemption in good order by Waddell & Reed Services Company at the
address listed above. 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 Fund may delay payment
of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If you do not, payment of the redemption proceeds on these
shares will be delayed until the earlier of 10 days or the date the Fund
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 when the Fund's Board of
Directors determines that conditions exist making cash payments
undesirable. A Fund is obligated to redeem shares solely in cash up to
<PAGE>
the lesser of $250,000 or 1% of its NAV during any 90-day period for any
one shareholder.
_ If you purchased shares of a Fund 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 shares when that firm (or its designee) has
received your order. Your order will receive the 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 shares at that day's
price.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must be signed by all
Joint Tenant persons required to sign for transactions, exactly
as their names appear on the account.
Sole Proprietorship The written instructions must be signed by the
individual owner of the business.
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
Retirement Account The written instructions must be signed by a
properly authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's name
is not in the account registration, provide a
currently
certified copy of the trust document.
Business or At least one person authorized by corporate
Organization resolution to act on the account must sign the
written instructions.
Conservator, Guardian The written instructions must be signed by the
or Other Fiduciary person properly authorized by court order to act
in the particular fiduciary capacity.
The Fund 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 Funds reserve the right to redeem at NAV all shares of a Fund owned by you
having an aggregate NAV of less than $500 or less than $250 for Money Market
Fund. The Fund 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 or $250 for Money
Market Fund. For Class B or Class C shares, these redemptions are not subject
to the deferred sales charge. The Fund will not apply its redemption right to
individual retirement plan accounts or accounts which have an aggregate NAV of
less than $500 due to market forces. Money Market Fund may charge a fee of
$1.75 per month on all accounts with a NAV of less than $250, except for
retirement plan accounts.
You may reinvest in any one of the Funds, without charge, all or part of the
amount of Class A shares you redeemed by sending to the applicable Fund the
amount you want to reinvest. The reinvested amounts must be received by the
Fund within forty-five days after the date of your redemption.
The CDSC will not apply to the proceeds of Class B, Class C or, where
otherwise applicable to certain Class A shares which are redeemed and then
<PAGE>
reinvested in shares of the same Class of the Fund within forty-five days
after such redemption. The Distributor will, with your reinvestment, restore
an amount equal to the deferred sales charge attributable to the amount
reinvested by adding the deferred sales charge amount to your reinvestment.
For purposes of determining future deferred sales charges, the reinvestment
will be treated as a new investment. You may do this only once as to Class B,
Class C and certain Class A shares of a Fund. This privilege may be eliminated
or modified at any time without prior notice to shareholders.
Payments of principal and interest on loans made pursuant to a 401(a)
qualified plan (if such loans are permitted by the plan) may be reinvested 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 financial advisor is available to provide personal service.
Additionally, a toll-free call, 800-366-5465, connects you to a Client
Services Representative or our automated customer telephone service. During
normal business hours, our Client Services staff is available to answer your
questions or update your account records. At almost any time of the day or
night, you may access your account information from a touch-tone phone, or
from our web site, www.waddell.com, to:
_ obtain information about your accounts;
_ obtain price information about other funds in W&R Funds or Waddell & Reed
Advisors Funds; 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 of the Funds may be mailed to your household, even if you have more
than one account with a Fund. Call the telephone number listed for Client
Services if you need additional copies of annual or semiannual reports or
account information.
Exchanges
Except as provided below, you may sell your shares and buy shares of the same
class of any of the funds within the W&R Funds or of any of the funds within
the Waddell & Reed Advisors Funds without the payment of an additional sales
charge if you buy Class A shares or payment of a CDSC when you exchange Class
B shares or Class C shares or Class A shares to which the CDSC would otherwise
apply. For Class B and Class C shares and Class A shares to which the CDSC
would otherwise apply, the time period for the
CDSC will continue to run. You may sell your Class Y shares of any of the
Funds and buy Class Y shares of another Fund except that exchanging Class Y
shareholders of a fund in W&R Funds may buy Class A shares of Money Market
Fund.
<PAGE>
You may exchange any Class A shares of the Limited-Term Bond and Municipal
Bond Funds that you have held for at least six months and any Class A shares
of these Funds acquired as payment of a dividend or distribution for Class A
shares of any other fund in the W&R Funds. You may exchange any Class A shares
of the Limited-Term Bond and Municipal Bond Funds that you have held for less
than six months only for Class A shares of Limited-Term Bond, Municipal Bond
and Money Market 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 A, Class B and Class C Shareholders
Flexible Withdrawal Service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account,
or between Fund accounts, automatically. While Regular Investment Plans do not
guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your financial advisor for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account with W&R
Funds.
Minimum Amount Minimum Frequency
$25 (per Fund) Monthly
Funds Plus Service
To move money from Money Market Fund to another Fund in W&R Funds, whether in
the same or a different Fund account in the same class.
Minimum Amount Minimum Frequency
$100 (per Fund) Monthly
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year.
Usually, High Income Fund, Limited-Term Bond Fund, Money Market Fund and
Municipal Bond Fund distribute net investment income at the following times:
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 two options:
1.
Share Payment Option. Your dividends, 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. If you do not indicate a choice on
your application, you will be assigned this option.
2.
Cash Option. You will be sent a check for your dividends, capital gains and
other distributions if the total distribution is five dollars or greater.
If the distribution total is less than five 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 shares of the same class of the distributing Fund.
<PAGE>
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 (which includes net short-term gains), if any, 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 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.
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; the 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 the Fund.
Entities or other persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or 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. A portion of the dividends paid by a 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 a 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. No part of the dividends paid by Limited-Term
Bond Fund and Municipal Bond Fund is expected to be eligible for this
deduction.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the W&R Funds or in the Waddell & Reed Advisors Funds generally will have
similar tax consequences. However, special rules apply when you dispose of a
Fund's Class A shares through a redemption or exchange within ninety days
after your purchase and then reacquire Class A shares of that Fund or acquire
Class A shares of another fund in the
W&R Funds or in the Waddell & Reed Advisors Funds without paying a sales
charge due to the forty-five day reinvestment privilege or exchange privilege.
See "Your Account." In these cases, any gain on the disposition of the
original Class A Fund shares will be increased, or loss decreased, by the
amount of the sales charge you paid when those shares were acquired, and that
amount will increase the adjusted basis of the shares subsequently acquired.
In addition, if you purchase shares of a Fund within thirty days before or
<PAGE>
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.
Withholding. Each Fund must withhold 31% of all taxable dividends, capital
gains and other 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, capital gains and other distributions also is required for
shareholders subject to backup withholding.
State and local income taxes. The portion of the dividends paid by Limited-
Term Bond Fund and Money Market Fund (and, to a lesser extent, the other
Funds) attributable to interest earned on 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 income 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.
THE MANAGEMENT OF THE FUNDS
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Funds' Board
of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO and/or its predecessors have served
as investment manager to each of the registered investment companies in the
Waddell & Reed Advisors Funds, W&R Funds and Target/United Funds since the
inception of each investment company. WRIMCO is located at 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Louise D. Rieke is primarily responsible for the management of the High Income
Fund. Ms. Rieke has held her Fund responsibilities since July 31, 1997. She is
Vice President of WRIMCO, Vice President of the Fund 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, a former affiliate of
WRIMCO. Ms. Rieke has served as the portfolio manager for investment companies
managed by WRIMCO and its predecessors since July 1986 and has been an
employee of such since May 1971.
W. Patrick Sterner is primarily responsible for the management of the Limited-
Term Bond Fund. Mr. Sterner has held his Fund responsibilities since September
1992. He is Vice President of WRIMCO, Vice President of the Fund 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.
Bryan J. Bailey is primarily responsible for the management of the Municipal
Bond Fund. Mr. Bailey has held his Fund responsibilities since June 14, 2000.
<PAGE>
He is Vice President of WRIMCO and Vice President of the Fund. Mr. Bailey has
served as the Assistant Portfolio Manager for investment companies managed by
WRIMCO since January 1999 and has been an employee of WRIMCO since July 1993.
Mira Stevovich is primarily responsible for the management of the Money Market
Fund. Ms. Stevovich has held her Fund responsibilities since the inception of
the Fund. She is Vice President of WRIMCO, Vice President and Assistant
Treasurer of the Fund and Vice President and Assistant Treasurer of
other investment companies for which WRIMCO serves as investment manager. Ms.
Stevovich has served as the Portfolio Manager for investment companies managed
by WRIMCO and its predecessors since May 1998 and has been an employee of such
since March 1987.
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.
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 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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.53%;
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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.13%;
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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.54%; and
for Money Market Fund, 0.40% of annual net assets.
WRIMCO has voluntarily agreed to waive its management fee for any day that a
Fund's net assets are less than $25 million, subject to WRIMCO's right to
change or modify this waiver.
FINANCIAL HIGHLIGHTS
The following information is to help you understand the financial performance
of each Fund's Class C 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 each Fund's financial statements for the fiscal
year ended March 31, 2000, is included in the SAI, which is available upon
request.
HIGH INCOME FUND
For a Class C share outstanding throughout each period(1):
For the For the
fiscal year period from
ended March 31, 7/31/97(2) to
<PAGE>
2000 1999 3/31/98
Class C Per-Share Data
Net asset value, beginning of period $9.94 $10.79 $10.00
Income from investment operations:
Net investment income 0.69 0.63 0.37
Net realized and unrealized
gain (loss) on investments (0.67) (0.82) 0.79
Total from investment operations 0.02 (0.19) 1.16
Less distributions:
Declared from net
investment income (0.69) (0.63) (0.37)
From capital gains (0.00) (0.03) (0.00)
Total distributions (0.69) (0.66) (0.37)
Net asset value, end of period $9.27 $9.94 $10.79
Class C Ratios/Supplemental Data
Total return 0.17% -1.72% 11.77%
Net assets, end of period (in thousands) $22,877 $25,427 $11,812
Ratio of expenses to average net assets 2.17% 2.20% 2.52%(3)
Ratio of net investment income to
average net assets 7.16% 6.29% 5.98%(3)
Portfolio turnover rate 71.31% 50.98% 67.82%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that Class
B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.
(2) Commencement of operations.
(3) Annualized.
HIGH INCOME FUND
For a Class Y share outstanding throughout each period:
For the For the
fiscal year period from
ended March 31, 12/30/98(1) to
2000 3/31/99
Class Y Per-Share Data
Net asset value, beginning of period $9.94 $9.97
Income from investment operations:
Net investment income 0.77 0.20
Net realized and unrealized
gain (loss) on investments (0.67) 0.00
Total from investment operations 0.10 0.20
Less distributions:
Declared from net investment income (0.77) (0.20)
From capital gains (0.00) (0.03)
Total distributions (0.77) (0.23)
Net asset value, end of period $9.27 $9.94
Class Y Ratios/Supplemental Data
Total return 0.94% 2.45%
Net assets, end of period (in thousands) $6 $6
Ratio of expenses to average net assets 1.40% 0.26%(2)
Ratio of net investment income to
average net assets 7.85% 8.55%(2)
Portfolio turnover rate 71.31% 50.98%(2)
(1) Commencement of operations.
(2) Annualized.
LIMITED-TERM BOND FUND
For a Class C share outstanding throughout each period1:
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
<PAGE>
Class C Per-Share Data
Net asset value,
beginning of period $10.16 $10.14 $9.90 $10.00 $9.70
Income from investment
operations:
Net investment
income 0.47 0.44 0.45 0.44 0.41
Net realized and
unrealized gain
(loss) on investments (0.40) 0.02 0.24 (0.09) 0.30
Total from investment
operations 0.07 0.46 0.69 0.35 0.71
Less distributions:
Declared from net
investment income (0.47) (0.44) (0.45) (0.44) (0.41)
From capital gains (0.00) (0.00) (0.00) (0.01) (0.00)
Total distributions (0.47) (0.44) (0.45) (0.45) (0.41)
Net asset value,
end of period $9.76 $10.16 $10.14 $9.90 $10.00
Class C Ratios/Supplemental Data
Total return 0.73% 4.65% 7.15% 3.52% 7.41%
Net assets, end of
period (in thousands) $18,966 $21,311 $18,148 $17,770 $23,682
Ratio of expenses
to average net assets 1.81% 2.11% 2.12% 2.07% 2.10%
Ratio of net investment
income to average
net assets 4.75% 4.34% 4.52% 4.40% 4.14%
Portfolio turnover rate 37.02% 32.11% 27.37% 23.05% 22.08%
1.
The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that Class
B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
LIMITED-TERM BOND FUND
For a Class Y share outstanding throughout each period:
For the
period from
For the fiscal year ended March 31, 12/29/95(1) to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $10.16 $10.14 $9.90 $10.00 $10.16
Income from investment
operations:
Net investment income 0.57 0.53 0.53 0.52 0.11
Net realized and
unrealized gain (loss)
on investments (0.40) 0.02 0.24 (0.09) (0.16)
Total from investment
operations 0.17 0.55 0.77 0.43 (0.05)
Less distributions:
Declared from net
investment income (0.57) (0.53) (0.53) (0.52) (0.11)
From capital gains (0.00) (0.00) (0.00) (0.01) (0.00)
Total distributions (0.57) (0.53) (0.53) (0.53) (0.11)
Net asset value,
end of period $9.76 $10.16 $10.14 $9.90 $10.00
<PAGE>
Class Y Ratios/Supplemental Data
Total return 1.69% 5.60% 7.91% 4.33% -0.49%
Net assets, end of
period (in thousands) $1,229 $263 $184 $105 $1
Ratio of expenses
to average net assets 0.69% 1.20% 1.32% 1.04% 1.18%(2)
Ratio of net investment
income to average
net assets 6.03% 5.25% 5.32% 5.62% 4.70%(2)
Portfolio turnover rate 37.02% 32.11% 27.37% 23.05% 22.08%(2)
(1) Commencement of operations.
(2) Annualized.
MUNICIPAL BOND FUND
For a Class C share outstanding throughout each period(1):
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $11.24 $11.45 $10.74 $10.63 $10.30
Income from investment
operations:
Net investment income 0.42 0.42 0.44 0.45 0.43
Net realized and
unrealized gain (loss)
on investments (1.11) 0.10 0.71 0.11 0.33
Total from investment
operations (0.69) 0.52 1.15 0.56 0.76
Less distributions:
Declared from net
investment income (0.42) (0.42) (0.44) (0.45) (0.43)
From capital gains (0.02) (0.31) (0.00) (0.00) (0.00)
Total distributions (0.44) (0.73) (0.44) (0.45) (0.43)
Net asset value,
end of period $10.11 $11.24 $11.45 $10.74 $10.63
Class C Ratios/Supplemental Data
Total return -6.21% 4.64% 10.89% 5.32% 7.48%
Net assets, end of
period (in thousands) $28,361 $42,906 $40,023 $36,618 $33,869
Ratio of expenses to
average net assets 1.98% 1.88% 1.89% 1.92% 1.93%
Ratio of net investment
income to average
net assets 3.94% 3.68% 3.94% 4.18% 4.05%
Portfolio turnover rate 16.95% 41.53% 27.86% 34.72% 42.02%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that Class
B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
MUNICIPAL BOND FUND
For a Class Y share outstanding throughout each period:
For the For the
fiscal For the For the fiscal For the
year period from period year period from
ended 12/30/98(3) ended ended 12/29/95(1)
3/31/00 to 3/31/99 6/23/97(2) 3/31/97 to 3/31/96
Class Y Per-Share Data
Net asset value,
<PAGE>
beginning of period $11.24 $11.58 $10.74 $10.63 $10.94
Income from investment
operations:
Net investment income 0.48 0.13 0.10 0.52 0.12
Net realized and
unrealized gain (loss)
on investments (1.11) (0.03) 0.29 0.11 (0.31)
Total from investment
operations (0.63) 0.10 0.39 0.63 (0.19)
Less distributions:
Declared from net
investment income (0.48) (0.13) (0.10) (0.52) (0.12)
From capital gains (0.02) (0.31) (0.00) (0.00) (0.00)
Total distributions (0.50) (0.44) (0.10) (0.52) (0.12)
Net asset value,
end of period $10.11 $11.24 $11.03 $10.74 $10.63
Class Y Ratios/Supplemental Data
Total return -5.69% 0.80% 3.22% 5.96% -1.80%
Net assets, end of
period (in thousands) $2 $2 $0 $1 $1
Ratio of expenses to
average net assets 1.40% 1.00%(4) 4.95%(4) 1.28% 1.18%(4)
Ratio of net investment
income to average
net assets 4.52% 4.40%(4) 4.12%(4) 4.83% 4.33%(4)
Portfolio turnover rate 16.95% 41.53%(4) 27.86%(4) 34.72% 42.02%(4)
(1) Initial commencement of operations.
(2) All outstanding shares were redeemed on June 23, 1997, at the ending net
asset value shown in the table.
(3) Recommencement of operations.
(4) Annualized.
This space is intended for your notes and calculations.
W&R FUNDS
Custodian
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64106
Legal Counsel
Kirkpatrick & Lockhart llp
1800 Massachusetts Avenue, N.W.
Washington, D. C. 20036
Independent Auditors
0Deloitte & Touche LLP
1010 Grand Boulevard
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
888-WADDELL
Underwriter
Waddell & Reed, Inc.
6300 Lamar Avenue
<PAGE>
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
Shareholder Servicing Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
Accounting Services Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
W&R FUNDS
You can get more information about each Fund in the --
_ Statement of Additional Information (SAI), which contains detailed
information about the Funds, 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).
_ 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 the Funds' performance during the year
covered by the report.
To request a copy of the Funds' current SAI or copies of the 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.
Copies of the SAI, Annual and/or Semiannual reports may also be requested via
e-mail at [email protected].
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 may also be obtained, after paying a duplicating fee,
by electronic request at [email protected] or 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 202-942-8090.
The Funds' SEC file number is: 811-6569.
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
NUP3100(6-00)
<PAGE>
Prospectus
June 30, 2000
EQUITY, GROWTH AND INCOME
& ASSET ALLOCATION FUNDS
Asset Strategy Fund
International Growth Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Science and Technology Fund
Small Cap Growth Fund
Tax-Managed Equity Fund
Total Return Fund
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.
Waddell & Reed, Inc.
CONTENTS
3 An Overview of the Funds
3 Asset Strategy Fund
10 International Growth Fund
16 Large Cap Growth Fund
20 Mid Cap Growth Fund
24 Science and Technology Fund
30 Small Cap Growth Fund
36 Tax-Managed Equity Fund
40 Total Return Fund
46 The Investment Principles of the Funds
55 Your Account
76 The Management of the Funds
80 Financial Highlights
AN OVERVIEW OF THE FUND
GOAL
W&R 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, bonds and short-term instruments.
_ The stock class includes equity securities of all types, although Waddell
& Reed Investment Management Company ("WRIMCO"), the Fund's investment
manager, 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
Fund may invest in the securities of any size company.
_ The bond class includes all varieties of fixed-income instruments, such as
corporate or U.S. Government debt securities, with remaining maturities of
more than three years. This asset class may include a significant amount
of junk bonds, up to 35% of the Fund's total assets, which are bonds rated
BB and below by Standard & Poor's ("S&P") and Ba and below by Moody's
Investors Service, Inc. ("MIS") or unrated bonds deemed by WRIMCO to be of
comparable quality.
_ 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 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 WRIMCO changes the Fund's holdings
based on its 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.
<PAGE>
Mix
Stocks 70%
(can range from 0-100%)
Bonds 25%
(can range from 0-100%)
Short-term 5%
(can range from 0-100%)
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:
_ the skill of WRIMCO in allocating the Fund's assets among different types
of investments;
_ the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
_ an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to
decline;
_ prepayment of higher-yielding bonds held by the Fund;
_ the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds; and
_ 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.
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. 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. You should consider whether the Fund fits
your investment objectives.
PERFORMANCE
Asset Strategy Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A or Class B shares since these classes
do not have annual returns for at least one calendar year.
<PAGE>
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1996 3.92%
1997 10.84%
1998 8.64%
1999 21.22%
In the period shown in the chart, the highest quarterly return was 15.52%
(the fourth quarter of 1999) and the lowest quarterly return was -4.97% (the
first quarter of 1997). The Class C return for the year through March 31,
2000, was 15.58%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year Life of Class2
Class C Shares of Asset Strategy Fund1 21.22% 10.05%
S&P 500 Index 21.09% 27.53%
Salomon Brothers Broad
Investment Grade Index -0.83% 6.86%
Salomon Brothers Short-Term Index
for 1 Month Certificates of Deposit 5.32% 5.62%
Lipper Flexible Portfolio Funds
Universe Average 12.50% 16.21%
Class Y Shares of Asset Strategy Fund 22.24% 11.90%
S&P 500 Index 21.09% 26.45%
Salomon Brothers Broad
Investment Grade Index -0.83% 5.20%
Salomon Brothers Short-Term Index
for 1 Month Certificates of Deposit 5.32% 5.55%
Lipper Flexible Portfolio
Funds Universe Average 12.50% 14.44%
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.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current contingent deferred sales charge ("CDSC") structure applicable to
Class C.
2.
Since April 20, 1995, for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above indexes are not
available, index performance is calculated from April 30, 1995, and
December 31, 1995, respectively.
FEES AND EXPENSES
Asset Strategy Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
<PAGE>
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.51% 0.51% 0.51% 0.38%
Total Annual Fund
Operating Expenses 1.46% 2.21% 2.21% 1.33%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $715 $1,010 $1,327 $2,221
Class B Shares $624 $ 991 $1,285 $2,353(1)
Class C Shares $324 $ 691 $1,185 $2,544
Class Y Shares $135 $ 421 $ 729 $1,601
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $715 $1,010 $1,327 $2,221
Class B Shares $224 $ 691 $1,185 $2,353(1)
Class C Shares $224 $ 691 $1,185 $2,544
Class Y Shares $135 $ 421 $ 729 $1,601
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOALS
W&R 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 within a country or
<PAGE>
region and/or are represented by the privatization and/or restructuring of
particular industries. The Fund emphasizes growth stocks, which are
securities of companies whose earnings WRIMCO believes are likely to grow
faster than the economy. The Fund primarily invests in issuers of developed
countries, and the Fund may invest in companies of any size.
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.
Generally, in determining whether to sell a security, WRIMCO uses the same
type of analysis that it uses in buying securities of that type. For example,
WRIMCO may sell a security if it believes the security has ceased to offer
significant growth potential. WRIMCO may also sell a security to take
advantage of more attractive investment opportunities or to raise cash.
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 are more likely to 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
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.
PERFORMANCE
International Growth Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for at least one calendar year.
<PAGE>
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 3.62%
1994 0.12%
1995 8.34%
1996 19.11%
1997 16.89%
1998 31.72%
1999 88.66%
In the period shown in the chart, the highest quarterly return was 67.07%
(the fourth quarter of 1999) and the lowest quarterly return was -18.21% (the
third quarter of 1998). The Class C return for the year through March 31,
2000, was 8.88%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
International Growth Fund1 88.66% 30.25% 19.91%
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 13.55%
Lipper International
Funds Universe Average 40.80% 15.05% 14.91%
Class Y Shares of
International Growth Fund 90.62% 37.56%
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 13.24%
Lipper International
Funds Universe Average 40.80% 15.05% 16.81%
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.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 29, 1995, for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above index are not
available, index performance is calculated from September 30, 1992, and
December 31, 1995, respectively.
FEES AND EXPENSES
International Growth Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
<PAGE>
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.52% 0.52% 0.52% 0.35%
Total Annual Fund
Operating Expenses 1.62% 2.37% 2.37% 1.45%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $730 $1,057 $1,406 $2,386
Class B Shares $640 $1,039 $1,365 $2,517(1)
Class C Shares $340 $ 739 $1,265 $2,706
Class Y Shares $148 $ 459 $ 792 $1,735
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $730 $1,057 $1,406 $2,386
Class B Shares $240 $ 739 $1,265 $2,517(1)
Class C Shares $240 $ 739 $1,265 $2,706
Class Y Shares $148 $ 459 $ 792 $1,735
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R Large Cap Growth Fund
seeks the appreciation of your investment.
Principal Strategies
Large Cap Growth Fund seeks to achieve its goal by investing primarily in a
diversified portfolio of common stock issued by growth-oriented large to
medium sized U.S. and foreign companies that WRIMCO believes have
appreciation possibilities. Growth stocks are those whose earnings WRIMCO
<PAGE>
believes are likely to grow faster than the economy. The Fund may invest in
companies of any size.
WRIMCO attempts to select securities with appreciation possibilities by
looking at many factors. These include:
_ changes in economic and political conditions;
_ the short-term and long-term outlook for the industry being analyzed;
_ the management capability of the company being considered; and
_ the company's market position, product line, technological position and
prospects for increased earnings.
WRIMCO may also analyze the demands of investors for the security relative to
its price. Securities may be chosen when WRIMCO anticipates a development
that might have an effect on the value of a security.
Generally, in determining whether to sell a security, WRIMCO uses the same
type of analysis that it uses in buying securities. For example, WRIMCO may
sell a security if it determines that the security no longer presents
sufficient appreciation potential. WRIMCO may also sell a security to take
advantage of more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because Large Cap 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;
_ the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
_ 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 evaluating and selecting securities for the Fund.
Market risk for medium sized companies may be greater than the market risk
for large companies. Such companies are more likely to have limited financial
resources and inexperienced management. As well, stock of these companies may
experience volatile trading and price fluctuations.
As well, the Fund may invest a portion of its assets in foreign securities.
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
Large Cap Growth Fund is designed for investors seeking long-term investment
growth. You should consider whether the Fund fits your particular investment
objectives.
PERFORMANCE
Large Cap Growth Fund
The Fund has not been in operation for a full calendar year, therefore it
does not have performance information of at least one calendar year to
include a bar chart or performance table.
FEES AND EXPENSES
Large Cap Growth Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
<PAGE>
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.18% 0.18% 0.18% 0.18%
Total Annual Fund
Operating Expenses 1.13% 1.88% 1.88% 1.13%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25
million, subject to WRIMCO's right to change or terminate this waiver. The
expense ratios for Other Expenses are based on estimated amounts for the
current fiscal year. Actual expenses may be greater or less than those
shown.
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 A, Class
B, Class C 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:
If shares are redeemed at end of period: 1 Year 3 Years
Class A Shares $684 $913
Class B Shares $591 $891
Class C Shares $291 $591
Class Y Shares $115 $359
If shares are not redeemed at end of period: 1 Year 3 Years
Class A Shares $684 $913
Class B Shares $191 $591
Class C Shares $191 $591
Class Y Shares $115 $359
AN OVERVIEW OF THE FUND
GOAL
W&R Mid Cap Growth Fund
seeks the growth of your investment.
Principal Strategies
Mid Cap Growth Fund seeks to achieve its goal by investing primarily in
common stocks of U.S. and foreign companies whose market capitalizations are
within the range of capitalizations of companies comprising the Russell Mid-
Cap Growth Index ("Russell Mid-Cap") and that WRIMCO believes offer above-
average growth potential.
In selecting companies, WRIMCO may look at a number of factors, such as:
_ new or innovative products or services;
_ adaptive or creative management;
_ strong financial and operational capabilities to sustain growth;
_ market potential; and
_ profit potential.
Generally, in determining whether to sell a stock, WRIMCO uses the same type
of analysis that it uses when buying stocks. For example, WRIMCO may sell a
holding if the company no longer meets the desired capitalization range or if
<PAGE>
the company position weakens in the industry or market. WRIMCO may also sell
a security to take advantage of more attractive investment opportunities or
to raise cash.
Principal Risks of Investing in the Fund
Because Mid Cap 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's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy; and
_ the skill of WRIMCO in evaluating and selecting securities for the Fund.
Market risk for medium sized companies may be greater than that for large
companies. Medium sized companies may have limited financial resources and
less experienced management compared to large companies. Stocks of medium
sized companies may experience volatile trading and price fluctuations.
Also, the Fund may invest, to a lesser extent, in foreign securities, which
present additional risks such as currency fluctuations and political or
economic conditions affecting the foreign country.
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
Mid Cap Growth Fund is designed for investors who are willing to accept
greater risks than are present with many other mutual funds. The Fund is not
intended for investors who desire assured income and conservation of capital.
You should consider whether the Fund fits your particular investment
objectives.
PERFORMANCE
Mid Cap Growth Fund
The Fund has not been in operation for a full calendar year, therefore it
does not have performance information of at least one calendar year to
include a bar chart or performance table.
FEES AND EXPENSES
Mid Cap Growth Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets)
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.26% 0.56% 0.47% 0.20%
Total Annual Fund
Operating Expenses 1.36% 2.41% 2.32% 1.30%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
<PAGE>
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25
million, subject to WRIMCO's right to change or terminate this waiver. The
expense ratios for Other Expenses are based on estimated amounts for the
current fiscal year. Actual expenses may be greater or less than those
shown.
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 A, Class
B, Class C 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:
If shares are redeemed at end of period: 1 Year 3 Years
Class A Shares $706 $ 981
Class B Shares $644 $1,051
Class C Shares $335 $ 724
Class Y Shares $132 $ 412
If shares are not redeemed at end of period: 1 Year 3 Years
Class A Shares $706 $ 981
Class B Shares $244 $ 751
Class C Shares $235 $ 724
Class Y Shares $132 $ 412
AN OVERVIEW OF THE FUND
GOAL
W&R Science and Technology Fund
seeks long-term capital growth.
Principal Strategies
Science and Technology Fund seeks to achieve its goal of growth by
concentrating its investments primarily in the equity securities of U.S. and
foreign science and technology companies. Science and technology companies
are companies whose products, processes or services, in the opinion of
WRIMCO, 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.
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.
Generally, in determining whether to sell a stock, WRIMCO uses the same type
of analysis that it uses in buying stocks in order to determine whether the
security has ceased to offer significant growth potential. WRIMCO may also
sell a security to take advantage of more attractive investment opportunities
or to raise cash.
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;
<PAGE>
_ rapid obsolescence of products or processes of companies in which the Fund
invests;
_ government 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, stocks of smaller companies
may experience volatile trading and price fluctuations.
The Fund may invest, to a lesser extent, in foreign securities. Investments
in foreign securities present additional risks such as currency fluctuations
and political or economic conditions affecting the foreign country.
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
securities of science and technology companies. This Fund is not suitable for
all investors. You should consider whether the Fund fits your investment
objectives.
PERFORMANCE
Science and Technology Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing the Fund's performance and by
showing how the Fund's average annual total returns for the periods shown
compare with those of a broad measure of market performance and a peer group
average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows the Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for a full calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1998 44.03%
1999 177.01%2
In the period shown in the chart, the highest quarterly return was 82.61%
(the fourth quarter of 1999) and the lowest quarterly return was -12.63% (the
third quarter of 1998). The Class C return for the year through March 31,
2000, was 11.16%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
2.
A substantial portion of the Fund's returns during recent periods is
attributable to investments in initial public offerings (IPOs). No
assurance can be given that the Fund will continue to be able to invest in
<PAGE>
IPOs to the same extent as it has in the past or that future IPOs in which
the Fund invests will have as equally benefical an impact on performance.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year Life of Class2
Class C Shares of
Science and Technology Fund1 177.01% 78.78%
Goldman Sachs Technology
Industry Composite Index 88.86% 53.80%
S&P 400 Industrials Index 26.05% 24.64%
Lipper Science and Technology
Funds Universe Average 134.77% 59.78%
Class Y Shares of
Science and Technology Fund 175.81% 117.27%
Goldman Sachs Technology
Industry Composite Index 88.86% 84.62%
S&P 400 Industrials Index 26.05% 26.27%
Lipper Science and Technology
Funds Universe Average 134.77% 99.09%
The indexes shown are broad-based, securities market indexes that are
unmanaged. The Goldman Sachs Technology Industry Composite Index will replace
the S&P 400 Industrials Index. WRIMCO believes that the Goldman Sachs
Technology Industry Composite Index provides a more accurate basis for
comparing the Fund's performance to the types of securities in which the
Fund invests. Both indexes are presented for comparison purposes. The Lipper
average is a composite of mutual funds with goals similar to the goal of the
Fund.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
Since July 31, 1997, for Class C shares (based on the prior Class B
shares) and June 9, 1998, for Class Y shares. Because Class Y commenced
operations on a date other than at the end of a month, and partial month
calculations of the performance of the above indexes are not available,
index performance is calculated from June 30, 1998.
FEES AND EXPENSES
Science and Technology Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 0.99% 0.25%
Other Expenses 0.38% 0.38% 0.38% 0.30%
Total Annual Fund
Operating Expenses 1.48% 2.23% 2.22% 1.40%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
<PAGE>
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $717 $1,016 $1,336 $2,242
Class B Shares $626 $ 997 $1,295 $2,373(1)
Class C Shares $325 $ 694 $1,190 $2,554
Class Y Shares $143 $ 443 $ 766 $1,680
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $717 $1,016 $1,336 $2,242
Class B Shares $226 $ 697 $1,195 $2,373(1)
Class C Shares $225 $ 694 $1,190 $2,554
Class Y Shares $143 $ 443 $ 766 $1,680
1.
Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R Small Cap Growth Fund
seeks growth of capital.
Principal Strategies
Small Cap Growth Fund seeks to achieve its goal by investing primarily in
common stocks of domestic and foreign companies whose market capitalizations
are within the range of capitalizations of companies included in the Lipper,
Inc. Small Cap Category ("small cap stocks"). The Fund emphasizes relatively
new or unseasoned companies in their early stages of development or smaller
companies positioned in new or emerging industries where there is opportunity
for rapid growth.
In selecting companies, WRIMCO seeks companies whose earnings, it believes,
are likely to grow faster than the economy. 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; and
_ entry into new or emerging industries.
In general, WRIMCO may sell a security if it determines that the stock no
longer offers significant growth potential, which may be due to a change in
the business or management of the company or a change in the industry of the
company. As well, WRIMCO may sell a security to take advantage of more
attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because Small Cap Growth Fund owns different types of securities, 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;
<PAGE>
_ the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries;
_ 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 companies may be greater than that for medium and large
companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. Stock of smaller companies may also
experience volatile trading and price fluctuations.
Due to the nature of the Fund's permitted investments, primarily the small
cap stocks of new and/or unseasoned companies, companies in their early
stages of development or smaller companies in new or emerging industries, the
Fund may be subject to the following additional risks:
_ products offered may fail to sell as anticipated;
_ a period of unprofitability may be experienced before a company develops
the expertise and clientele to succeed in an industry;
_ the company may never achieve profitability; and
_ economic, market and technological factors may cause the new industry
itself to lose favor with the public.
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
Small Cap Growth Fund is designed for investors willing to accept greater
risks than are present with many other mutual funds. It is not intended for
those investors who desire assured income and conservation of capital. You
should consider whether the Fund fits your particular investment objectives.
PERFORMANCE
Small Cap Growth Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
- The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for at least one calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 24.20%
1994 12.75%
1995 32.14%
1996 2.30%
1997 21.12%
1998 44.57%
1999 61.42%
In the period shown in the chart, the highest quarterly return was 40.97%
(the fourth quarter of 1999) and the lowest quarterly return was -13.74% (the
<PAGE>
third quarter of 1998). The Class C return for the year through March 31,
2000, was 10.41%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
Small Cap Growth Fund1 61.42% 30.75% 28.84%
Russell 2000 Growth Index 43.08% 18.95% 16.94%
Nasdaq Industrials Index 71.67% 24.33% 19.35%
Class Y Shares of
Small Cap Growth Fund 62.79% 31.67%
Russell 2000 Growth Index 43.08% 18.95% 16.12%
Nasdaq Industrials Index 71.67% 24.33% 23.43%
The indexes shown are broad-based, securities market indexes that are
unmanaged. The Russell 2000 Growth Index will replace the Nasdaq Industrials
Index. WRIMCO believes that the Russell 2000 Growth Index provides a more
accurate basis for comparing the Fund's performance to the types of
securities in which the Fund invests. Both indexes are presented for
comparison purposes.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above indexes are not
available, index performance is calculated from September 30, 1992 and
December 31, 1995, respectively.
FEES AND EXPENSES
Small Cap Growth Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.26% 0.26% 0.26% 0.26%
Total Annual Fund
Operating Expenses 1.36% 2.11% 2.11% 1.36%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
<PAGE>
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $706 $981 $1,277 $2,116
Class B Shares $614 $961 $1,234 $2,248(1)
Class C Shares $314 $661 $1,134 $2,441
Class Y Shares $138 $431 $ 745 $1,635
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $706 $981 $1,277 $2,116
Class B Shares $214 $661 $1,134 $2,248(1)
Class C Shares $214 $661 $1,134 $2,441
Class Y Shares $138 $431 $ 745 $1,635
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R Tax-Managed Equity Fund
seeks long-term growth of capital while minimizing taxable gains and income
to shareholders.
Principal Strategies
Tax-Managed Equity Fund seeks to achieve its goal by investing primarily in a
diversified portfolio of common stocks of U.S. and foreign companies that
WRIMCO considers to be high in quality and attractive in their long-term
investment potential. The Fund seeks stocks that are favorably priced in
relation to their fundamental value and will likely grow over time. While the
Fund typically invests in the common stock of large to medium sized U.S.
companies, it may invest in companies of any size, any industry or any
country in order to achieve its goal.
WRIMCO manages the Fund using an investment strategy that is sensitive to the
potential impact of Federal income tax on shareholders' investment returns.
The Fund's tax-sensitive investment strategy is intended to lead to lower
distributions of income and realized capital gains than funds managed without
regard to Federal income tax consequences.
In selecting companies, WRIMCO typically invests for the long term and
chooses securities that it believes offer strong opportunities for long-term
growth of capital and that are attractively valued. While WRIMCO primarily
invests in growth stocks, it may also purchase value stocks. Value stocks are
those that WRIMCO believes are currently selling below their true worth.
When deciding to sell a security, WRIMCO considers the negative tax impact of
realized capital gains and, if applicable, the positive tax impact of
realizing capital losses. However, WRIMCO may sell a security at a realized
gain if it determines that the potential tax cost is outweighed by the risk
of owning the security, or if more attractive investment opportunities are
available. In addition, redemptions by shareholders may force the Fund to
sell securities at an inappropriate time, potentially resulting in realized
gains.
<PAGE>
Principal Risks of Investing in the Fund
Because Tax-Managed Equity Fund owns different types of investments, a
variety of factors can affect its investment performance, such as:
_ the skill of WRIMCO in evaluating and selecting securities for the Fund;
_ the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
_ the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries that may result in
performance less favorable than another investment mix might have
produced;
_ 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 Fund's tax-sensitive investment strategy not limiting taxable income
and realized capital gains as contemplated.
Market risk for small companies may be greater than that for medium and large
companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. Stock of smaller companies, and
growth stock in general, may also 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.
Who May Want to Invest
Tax-Managed Equity Fund is designed for long-term taxable investors. If you
are investing for the short-term (less than one year), you may suffer
negative tax consequences. Market conditions may limit the Fund's ability to
generate tax losses or to avoid dividend income. While the Fund tries to
reduce the extent to which shareholders incur taxes on Fund distributions of
income and net realized gains, the Fund does expect to distribute taxable
income and/or capital gains from time to time. Investors may realize capital
gains when they sell their shares. You should consider whether the Fund fits
your particular investment objectives.
PERFORMANCE
Tax-Managed Equity Fund
The Fund has not been in operation for a full calendar year; therefore, it
does not have performance information of at least one calendar year to
include a bar chart or performance table.
FEES AND EXPENSES
Tax-Managed Equity Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
<PAGE>
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.65% 0.65% 0.65% 0.65%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.40% 0.40% 0.40% 0.20%
Total Annual Fund
Operating Expenses 1.30% 2.05% 2.05% 1.10%
3.
The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25
million, subject to WRIMCO's right to change or terminate this waiver. The
expense ratios for Other Expenses are based on estimated amounts for the
current fiscal year. Actual expenses may be greater or less than those
shown.
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 A, Class
B, Class C 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:
If shares are redeemed at end of period: 1 Year 3 Years
Class A Shares $700 $963
Class B Shares $608 $943
Class C Shares $308 $643
Class Y Shares $112 $350
If shares are not redeemed at end of period: 1 Year 3 Years
Class A Shares $700 $963
Class B Shares $208 $643
Class C Shares $208 $643
Class Y Shares $112 $350
AN OVERVIEW OF THE FUND
GOAL
W&R Total Return Fund
seeks to provide capital growth and income.
Principal Strategies
Total Return Fund seeks to achieve its goal by investing primarily in common
stocks of U.S. and foreign companies with dominant market positions in their
industries and with a record of paying regular dividends on common stock, or
that 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.
WRIMCO attempts to select securities with growth and income possibilities by
looking at many factors including the company's:
_ profitability record;
_ history of improving sales and profits;
_ management;
_ leadership position in its industry;
_ stock price value; and
_ dividend payment history.
Generally, 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. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
Principal Risks of Investing in the Fund
<PAGE>
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, especially bonds with longer maturities, 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.
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 capital growth and
income. You should consider whether the Fund fits your investment objectives.
PERFORMANCE
Total Return Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
. The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
. The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
. The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A or Class B shares since these classes
do not have annual returns for at least one calendar year.
. The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 14.03%
1994 -2.07%
1995 29.65%
1996 18.12%
1997 24.61%
1998 20.73%
1999 12.15%
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 C return for the year through March 31,
2000, was 11.33%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
<PAGE>
Class C Shares of
Total Return Fund1 12.15% 20.91% 16.66%
S&P 500 Index 21.09% 28.59% 21.55%
Lipper Growth and Income
Funds Universe Average 13.76% 21.34% 16.80%
Class Y Shares of
Total Return Fund 12.96% 19.68%
S&P 500 Index 21.09% 28.59% 26.45%
Lipper Growth and Income
Funds Universe Average 13.76% 21.34% 19.03%
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.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above index are not
available, index performance is calculated from September 30, 1992 and
December 31, 1995, respectively.
FEES AND EXPENSES
Total Return Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.28% 0.28% 0.28% 0.22%
Total Annual Fund
Operating Expenses 1.23% 1.98% 1.98% 1.17%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
<PAGE>
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $693 $943 $1,212 $1,978
Class B Shares $601 $921 $1,168 $2,111(1)
Class C Shares $301 $621 $1,068 $2,306
Class Y Shares $119 $372 $ 644 $1,420
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $693 $943 $1,212 $1,978
Class B Shares $201 $621 $1,068 $2,111(1)
Class C Shares $201 $621 $1,068 $2,306
Class Y Shares $119 $372 $ 644 $1,420
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
THE INVESTMENT PRINCIPLES OF THE FUNDS
Investment Goals, Principal Strategies and Other Investments
W&R Asset Strategy Fund
The goal of Asset Strategy Fund is to seek 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 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,
as a percentage of total assets of the Fund, are listed below. Some types of
investments, such as indexed securities, can fall into more than one asset
class.
Mix Range
--------- ------
Stock class 0-100%
70%
Bond class 0-100%
25%
Short-term class 0-100%
5%
WRIMCO 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
<PAGE>
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 prevent the Fund from achieving its
investment objective.
W&R International Growth Fund
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 of foreign issuers. There is no guarantee that the Fund will
achieve its goals.
The Fund may also invest, to a lesser extent, in preferred stocks and debt
securities. The debt securities may be of any maturity and will typically be
investment grade.
Under normal conditions, the Fund invests at least 80% of its total assets in
foreign securities and at least 65% of its total 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. As well, the Fund will invest at least 65% of its total
assets in growth securities (primarily in common stock) during normal market
conditions. Growth securities are those whose earnings, WRIMCO believes, are
likely to have strong growth over several years.
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may invest 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, and may also invest up to all of the Fund's assets in U.S.
securities. By taking a temporary defensive position the Fund may not achieve
its investment objectives.
W&R Large Cap Growth Fund
The goal of the Large Cap Growth Fund is the appreciation of your investment.
The Fund seeks to achieve this goal through a diversified holding of
securities, primarily those issued by large to medium sized U.S. and foreign
companies that WRIMCO believes have appreciation possibilities. There is no
guarantee that the Fund will achieve its goal. The Fund will, under normal
market conditions, invest at least 65% of its total assets in large cap
growth securities.
The Fund invests primarily in common stock but may also own, to a limited
extent, preferred stock and debt securities, typically of investment grade
and of any maturity. The Fund may also own convertible securities. As well,
the Fund may invest, to a lesser extent, in foreign securities.
At times, as a temporary defensive measure, the Fund may invest up to all of
its assets in either debt securities (which may include money market
instruments held as cash reserves) or preferred stocks or both. By taking a
temporary defensive position in either or both of these ways the Fund may not
achieve its investment objective.
W&R Mid Cap Growth Fund
The goal of the Mid Cap Growth Fund is the growth of your investment. The
Fund seeks to achieve its goal by investing primarily in a diversified
portfolio of common stocks of U.S. and foreign companies whose market
capitalizations are within the range of capitalizations of companies
comprising the Russell Mid-Cap and that WRIMCO believes offer above-average
growth potential. For this purpose, the Fund considers a company's
capitalization at the time the Fund acquires the company's securities, and
the company need not be listed in the Russell Mid-Cap. Companies whose
capitalization falls outside the range of the Russell Mid-Cap after purchase
continue to be considered medium capitalization companies for purpose of the
<PAGE>
Fund's investment policy. There is no guarantee that the Fund will achieve
its goal. The Fund will, under normal market conditions, invest at least 65%
of its total assets in mid cap securities.
In addition to common stocks, the Fund may invest in convertible securities,
preferred stocks and debt securities of any maturity and mostly of investment
grade. The Fund may also invest up to 25% of its total assets in foreign
securities.
When WRIMCO believes that a temporary defensive position is desirable, the
Fund may invest up to all of its assets in debt securities (including
commercial paper, short-term securities issued by the U.S. Government or its
agencies or instrumentalities and other money market instruments) and/or
preferred stocks. The Fund may also use options and futures contracts for
defensive purposes. By taking a defensive position the Fund may not achieve
its investment objective.
W&R Science and Technology Fund
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, to a lesser
extent, in preferred stock, debt securities and convertible securities. The
Fund may invest a limited amount of its assets in foreign securities.
Under normal economic and market conditions, the Fund will not invest more
than 20% of its total assets in securities other than those of science or
technology companies. 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.
By taking a temporary defensive position the Fund may not achieve its
investment objective.
W&R Small Cap Growth Fund
The goal of Small Cap Growth Fund is growth of capital. The Fund seeks to
achieve its goal by investing primarily in common stocks of small
capitalization companies that are relatively new or unseasoned, companies in
their early stages of development, or smaller companies positioned in new or
emerging industries where there is an opportunity for rapid growth. The Fund
considers a company's capitalization at the time the Fund acquires the
company's common stock. Common stock of a company whose capitalization
exceeds the range of the Lipper, Inc. Small Cap Category after purchase will
not be sold solely because of its increased capitalization. There is no
guarantee that the Fund will achieve its goal.
The Fund will, under normal market conditions, invest at least 65% of its
total assets in small cap stocks. In addition to common stocks, the Fund may
also invest in securities convertible into common stocks, preferred stocks
and debt securities that are mostly of investment grade. The Fund may also
buy foreign securities; however, it may not invest more than 10% of its total
assets in foreign securities.
When WRIMCO believes that a temporary defensive position is desirable, the
Fund may invest up to all of its assets in debt securities (including
commercial paper or short-term U.S. Government securities) or preferred
<PAGE>
stocks, or both. By taking a temporary defensive position, the Fund may not
achieve its investment objective.
W&R Tax-Managed Equity Fund
The goal of Tax-Managed Equity Fund is long-term growth of capital while
minimizing taxable gains and income to shareholders. The Fund seeks to
achieve its goal by investing primarily in a diversified portfolio of common
stocks of U.S. and foreign companies that WRIMCO considers to be high in
quality and attractive in their long-term investment potential. The Fund
seeks stocks that are favorably priced in relation to their fundamental value
and will likely grow over time.
The Fund attempts to achieve high after-tax returns for its shareholders by
balancing investment considerations and tax considerations. The Fund seeks to
minimize income distributions and distributions of realized short-term gains
(taxed as ordinary income), as well as distributions of realized long-term
gains. The Fund seeks to achieve returns primarily in the form of price
appreciation (not subject to current tax until shares are redeemed). There is
no guarantee that the Fund will achieve its goal.
WRIMCO ordinarily uses one or more of the following strategies in its
management of the Fund:
_ a long-term, low turnover approach to investing;
_ an emphasis on lower-yielding securities to require distribution of
little, if any, taxable income;
_ an attempt to avoid net realized short-term gains;
_ in the sale of portfolio securities, selection of the most tax-favored
lots; and
_ selective tax-advantaged hedging techniques as an alternative to taxable
sales.
The Fund will, under normal market conditions, invest at least 65% of its
total assets in equity securities, primarily common stocks. The Fund
emphasizes growth stocks; however, it may also invest in value stocks. In
addition to common stocks, the Fund may also invest in securities convertible
into common stocks, preferred stocks and debt securities that are mostly of
investment grade. The Fund may also buy foreign securities; however, it may
not invest more than 25% of its total assets in foreign securities.
When WRIMCO believes that a temporary defensive position is desirable, the
Fund may invest up to all of its assets in debt securities (including
commercial paper or short-term U.S. Government securities) or preferred
stocks, or both. By taking a temporary defensive position, the Fund may not
achieve its investment objective.
W&R Total Return Fund
The goal of Total Return Fund is to provide capital growth and income. 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. and foreign companies that have a record of paying regular dividends or
have the potential for capital appreciation. The Fund may invest a limited
amount of its assets in foreign securities. There is no guarantee that the
Fund will achieve its goals.
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.
By taking a temporary defensive position the Fund may not achieve its
investment objective.
All Funds
Each Fund may also invest in and use certain other types of instruments in
seeking to achieve its goal(s). 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.
<PAGE>
You will find more information about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in the Statement
of Additional Information ("SAI").
Risk Considerations of Principal Strategies and Other Investments
Risks exist in any investment. Each Fund is subject to equity and market risk
and financial risk.
_ Market risk is the possibility of a change in the price of the security.
The prices of common stocks and other equity securities generally
fluctuate more than those of other investments. A Fund may lose a
substantial part, or even all, of its investment in a company's stock.
Growth stocks may experience greater price volatility than value stocks.
To the extent a Fund invests in fixed income securities, the price of a
fixed income security may be affected by 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. The financial risk of a Fund may depend, for example, on the
earnings performance of the issuer of stock held by the Fund. To the
extent a Fund invests in debt securities, the financial risk of the Fund
may also depend on the credit quality of the securities in which it
invests.
Notwithstanding Tax-Managed Equity Fund's use of tax management investment
strategies, the Fund may have taxable income and may realize taxable capital
gains from time to time. In addition, investors purchasing Fund shares when
the Fund has large accumulated capital gains could receive a significant part
of the purchase price of their shares back as a taxable capital gain
distribution. Over time, securities with unrealized gains may comprise a
substantial portion of the Fund's assets. As well, state or Federal tax laws
or regulations may be amended at any time which could include adverse changes
to applicable tax rates or capital gains holding periods.
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, to foreign taxes, and to 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.
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 investments
and, with respect to Asset Strategy Fund, on WRIMCO's skill in allocating
assets.
Asset Strategy Fund and International Growth 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.
YOUR ACCOUNT
Choosing a Share Class
Each Fund offers four classes of shares: Class A, Class B, Class C and Class
Y. Each class has its own sales charge, if any, and expense structure. The
decision as to which class of shares is best suited to your needs depends on
a number of factors that you should discuss with your financial advisor. Some
factors to consider are how much you plan to invest and how long you plan to
hold your investment. If you are investing a substantial amount and plan to
hold your shares for a long time, Class A shares may be the most appropriate
for you. Class B and Class C shares are not available for investments of $2
million or more. If you are investing a lesser amount, you may want to
consider Class B shares (if investing for at least seven years) or Class C
<PAGE>
shares (if investing for less than seven years). Class Y shares are designed
for institutional investors and others investing through certain
intermediaries, as described below.
Since your objectives may change over time, you may want to consider another
class when you buy additional Fund shares. 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 a future
investment.
General Comparison of Class A, Class B and Class C Shares
Class A Class B Class C
Initial sales charge No initial sales charge No initial sales charge
No deferred sales Deferred sales charge on A 1% deferred sales
charge1 shares you sell within six charge on shares you
years after purchase sell within twelve
months after purchase
Maximum distribution Maximum distribution Maximum distribution
and service (12b-1) and service (12b-1) and service (12b-1)
fees of 0.25% fees of 1.00% fees of 1.00%
For an investment of Converts to Class A shares Does not convert to
$2 million or more, 8 years after the month in Class A shares, so
only Class A shares which the shares were annual expenses do
are available purchased, thus reducing not decrease
future annual expenses
For an investment of $300,000
or more, financial advisors may
recommend purchase of Class A
shares due to a reduced sales
charge and lower annual expenses
1.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, ("Rule 12b-
1") for each of its Class A, Class B, Class C and Class Y shares. Under the
Class A Plan, each Fund may pay Waddell & Reed, Inc. (the "Distributor") a
fee of up to 0.25%, on an annual basis, of the average daily net assets of
the Class A shares. This fee is to compensate the Distributor for the amounts
it spends for, either directly or through third parties, distributing the
Fund's Class A shares, providing personal service to Class A shareholders
and/or maintaining Class A shareholder accounts. Under the Class B Plan and
the Class C Plan, each Fund may pay Waddell & Reed, Inc. a fee of up to
0.75%, on an annual basis, of the average daily net assets of the shares of
the class to compensate the Distributor for, either directly or through third
parties, distributing the shares of that class and a fee of up to 0.25%, on
an annual basis, of the average daily net assets of the shares of that class
to compensate the Distributor for, either directly or through third parties,
providing personal service to shareholders of that class and/or maintaining
shareholder accounts for that class. 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 or Class C shares would exceed the maximum
amount of such charges that the Distributor is permitted to receive under
NASD rules as then in effect.
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, either directly or through
third parties, distributing the Class Y shares of that Fund, providing
personal service 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 ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Class A shares are subject to an initial sales charge when you buy them,
based on the amount of your investment, according to the table below. Class A
shares pay an annual 12b-1 fee of up to 0.25% of average Class A net assets.
<PAGE>
The ongoing expenses of this class are lower than those for Class B or Class
C shares.
Size of Purchase
Sales Charge Reallowance
as Approx. to Dealers as
Sales Charge Percent of Percent of
as Percent of Amount Offering
Offering Price Invested Price
Under $100,000 5.75% 6.10% 5.00%
$100,000 to less than $200,000 4.75 4.99 4.00
$200,000 to less than $300,000 3.50 3.63 2.80
$300,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 1.50 1.52 1.20
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
$2,000,000 and over 0.001 0.001 0.50
1.
No sales charge is payable at the time of purchase on investments of $2
million or more, although for such investments a Fund may impose a CDSC of
1% on redemptions made within twelve months of the purchase. The CDSC is
assessed on an amount equal to the lesser of the then current market value
or the cost of the shares being redeemed. Accordingly, no sales charge is
imposed on increases in net asset value ("NAV") above the initial purchase
price.
Waddell & Reed, Inc. or its affilate(s) may pay additional compensation from
its own resources to securities dealers based upon the value of shares of a
Fund owned by the dealer for its own account or for its customers. Waddell &
Reed, Inc. or its affiliate(s) may also provide compensation from its own
resources to securities dealers with respect to shares of the Funds purchased
by customers of such dealers without payment of a sales charge.
Sales Charge Reductions and Waivers
Lower sales charges are available by:
_ Combining additional purchases of Class A shares of any of the Funds in
the W&R Funds, except Class A shares of Money Market Fund unless acquired
by exchange for Class A shares on which a sales charge was paid (or as a
dividend or distribution on such acquired shares), with the NAV of Class A
shares already held ("Rights of Accumulation");
_ Grouping all purchases of Class A shares of W&R Funds, except shares of
Money Market Fund, made during a thirteen-month period ("Letter of
Intent"); and
_ Grouping purchases by certain related persons.
Additional information and applicable forms are available from Waddell &
Reed, Inc.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
_ Certain clients investing through a qualified fee-based program offered by
a third-party that has made arrangements to sell shares of the Funds.
Contingent Deferred Sales Charge. A CDSC may be assessed against your
redemption amount of Class B, Class C or certain Class A shares and paid to
the Distributor, as further described below. The purpose of the CDSC is to
compensate the Distributor for the costs incurred by it in connection with
the sale of the Fund's Class B or Class C shares or with Class A investments
of $2 million or more at NAV. The CDSC will not be imposed on shares
representing payment of dividends or other 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 the shares purchased during
the CDSC period. Solely for purposes of determining the number of months or
years from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day of
the month. The CDSC is applied to the lesser of amount invested or redemption
value.
To keep your CDSC as low as possible, each time you place a request to redeem
shares, the Fund assumes that a redemption is made first of shares not
subject to a deferred sales charge (including shares which represent
appreciation on shares held, reinvested dividends and distributions), and
then of shares that represent the lowest sales charge.
Unless instructed otherwise, a Fund, when requested to redeem a specific
dollar amount, will redeem additional shares of the applicable class that are
<PAGE>
equal in value to the CDSC. For example, should you request a $1,000
redemption and the applicable CDSC is $27, the Fund will redeem shares having
an aggregate NAV of $1,027, absent different instructions.
Class B shares are not subject to an initial sales charge when you buy them.
However, you may pay a CDSC if you sell your Class B shares within six years
of their purchase, based on the table below. Class B shares pay an annual
12b-1 service fee of up to 0.25% of average net assets and a distribution fee
of up to 0.75% of average net assets. Over time, these fees will increase the
cost of your investment and may cost you more than if you had purchased Class
A shares. Class B shares and any dividends and distributions paid on such
shares automatically convert to Class A shares eight years after the end of
the month in which the shares were purchased. Such conversion will be on the
basis of the relative net asset values per share, without the imposition of
any sales load, fee or other charge. The Class A shares have lower ongoing
expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the
CDSC discussed below.
Contingent Deferred Sales Charge As % of Amount
on Shares Sold within Year Subject to Charge
1 5.0%
2 4.0%
3 3.0%
4 3.0%
5 2.0%
6 1.0%
7+ 0.0%
In the table, a "year" is a 12-month period. In applying the sales charge,
all purchases are considered to have been made on the first day of the month
in which the purchase was made.
For example, if a shareholder opens an account on July 14, 2000, then redeems
all Class B shares on July 12, 2001, the shareholder will pay a CDSC of 4%,
the rate applicable to redemptions made within the second year of purchase.
Class C shares are not subject to an initial sales charge when you buy them,
but if you sell your Class C shares within twelve months after purchase, you
will pay a 1% CDSC. For purposes of the CDSC, purchases of Class C shares
within a month will be considered as being purchased on the first day of the
month. Class C shares pay an annual 12b-1 service fee of up to 0.25% of
average net assets and an annual distribution fee of up to 0.75% of average
net assets. Over time, these fees will increase the cost of your investment
and may cost you more than if you had purchased Class A shares. Class C
shares do not convert to any other class.
For Class C shares, the CDSC will be applied to the lesser of the amount
invested or redemption value of shares that have been held for twelve months
or less.
The CDSC will not apply in the following circumstances:
_ redemptions of shares by certain clients investing through a qualified
fee-based program offered by a third-party that has made arrangements to
sell shares of the Funds.
_ redemptions of shares requested within one year of the shareholder's death
or disability, provided the Fund is notified of the death or disability at
the time of the request and furnished proof of such event satisfactory to
the Distributor.
_ redemptions of shares made to satisfy required minimum distributions after
age 70 1/2 from a qualified retirement plan, a required minimum
distribution from an individual retirement account, Keogh plan or
custodial account under section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), 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.
_ redemptions of shares made pursuant to a shareholder's participation in
any systematic withdrawal service adopted for a Fund. (The service and
this exclusion from the CDSC do not apply to a one-time withdrawal.)
<PAGE>
_ redemptions of which the proceeds are reinvested in shares (must be
reinvested in the same class as that which was redeemed) of the Fund
within forty-five days after such redemption.
_ the exercise of certain exchange privileges.
_ redemptions effected pursuant to the Fund's right to liquidate a
shareholder's shares if the aggregate NAV of those shares is less than
$500.
_ 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 shares of the Fund acquired pursuant to such
reorganization.
These exceptions may be modified or eliminated by the Fund at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Fund's right to liquidate a shareholder's shares,
which requires certain notice.
Class Y shares are not subject to a sales charge. Class Y shares pay an
annual 12b-1 distribution and/or service fee of up to 0.25% of average net
assets.
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 of the Code, including 401(k)
plans, when the plan has 100 or more eligible employees and holds the
shares in an omnibus account on the Fund's records, and an unaffiliated
third party provides administrative, distribution and/or other support
services to the plan;
_ 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 administrative, distribution and/or other support
services; and
_ government entities or authorities and corporations whose investment is
$10 million or more and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support
services.
Ways to Set Up Your Account
The different ways to set up (register) your account are listed below.
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 Plans
To shelter your retirement savings from income taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current income taxes. In addition, contributions to these accounts
(other than Roth IRAs and Education IRAs) may be tax-deductible.
_ Individual Retirement Accounts (IRAs) allow a certain individual under age
70 1/2, with earned income, to invest up to $2,000 per tax year. The
maximum for an investor and his or her spouse is $4,000 ($2,000 for each
spouse) or, if less, the couple's combined earned income for the taxable
year.
_ IRA Rollovers retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Roth IRAs allow certain individuals to make nondeductible contributions up
to $2,000 per year. The maximum annual contribution for an investor and
his or her spouse is $4,000 ($2,000 for each spouse) or, if less, the
couple's combined earned income for the taxable 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
nondeductible contributions, up to $500 per year, and permit tax-free
withdrawals to pay the higher education expenses of the beneficiary.
<PAGE>
_ Simplified Employee Pension Plans (SEP-IRAs) provide business owners or
those with self-employed income (and their eligible employees) with many
of the same advantages as a Profit Sharing Plan, but with fewer
administrative requirements.
_ Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to and allow their employees
to contribute a portion of their wages pre-tax to retirement accounts.
This plan-type generally involves fewer administrative requirements than
401(k) or other qualified plans.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves of up to 25% of their annual earned income,
with a maximum of $30,000 per year.
_ Pension and Profit-Sharing Plans, including 401(k) Plans, allow
corporations and nongovernmental tax-exempt organizations of all sizes
and/or their employees to contribute a percentage of the employees' wages
or other amounts 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, churches and 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 Transfers to Minors Act ("UTMA") or the
Uniform Gifts to Minors Act ("UGMA").
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.
Buying Shares
You may buy shares of each of the Funds through a financial advisor and
through other broker-dealers and banks that have selling agreements with the
Distributor. Some of these firms may charge you a fee and may have additional
requirements regarding the purchase of shares. To open your account you must
complete and sign an application.
To purchase any class of 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
To purchase Class Y shares by wire, you must first obtain an account number
by calling 800-366-2520, then mail a completed application to Waddell & Reed,
Inc., at the address above, 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, for the account of
Waddell & Reed Number 9800007978, Special Account for Exclusive Benefit of
Customers FBO Customer Name and Account Number.
The price to buy a share of a Fund, called the offering price, is calculated
every business day.
The offering price of a share (the price to buy one share of a particular
class) is the next NAV calculated per share of that class plus, for Class A
shares, the sales charge shown in the table.
In the calculation of a Fund's NAV:
_ The securities in a 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.
<PAGE>
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its NAVs as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by a 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 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:
_ All of your purchases must be made in U.S. dollars.
_ If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund, the payment may be delayed for up to ten
days to ensure that your previous investment has cleared.
_ The Fund will be deemed to have received your purchase order when a third
party (or its designee) has received your order. Your order will receive
the 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 Funds reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500 (per Fund)
For certain exchanges $100 (per Fund)
For certain retirement accounts and accounts
opened with Automatic Investment Service $50 (per Fund)
To Add to an Account Any amount
For certain exchanges $100 (per Fund)
For Automatic Investment Service $25 (per Fund)
For Class Y:
To Open an Account
For a government entity or authority $10 million
or for a corporation (within first twelve months)
For other investors Any amount
To Add to an Account Any amount
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 to Waddell & Reed, Inc., 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, the Fund,
and the class of shares that you wish to purchase.
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, for the account of Waddell & Reed Number
9800007978, Special Account for Exclusive Benefit of Customers FBO Customer
Name and Account Number.
Selling Shares
<PAGE>
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class of a
Fund) is the NAV per share of that Fund class, subject to any CDSC applicable
to Class B, Class C shares or certain Class A shares.
To sell shares by written request: Complete an Account Service Request form
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 financial advisor, or mail it to:
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed Services Company will send a
check to the address on the account.
To sell Class Y shares by telephone or fax: If you have elected this method
in your application or by subsequent authorization, call 888-WADDELL, or fax
your request to 913-236-1599, and give your instructions to redeem Class Y
shares and make payment by wire to your predesignated bank account or by
check to you at the address on the account.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated, subject to any applicable CDSC, after receipt of a written
request for redemption in good order by Waddell & Reed Services Company at
the address listed above. 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 Fund may delay payment
of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If you do not, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund 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 when the Fund's Board of
Directors determines that conditions exist making cash payments
undesirable. A Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of its NAV during any 90-day period for any one
shareholder.
_ The Fund will be deemed to have received your order to sell shares when
the firm through which you purchased the shares (or its designee) has
received your order. Your order will receive the 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 shares at that day's price.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must be signed by all
Joint Tenant persons required to sign for transactions, exactly
as their names appear on the account.
Sole Proprietorship The written instructions must be signed by the
individual owner of the business.
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
Retirement Account The written instructions must be signed by a
properly authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's
<PAGE>
name
is not in the account registration, provide a
currently certified copy of the trust document.
Business or At least one person authorized by corporate
Organization resolution to act on the account must sign the
written instructions.
Conservator, Guardian The written instructions must be signed by the
or Other Fiduciary person properly authorized by court order to act
in the particular fiduciary capacity.
The Fund 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 Funds reserve the right to redeem at NAV all shares of a Fund owned by
you having an aggregate NAV of less than $500. The Fund 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 or Class C shares, these redemptions
are not subject to the deferred sales charge. The Fund will not apply its
redemption right to individual retirement plan accounts or accounts which
have an aggregate NAV of less than $500 due to market forces.
You may reinvest in any one of the Funds, without charge, all or part of the
amount of Class A shares you redeemed by sending to the applicable Fund the
amount you want to reinvest. The reinvested amounts must be received by the
Fund within forty-five days after the date of your redemption.
The CDSC will not apply to the proceeds of Class B, Class C or, where
otherwise applicable to certain Class A shares of a Fund which are redeemed
and then reinvested in shares of the same class of the Fund, as applicable,
within forty-five days after such redemption. The Distributor will, with your
reinvestment, restore an amount equal to the deferred sales charge
attributable to the amount reinvested by adding the deferred sales charge
amount to your reinvestment. For purposes of determining future deferred
sales charges, the reinvestment will be treated as a new investment. You may
do this only once as to Class B shares, Class C shares and certain Class A
shares of a Fund. This privilege may be eliminated or modified at any time
without prior notice to shareholders.
Payments of principal and interest on loans made pursuant to a 401(a)
qualified plan (if such loans are permitted by the plan) may be reinvested 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
Personal Service
A toll-free call, 888-WADDELL, connects you to a Client Services
Representative or our automated customer telephone service. During normal
business hours, our Client Services staff is available to answer your
questions. At almost any time of the day or night, you may access our web
site, www.waddell.com, to obtain price information about other funds in
W&R Funds.
Exchanges
You may sell your shares and buy shares of the same class of any of the funds
within the W&R Funds without the payment of an additional sales charge if you
buy Class A shares or payment of a CDSC when you exchange Class B shares or
Class C shares or Class A shares to which the CDSC would otherwise apply. For
Class B and Class C shares and Class A shares to which the CDSC would
otherwise apply, the time period for the CDSC will continue to run. You may
<PAGE>
sell your Class Y shares of any of the Funds and buy Class Y shares of
another Fund or Class A shares of Money Market Fund.
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 A, Class B and Class C Shareholders
Flexible Withdrawal Service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account,
or between Fund accounts, automatically. While Regular Investment Plans do
not guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account with W&R
Funds
Minimum Amount Minimum Frequency
$25 (per Fund) Monthly
Funds Plus Service
To move money from Money Market Fund to another Fund in W&R Funds whether in
the same or a different account
Minimum Amount Minimum Frequency
$100 (per Fund) Monthly
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, Mid Cap Growth Fund, Tax-Managed Equity Fund, Small Cap
Growth Fund, International Growth Fund, Large Cap Growth Fund, and Science
and Technology Fund, annually in December; and Asset Strategy Fund, quarterly
in March, June, September and December. 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 two options:
1.Share Payment Option. Your dividends, 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. If you do
not indicate a choice on your application, you will be assigned this
option.
2.Cash Option. You will be sent a check for your dividends, capital gains
and other distributions if the total distribution is five dollars or
greater. If the distribution total is less than five 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 shares of the same class 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 (which includes net short-term gains), if any, generally are taxable
to you as ordinary income, whether received in cash or paid in additional
Fund shares. Distributions of a Fund's net capital gains, when designated as
<PAGE>
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 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.
A portion of the dividends paid by a 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 a 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.
Taxes on transactions. Your redemption of Fund shares will result in a
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than what you paid for the redeemed shares (which normally
includes any sales charge paid). An exchange of Fund shares for shares of any
other fund in the W&R Funds generally will have similar tax consequences.
However, special rules apply when you dispose of a Fund's Class A shares
through a redemption or exchange within ninety days after your purchase and
then reacquire Class A shares of that Fund or acquire Class A shares of
another Fund in the W&R Funds without paying a sales charge due to the forty-
five day reinvestment privilege or exchange privilege. See "Your Account." In
these cases, any gain on the disposition of the original Class A Fund shares
will be increased, or loss decreased, by the amount of the sales charge you
paid when those shares were acquired, and that amount will increase the
adjusted basis of the shares subsequently acquired. 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.
Withholding. Each Fund must withhold 31% of all taxable dividends, capital
gains and other 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, capital gains and other distributions also is required for
shareholders subject to backup withholding.
State and local income taxes. The portion of the dividends paid by a Fund
attributable to interest earned on 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 income 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.
THE MANAGEMENT OF THE FUNDS
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Funds' Board
of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO has served as investment manager
to W&R Funds since its inception. WRIMCO is located at 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Michael L. Avery is primarily responsible for the management of the equity
portion of the Asset Strategy Fund. Mr. Avery has held his Fund
responsibilities since January 1997. He is Senior Vice President of WRIMCO,
Vice President of the Fund 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 Company, a former affiliate of WRIMCO. 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 for WRIMCO since
August 1987, and has been an employee of such since June 1981.
<PAGE>
Daniel J. Vrabac is primarily responsible for the management of the fixed-
income portion of the Asset Strategy Fund. Mr. Vrabac has held his Fund
responsibilities since January 1997. He is Vice President of the Fund 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 such since May 1994.
Mark G. Seferovich and Grant P. Sarris are primarily responsible for the
management of the Small Cap Growth Fund. Mr. Seferovich has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO,
Vice President of the Fund 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 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 Small Cap Growth Fund from January 1, 1996
until May 1998. He has been an employee of WRIMCO since October 1, 1991.
Thomas A. Mengel is primarily responsible for the management of the
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 Fund 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.
Daniel P. Becker is primarily responsible for the management of the Large Cap
Growth Fund. Mr. Becker has held his Fund responsibilities since the
inception of the Fund. He is Vice President of WRIMCO, Vice President of the
Fund and Vice President of other investment companies for which WRIMCO serves
as investment manager. From January 1995 to March 1998, Mr. Becker was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Mr. Becker has been an employee of WRIMCO and its predecessors since
October 1989, initially serving as an investment analyst, and has served as a
portfolio manager for WRIMCO since January 1997.
Zachary H. Shafran is primarily responsible for the management of the Mid Cap
Growth Fund. Mr. Shafran has held his responsibilities since the inception of
the Fund. He is Vice President of WRIMCO, Vice President of the Fund and Vice
President of another investment company for which WRIMCO serves as investment
manager. Mr. Shafran served as an investment analyst with WRIMCO from June
1990 to January 1996 and has served as a portfolio manager since January
1996.
Henry J. Herrmann is primarily responsible for the management of the Science
and Technology Fund. Mr. Herrmann has held his Fund responsibilities since
April 17, 2000. He is Vice President and Director of each of the Funds in the
Waddell & Reed Advisors Funds, W&R Funds and Target/United Funds; President,
Chief Investment Officer, 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. Mr.
Herrmann has been an employee of Waddell & Reed, Inc. and its successor,
WRIMCO, since March 15, 1971.
Cynthia P. Prince-Fox is primarily responsible for the management of the Tax-
Managed Equity Fund. Ms. Prince-Fox has held her Fund responsibilities since
the inception of the Fund. She is Vice President of WRIMCO, Vice President of
the Fund and Vice President of other investment companies for which WRIMCO
serves as investment manager. From January 1993 to March 1998, Ms. Prince-Fox
was Vice President of, and a portfolio manager for, Waddell & Reed Asset
Management Company. Ms. Prince-Fox is a Vice President and Portfolio Manager
for Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO. She has served as
the portfolio manager for investment companies managed by WRIMCO since
January 1993. From 1983 to January, 1993 Ms. Prince-Fox served as an
investment analyst for WRIMCO.
<PAGE>
James D. Wineland is primarily responsible for the management of the Total
Return Fund. Mr. Wineland has held his Fund responsibilities since July 1,
1997. He is Vice President of WRIMCO, Vice President of the Fund 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. 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.
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.
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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.72%;
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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.84%;
for Large Cap Growth 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 Mid Cap 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 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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.83%;
for Small Cap 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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.84%;
for Tax-Managed Equity Fund, 0.65% of net assets up to $1 billion, 0.60% of
net assets over $1 billion and up to $2 billion, 0.55% of net assets over $2
billion and up to $3 billion, and 0.50% of net assets over $3 billion; 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 and 0.55% of net assets over $3 billion.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.70%.
WRIMCO has voluntarily agreed to waive its management fee for any day that a
Fund's net assets are less than $25 million, subject to WRIMCO's right to
change or modify this waiver.
FINANCIAL HIGHLIGHTS
The following information is to help you understand the financial performance
of each Fund's Class C 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
<PAGE>
statements for the fiscal year ended March 31, 2000, is included in the SAI,
which is available upon request.
ASSET STRATEGY FUND
For a Class C share outstanding throughout each period(1):
For the
period from
For the fiscal year ended March 31, 4/20/95(2) to
2000 1999 1998 1997 3/31/96
Class C Per-Share Data
Net asset value,
beginning of period $11.20 $11.42 $9.73 $10.15 $10.00
Income from investment operations:
Net investment
income 0.03 0.15 0.21 0.23 0.16
Net realized and
unrealized gain
(loss) on investments 4.33 0.05 2.16 (0.30) 0.14
Total from investment
operations 4.36 0.20 2.37 (0.07) 0.30
Less distributions:
From net investment
income (0.05) (0.16) (0.22) (0.21) (0.15)
From capital gains (0.30) (0.26) (0.46) (0.14) (0.00)
Total distributions (0.35) (0.42) (0.68) (0.35) (0.15)
Net asset value,
end of period $15.21 $11.20 $11.42 $9.73 $10.15
Class C Ratios/Supplemental Data
Total return 39.60% 1.79% 24.94% -0.86% 3.00%
Net assets, end of
period (in thousands) $52,208 $30,473 $19,415 $13,398 $13,221
Ratio of expenses
to average net assets 2.24% 2.32% 2.44% 2.52% 2.54%(3)
Ratio of net investment
income to average
net assets 0.24% 1.38% 2.02% 2.21% 2.14%(3)
Portfolio turnover rate 204.12% 168.17% 220.67% 109.92% 75.02%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
(2) Commencement of operations.
(3) Annualized.
ASSET STRATEGY FUND
For a Class Y share outstanding throughout each period:
For the
period from
For the fiscal year ended March 31, 12/29/95(1)
2000 1999 1998 1997 to 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $11.21 $11.43 $9.73 $10.16 $10.23
Income from investment operations:
Net investment
income 0.15 0.26 0.31 0.27 0.07
Net realized and
unrealized gain
(loss) on investments 4.33 0.05 2.16 (0.26) (0.08)
Total from investment
operations 4.48 0.31 2.47 0.01 (0.01)
Less distributions:
From net investment
income (0.13) (0.27) (0.31) (0.30) (0.06)
From capital gains (0.30) (0.26) (0.46) (0.14) (0.00)
Total distributions (0.43) (0.53) (0.77) (0.44) (0.06)
<PAGE>
Net asset value,
end of period $15.26 $11.21 $11.43 $9.73 $10.16
Class Y Ratios/Supplemental Data
Total return 40.85% 2.75% 26.06% 0.05% -0.25%
Net assets, end of
period (in thousands) $508 $307 $225 $116 $1
Ratio of expenses
to average net assets 1.33% 1.45% 1.58% 1.61% 1.95%(2)
Ratio of net investment
income to average
net assets 1.14% 2.25% 2.90% 2.97% 2.34%(2)
Portfolio turnover rate 204.12% 168.17% 220.67% 109.92% 75.02%(3)
(1) Commencement of operations.
(2) Annualized.
(3) Portfolio turnover is for the period from April 20, 1995 to March 31,
1996.
INTERNATIONAL GROWTH FUND
For a Class C share outstanding throughout each period(1):
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $15.58 $15.04 $12.40 $9.94 $9.36
Income from investment operations:
Net investment
income (loss) (0.34) (0.07) (0.10) (0.03) 0.08
Net realized and
unrealized gain
on investments 15.14 1.55 4.12 2.50 0.63
Total from investment
operations 14.80 1.48 4.02 2.47 0.71
Less distributions:
From net investment
income (0.00) (0.00) (0.00) (0.01) (0.11)
In excess of net
investment income (0.00) (0.00) (0.00) (0.00) (0.02)
From capital gains (1.80) (0.94) (1.38) (0.00) (0.00)
Total distributions (1.80) (0.94) (1.38) (0.01) (0.13)
Net asset value,
end of period $28.58 $15.58 $15.04 $12.40 $9.94
Class C Ratios/Supplemental Data
Total return 97.89% 10.36% 35.24% 24.85% 7.64%
Net assets, end of
period (in thousands) $233,280 $99,764 $87,041 $50,472 $20,874
Ratio of expenses
to average net assets 2.37% 2.35% 2.35% 2.46% 2.50%
Ratio of net investment
income (loss) to average
net assets -1.48% -0.53% -0.82% -0.52% 0.63%
Portfolio turnover rate 125.71% 116.25% 105.11% 94.76% 88.55%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
INTERNATIONAL GROWTH FUND
For a Class Y share outstanding throughout each period:
For the
period from
For the fiscal year ended March 31, 12/29/95(1) to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $16.08 $15.35 $12.52 $9.95 $9.70
Income from investment operations:
<PAGE>
Net investment
income (loss) (1.41) 0.05 0.01 0.02 0.02
Net realized and
unrealized gain
on investments 16.99 1.62 4.20 2.56 0.23
Total from investment
operations 15.58 1.67 4.21 2.58 0.25
Less distributions:
From net investment
income (0.00) (0.00) (0.00) (0.01) (0.00)
From capital gains (1.80) (0.94) (1.38) (0.00) (0.00)
Total distributions (1.80) (0.94) (1.38) (0.01) (0.00)
Net asset value,
end of period $29.86 $16.08 $15.35 $12.52 $9.95
Class Y Ratios/Supplemental Data
Total return 99.74% 11.41% 36.45% 25.93% 2.58%
Net assets, end of
period (in thousands) $5,296 $629 $419 $227 $7
Ratio of expenses
to average net assets 1.48% 1.44% 1.51% 1.59% 1.84%(2)
Ratio of net investment
income (loss) to average
net assets -0.80% 0.36% 0.07% 0.05% 1.07%(2)
Portfolio turnover rate 125.71% 116.25% 105.11% 94.76% 88.55%(2)
(1) Commencement of operations.
(2) Annualized.
SCIENCE AND TECHNOLOGY FUND
For a Class C share outstanding throughout each period(1):
For the For the
fiscal year period from
ended March 31, 7/31/97(2) to
2000 1999 3/31/98
Class C Per-Share Data
Net asset value, beginning of period $17.45 $12.01
$10.00
Income from investment operations:
Net investment loss (0.95) (0.09) (0.07)
Net realized and unrealized gain
on investments 28.77 5.53 2.08
Total from investment operations 27.82 5.44 2.01
Less distributions from capital gains (0.24) (0.00)
(0.00)
Net asset value, end of period $45.03 $17.45 $12.01
Class C Ratios/Supplemental Data
Total return 159.75% 45.30% 20.10%
Net assets, end of period (in thousands) $282,873 $44,371 $7,615
Ratio of expenses to average net assets 2.20% 2.57% 3.20%3
Ratio of net investment loss to
average net assets -1.68% -1.26% -1.66%3
Portfolio turnover rate 44.19% 51.00% 26.64%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.
(2) Commencement of operations.
(3) Annualized.
SCIENCE AND TECHNOLOGY FUND
For a Class Y share outstanding throughout the period:
For the For the
fiscal year period from
ended 6/9/98(1) to
3/31/00 3/31/99
Class Y Per-Share Data
Net asset value, beginning of period $17.65
$12.20
Income from investment operations:
<PAGE>
Net investment income (loss) (6.09) 0.01
Net realized and unrealized gain
on investments 34.04 5.44
Total from investment operations 27.95 5.45
Less distributions from capital gains (0.24)
(0.00)
Net asset value, end of period $45.36 $17.65
Class Y Ratios/Supplemental Data
Total return 158.67% 44.67%
Net assets, end of period (in thousands) $2,108 $53
Ratio of expenses to average net assets 1.36% 0.62%(2)
Ratio of net investment income to
average net assets -0.96% 0.54%(2)
Portfolio turnover rate 44.19% 51.00%(2)
(1) Commencement of operations.
(2) Annualized.
SMALL CAP GROWTH FUND
For a Class C share outstanding throughout each period(1):
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $14.74 $14.29 $9.08 $10.50 $8.45
Income from investment
operations:
Net investment loss (0.18) (0.11) (0.13) (0.03) (0.01)
Net realized and
unrealized gain (loss)
on investments 10.22 2.91 5.91 (1.09) 2.25
Total from investment
operations 10.04 2.80 5.78 (1.12) 2.24
Less distribution
from capital gains (3.14) (2.35) (0.57) (0.30) (0.19)
Net asset value,
end of period $21.64 $14.74 $14.29 $9.08 $10.50
Class C Ratios/Supplemental Data
Total return 73.38% 21.61% 65.37% -10.97% 26.57%
Net assets, end of
period (in thousands) $800,576 $424,612 $329,514 $198,088$202,557
Ratio of expenses to
average net assets 2.11% 2.10% 2.13% 2.12% 2.14%
Ratio of net investment
loss to average net assets -0.90% -0.90% -1.12% -0.27% -0.25%
Portfolio turnover rate 82.24% 51.41% 33.46% 37.20% 31.84%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000 that Class
B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. Per-share amounts have been adjusted
retroactively to reflect the 100% stock dividend effected June 26, 1998.
SMALL CAP GROWTH FUND
For a Class Y share outstanding throughout each period(1):
For the
period from
For the fiscal year ended March 31, 12/29/95(2) to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $15.21 $14.55 $9.16 $10.52 $10.11
Income from investment
operations:
Net investment
income (loss) (0.15) 0.00 (0.03) 0.01 0.02
Net realized and unrealized
gain (loss) on investments 10.73 3.01 5.99 (1.07) 0.39
Total from investment
operations 10.58 3.01 5.96 (1.06) 0.41
<PAGE>
Less distribution from
capital gains (3.14) (2.35) (0.57) (0.30) (0.00)
Net asset value,
end of period $22.65 $15.21 $14.55 $9.16 $10.52
Class Y Ratios/Supplemental Data
Total return 74.71% 22.73% 66.78% -10.37% 4.11%
Net assets, end of
period (in thousands) $16,770 $7,942 $633 $264 $1
Ratio of expenses to
average net assets 1.30% 1.18% 1.30% 1.17% 1.17%(3)
Ratio of net investment
income (loss) to average
net assets -0.09% 0.08% -0.30% 0.31% 0.78%(3)
Portfolio turnover rate 82.24% 51.41% 33.46% 37.20% 31.84%(3)
(1) Per-share amounts have been adjusted retroactively to reflect the 100%
stock dividend effected June 26, 1998.
(2) Commencement of operations.
(3) Annualized.
TOTAL RETURN FUND
For a Class C share outstanding throughout each period(1):
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $11.52 $12.24 $9.09 $8.17 $6.37
Income from investment
operations:
Net investment
income (loss) (0.01) 0.03 (0.02) (0.01) (0.01)
Net realized and unrealized
gain on investments 2.71 0.82 3.56 0.98 1.84
Total from investment
operations 2.70 0.85 3.54 0.97 1.83
Less distributions:
From net investment income (0.03) (0.01) (0.00) (0.00) (0.00)
From capital gains (0.43) (1.56) (0.39) (0.05) (0.03)
Total distributions (0.46) (1.57) (0.39) (0.05) (0.03)
Net asset value,
end of period $13.76 $11.52 $12.24 $9.09 $8.17
Class C Ratios/Supplemental Data
Total return 23.98% 7.47% 39.57% 11.93% 28.75%
Net assets, end of
period (in thousands) $585,293 $508,210 $472,970$317,453 $208,233
Ratio of expenses to
average net assets 1.98% 1.93% 1.92% 1.95% 1.99%
Ratio of net investment
income (loss) to average
net assets -0.12% 0.30% -0.23% -0.17% -0.11%
Portfolio turnover rate 75.64% 54.73% 36.94% 26.23% 16.78%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares. Per-share amounts have been
adjusted retroactively to reflect the 100% stock dividend effected June
26, 1998.
TOTAL RETURN FUND
For a Class Y share outstanding throughout each period(1):
For the
period from
For the fiscal year ended March 31, 12/29/95(2) to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $11.78 $12.46 $9.18 $8.19 $7.66
<PAGE>
Income from investment
operations:
Net investment income 0.06 0.12 0.05 0.02 0.02
Net realized and unrealized
gain on investments 2.80 0.84 3.62 1.02 0.51
Total from investment
operations 2.86 0.96 3.67 1.04 0.53
Less distributions:
From net investment income (0.13) (0.08) (0.00) (0.00) (0.00)
From capital gains (0.43) (1.56) (0.39) (0.05) (0.00)
Total distributions (0.56) (1.64) (0.39) (0.05) (0.00)
Net asset value,
end of period $14.08 $11.78 $12.46 $9.18 $8.19
Class Y Ratios/Supplemental Data
Total return 24.96% 8.37% 40.63% 12.69% 6.92%
Net assets, end of
period (in thousands) $2,152 $1,381 $943 $504 $87
Ratio of expenses to
average net assets 1.16% 1.15% 1.20% 1.18% 0.96%(3)
Ratio of net investment
income to average
net assets 0.67% 1.10% 0.50% 0.65% 1.04%(3)
Portfolio turnover rate 75.64% 54.73% 36.94% 26.23% 16.78%(3)
(1) Per-share amounts have been adjusted retroactively to reflect the 100%
stock dividend effected June 26, 1998.
(2) Commencement of operations.
(3) Annualized.
This space is intended for your notes and calculations.
W&R FUNDS
Custodian
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64141
Legal Counsel
Kirkpatrick & Lockhart llp
1800 Massachusetts Avenue, N. W.
Washington, D. C. 20036
Independent Auditors
Deloitte & Touche llp
1010 Grand Boulevard
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
888-WADDELL
Underwriter
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
Shareholder Servicing Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
<PAGE>
913-236-2000
888-WADDELL
Accounting Services Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
W&R FUNDS
You can get more information about each Fund in the --
_ Statement of Additional Information (SAI), which contains detailed
information about the 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).
_ 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 the Funds' performance during the year covered by
the report.
To request a copy of the Funds' current SAI or copies of the 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. Copies of the SAI, Annual and/or Semiannual reports may also be
requested via e-mail at [email protected].
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 may also be obtained, after paying a duplicating fee,
by electronic request at [email protected] or 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 202-942-
8090.
The Funds' SEC file number is: 811-6569.
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
WRP3210(6-00)
<PAGE>
Prospectus
June 30, 2000
W&R FUNDS
FIXED INCOME &
MONEY MARKET FUNDS
High Income Fund
Limited-Term Bond Fund
Municipal Bond Fund
Money Market Fund
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.
Waddell & Reed, Inc.
CONTENTS
3 An Overview of the Funds
3 High Income Fund
10 Limited-Term Bond Fund
16 Municipal Bond Fund
22 Money Market Fund
26 The Investment Principles of the Funds
32 Your Account
55 The Management of the Funds
57 Financial Highlights
AN OVERVIEW OF THE FUND
GOALS
W&R 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 Waddell & Reed Investment Management Company
("WRIMCO"), the Fund's investment manager, consistent with the Fund's goals.
The Fund invests primarily in lower quality bonds, commonly called "junk
bonds," which are bonds rated BB and below by Standard & Poor's ("S&P") and
Ba and below by Moody's Investors Service ("MIS") or, if unrated, deemed by
WRIMCO to be of comparable quality. 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 and in companies of any size.
The Fund may invest up to 20% of its total assets in common stock in order to
seek capital growth. The Fund will emphasize a blend of value and growth in
its selection of common stock. Value stocks are those whose earnings 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.
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.
Generally, in determining whether to sell a debt security, WRIMCO uses 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, or is
anticipated to decline, to an unacceptable level, or if management of the
company weakens. As well, WRIMCO may choose to sell an equity security if the
issuer's growth potential has diminished. WRIMCO may sell a security if the
competitive conditions of a particular industry have increased and WRIMCO
believes the Fund should, therefore, reduce its exposure to such industry.
WRIMCO may also sell a security if, in its opinion, the price of the security
has risen to fully reflect the company's improved creditworthiness and other
investments with greater potential exist. WRIMCO may sell a security to take
advantage of more attractive investment opportunities or to raise cash.
<PAGE>
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,
price volatility and lack of liquidity compared to higher-rated bonds;
_ an increase in interest rates, which may cause the value of bonds held
by the Fund, especially bonds with longer maturities, to decline;
_ the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries;
_ 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, 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 the goal of income. The Fund is not suitable for all
investors. You should consider whether the Fund fits your particular
investment objectives.
PERFORMANCE
High Income Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing the Fund's performance and by
showing how the Fund's average annual total returns for the periods shown
compare with those of a broad measure of market performance and a peer group
average.
1.
The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
2.
The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the return would be less than that
shown.
3.
The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for a full calendar year.
4.
The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1998 3.64%
1999 4.83%
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 C return for the year through March 31, 2000, was
-3.20%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
<PAGE>
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year Life of Class2
Class C Shares of High Income Fund1 4.83% 5.44%
Salomon Brothers High Yield Market Index 1.73% 4.05%
Salomon Brothers High Yield Composite Index 1.24% 4.26%
Lipper High Current Yield Funds Universe Average 4.53% 2.73%
Class Y Shares of High Income Fund 5.64% 6.63%
Salomon Brothers High Yield Market Index 1.73% 1.73%
Solomon Brothers High Yield Composite Index 1.24% 1.24%
Lipper High Current Yield Funds Universe Average 4.53% 4.53%
The indexes shown are broad-based, securities market indexes that are
unmanaged. The Salomon Brothers High Yield Market Index replaces the Salomon
Brothers High Yield Composite Index. The new index provides a more accurate
basis for comparing the Fund's performance to the types of securities in
which the Fund invests. The Lipper average is a composite of mutual funds
with goals similar to the goals of the Fund.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current contingent deferred sales charge ("CDSC") structure applicable to
Class C.
2.
Since July 31, 1997 for Class C shares (based on the prior Class B shares)
and December 30, 1998 for Class Y shares. Because Class Y commenced
operations on a date other than at the end of a month, and partial month
calculations of the performance of the above indexes are not available,
index performance is calculated from December 31, 1998.
FEES AND EXPENSES
High Income Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.63% 0.63% 0.63% 0.63%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.63% 0.63% 0.63% 0.73%
Total Annual Fund
Operating Expenses 1.51% 2.26% 2.26% 1.61%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
<PAGE>
shares that are redeemed within twelve months of purchase.
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $720 $1,025 $1,351 $2,273
Class B Shares $629 $1,006 $1,310 $2,404(1)
Class C Shares $329 $ 706 $1,210 $2,595
Class Y Shares $164 $ 508 $ 876 $1,911
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $720 $1,025 $1,351 $2,273
Class B Shares $229 $ 706 $1,210 $2,404(1)
Class C Shares $229 $ 706 $1,210 $2,595
Class Y Shares $164 $ 508 $ 876 $1,911
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R 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 (rated BBB and higher by S&P and Baa and
higher by MIS or, if unrated, deemed by WRIMCO to be of comparable quality)
of U.S. issuers, including corporate bonds, mortgage-backed securities and
U.S. Government securities. The Fund maintains a dollar-weighted average
maturity of not less than two years and not more than five years. The Fund
may invest in companies of any size.
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.
Generally, in determining whether to sell a security, WRIMCO uses the same
type of analysis that it uses in buying securities. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
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, especially bonds with longer maturities, to
decline;
_ the credit quality, earnings performance and other conditions of the
issuers whose securities the Fund holds;
_ prepayment of higher-yielding bonds and mortgage-backed securities held
<PAGE>
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 are more likely to 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
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.
PERFORMANCE
Limited-Term Bond Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No
performance information is provided for Class A and Class B shares since
these classes do not have annual returns for at least one calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 7.32%
1994 -3.04%
1995 12.39%
1996 3.04%
1997 5.64%
1998 5.36%
1999 0.43%
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 C return for the year through March 31, 2000, was
0.74%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
Limited-Term Bond Fund1 0.43% 5.30% 3.99%
Salomon Brothers 1-5 Years
Treasury/Government Sponsored/
Corporate Index 2.15% 6.84% 5.54%
<PAGE>
Lipper Short-Intermediate
Investment Grade Debt
Funds Universe Average 0.89% 6.23% 5.17%
Class Y Shares of
Limited-Term Bond Fund 1.36% 4.46%
Salomon Brothers 1-5 Years
Treasury/Government Sponsored/
Corporate Index 2.15% 6.84% 5.38%
Lipper Short-Intermediate
Investment Grade Debt
Funds Universe Average 0.89% 6.23% 4.41%
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.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 29, 1995 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above index are not
available, index performance is calculated from September 30, 1992 and
December 31, 1995, respectively.
FEES AND EXPENSES
Limited-Term Bond Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on Purchases
(as a percentage
of offering price) 4.25% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of
lesser of amount invested
or redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.50% 0.50% 0.50% 0.50%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses 0.67% 0.67% 0.67% 0.47%
Total Annual Fund
Operating Expenses 1.42% 2.17% 2.17% 1.22%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3.
Management Fees and Total Annual Fund Operating Expenses have been
restated to reflect the change in management fees effective June 30, 1999;
<PAGE>
otherwise, expense ratios are based on other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $563 $855 $1,168 $2,055
Class B Shares $620 $979 $1,264 $2,311(1)
Class C Shares $320 $679 $1,164 $2,503
Class Y Shares $124 $387 $ 670 $1,477
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $563 $855 $1,168 $2,055
Class B Shares $220 $679 $1,164 $2,311(1)
Class C Shares $220 $679 $1,164 $2,503
Class Y Shares $124 $387 $ 670 $1,477
(1) Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R 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. 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 Federal 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 certain private activity bonds ("PABs") and industrial
development bonds ("IDBs"), which finance privately operated facilities.
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 or of the private company
involved; and
_ the structure of the security, including whether it has a put or a call
feature.
Generally, in determining whether to sell a security, WRIMCO uses 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.
WRIMCO may also sell a security to take advantage of more attractive
investment opportunities or to raise cash.
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, especially bonds with longer maturities, to decline;
_ prepayment of higher-yielding bonds held by the Fund ("prepayment
<PAGE>
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;
_ legislation affecting the tax status of municipal bond interest;
_ 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.
A significant portion of the Fund's municipal bond interest may subject
investors to the AMT; 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. You should consider whether the Fund
fits your particular investment objectives.
PERFORMANCE
Municipal Bond Fund
The bar chart and performance table below provide some indication of the
risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns
for the periods shown compare with those of a broad measure of market
performance and a peer group average.
_ The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
_ The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the returns would be less than those
shown.
_ The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No
performance information is provided for Class A and Class B shares since
these classes do not have annual returns for at least one calendar year.
_ The bar chart and the performance table assume payment of dividends and
other distributions in shares. 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 bar chart and performance 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 (%)1
1993 13.73%
1994 -8.83%
1995 19.14%
1996 3.53%
1997 9.17%
1998 5.12%
1999 -7.04%
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 C return for the year through March 31, 2000, was
1.46%.
1.
The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
Average Annual Total Returns
<PAGE>
as of December 31, 1999 (%) 1 Year 5 Years Life of Class2
Class C Shares of
Municipal Bond Fund1 -7.04% 5.64% 4.70%
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 5.89%
Lipper General Municipal
Debt Funds Universe Average -4.63% 5.76% 5.06%
Class Y Shares of
Municipal Bond Fund -6.56% -6.15%
Lehman Brothers Municipal
Bond Index -2.07% 6.92% -2.07%
Lipper General Municipal
Debt Funds Universe Average -4.63% 5.76% -4.63%
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.
1.
The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B's performance has been adjusted to reflect the
current CDSC structure applicable to Class C.
2.
Since September 21, 1992 for Class C shares (based on the prior Class B
shares) and December 30, 1998 for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and
partial month calculations of the performance of the above index are not
available, index performance is calculated from September 30, 1992 and
December 31, 1998, respectively.
FEES AND EXPENSES
Municipal Bond Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) 4.25% None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None2 5% 1% None
Annual Fund Operating Expenses3
(expenses that are deducted Class A Class B Class C Class Y
from Fund assets) Shares Shares Shares Shares
Management Fees 0.53% 0.53% 0.53% 0.53%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00% 0.21%
Other Expenses 0.43% 0.43% 0.43% 0.64%
Total Annual Fund
Operating Expenses 1.21% 1.96% 1.96% 1.38%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
<PAGE>
3.
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 other Fund-level expenses for the
fiscal year ended March 31, 2000, and for Class A and Class B, the
expenses attributable to those classes that are anticipated for the
current year. Actual expenses may be greater or less than those shown.
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 A, Class
B, Class C 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:
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $543 $793 $1,062 $1,829
Class B Shares $599 $915 $1,157 $2,0891
Class C Shares $299 $615 $1,057 $2,285
Class Y Shares $140 $437 $ 755 $1,657
If shares are not redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $543 $793 $1,062 $1,829
Class B Shares $199 $615 $1,057 $2,0891
Class C Shares $199 $615 $1,057 $2,285
Class Y Shares $140 $437 $ 755 $1,657
1.
Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares 8 years after the month in which the shares
were purchased.
AN OVERVIEW OF THE FUND
GOAL
W&R Money Market Fund
seeks maximum current income consistent with stability of principal.
Principal Strategies
Money Market Fund seeks to achieve its goal by investing in U.S. dollar-
denominated, high-quality money market obligations and instruments. High
quality indicates that the securities will be rated A-1 or A-2 by S&P or
Prime-1 or Prime-2 by MIS, or if unrated, will be of comparable quality as
determined by WRIMCO. The Fund seeks, as well, to maintain a net asset value
("NAV") of $1.00 per share. The Fund maintains a dollar-weighted average
maturity of 90 days or less, and the Fund invests only in securities with a
remaining maturity of not more than 397 calendar days.
Principal Risks of Investing in the Fund
Because Money Market Fund owns different types of money market obligations
and instruments, a variety of factors can affect its investment performance,
such as:
_ an increase in interest rates, which can cause the value of the Fund's
holdings, especially securities with longer maturities, to decline;
_ the credit quality and other conditions of the issuers whose securities
the Fund holds;
_ adverse 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 evaluating and managing the interest rate and
credit risks of the Fund.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
Who May Want to Invest
Money Market Fund is designed for investors who are risk-averse and seek to
preserve principal while earning current income and saving for short-term
needs. You should consider whether the Fund fits your particular investment
objectives.
PERFORMANCE
Money Market Fund
<PAGE>
The Fund has not been in operation for a full calendar year, therefore no
performance information is included in this prospectus.
FEES AND EXPENSES
Money Market Fund
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
Shareholder Fees
(fees paid directly from Class A Class B Class C
your investment Shares Shares Shares
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None None None
Maximum Deferred
Sales Charge (Load)1
(as a percentage of lesser
of amount invested or
redemption value) None 5% 1%
Annual Fund Operating Expenses2
(expenses that are deducted Class A Class B Class C
from Fund assets) Shares Shares Shares
Management Fees 0.40% 0.40% 0.40%
Distribution and Service
(12b-1) Fees None 1.00% 1.00%
Other Expenses 0.44% 0.44% 0.44%
Total Annual Fund
Operating Expenses 0.84% 1.84% 1.84%
1.
The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the
first year of purchase, to 4% for redemptions made within the second year,
to 3% for redemptions made within the third and fourth years, to 2% for
redemptions made within the fifth year, to 1% for redemptions made within
the sixth year and to 0% for redemptions made after the sixth year. For
Class C shares, a 1% CDSC applies to the lesser of amount invested or
redemption value of Class C shares redeemed within twelve months after
purchase. Solely for purposes of determining the number of months or years
from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day
of the month.
2.
The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25
million, subject to WRIMCO's right to change or terminate this waiver. The
expense ratios for Other Expenses are based on estimated amounts for the
current fiscal year. Actual expenses may be greater or less than those
shown.
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 A, Class
B or Class C 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:
If shares are redeemed at end of period: 1 Year 3 Years
Class A Shares $ 86 $268
Class B Shares $587 $879
Class C Shares $287 $579
If shares are not redeemed at end of period: 1 Year 3 Years
Class A Shares $ 86 $268
Class B Shares $187 $579
Class C Shares $187 $579
THE INVESTMENT PRINCIPLES OF THE FUNDS
Investment Goals, Principal Strategies and Other Investments
W&R High Income Fund
The primary goal of High Income Fund is to earn a high level of current
<PAGE>
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, to a
lesser degree, 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. 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 65% 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.
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, it may
take any one or more of the following steps with respect to 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/or
_ emphasize high-grade debt securities.
By taking a temporary defensive position the Fund may not achieve its
investment objectives. 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 also invest in options and futures
contracts.
W&R Limited-Term Bond Fund
The goal of Limited-Term Bond Fund is to provide a high level of current
income consistent with preservation of capital. The Fund seeks to achieve its
goal by investing primarily in a diversified portfolio of investment-grade,
limited-term debt securities (securities with a dollar-weighted average
maturity of two to five years) 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 at least 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, to a lesser extent,
common stocks and convertible securities, including convertible preferred
stock in certain circumstances.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to 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.
By taking a temporary defensive position the Fund may not achieve its
investment objective.
W&R Municipal Bond Fund
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
primarily in a diversified portfolio of municipal bonds. There is no
<PAGE>
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 and WRIMCO rely on the opinion of bond counsel for the issuer in
determining whether obligations are municipal bonds. 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.
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 and PABs 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.
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;
_ commercial paper rated at least A by S&P or MIS; and/or
_ any of the foregoing obligations subject to repurchase agreements.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to 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;
_ emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
_ hedge exposure to interest rate risk by investing in futures contracts
and options on futures contracts.
By taking a defensive position, the Fund may not achieve its investment
objective.
W&R Money Market Fund
The goal of Money Market Fund is maximum current income consistent with
stability of principal. The Fund seeks to achieve its goal by investing in a
diversified portfolio of high-quality money market instruments in accordance
with the requirements of Rule 2a-7 under the Investment Company Act of 1940,
as amended (the "1940 Act"). There is no guarantee that the Fund will achieve
its goal.
The Fund invests only in the following U.S. dollar-denominated money market
obligations and instruments:
_ U.S. government obligations (including obligations of U.S. government
agencies and instrumentalities);
_ bank obligations and instruments secured by bank obligations, such as
letters of credit;
_ commercial paper;
_ corporate debt obligations, including variable amount master demand
notes;
_ Canadian government obligations; and
_ certain other obligations (including municipal obligations) guaranteed
as to principal and interest by a bank in whose obligations the Fund may
invest or a by corporation in whose commercial paper the Fund may
invest.
The Fund only invests in bank obligations if they are obligations of a bank
subject to regulation by the U.S. Government (including foreign branches of
these banks) or obligations of a foreign bank having total assets of at least
$500 million, and instruments secured by any such obligations.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
_ the credit quality of the particular issuer or guarantor of the
security;
<PAGE>
_ the maturity of the security; and
_ the relative value of the security.
Generally, in determining whether to sell a security, WRIMCO uses the same
analysis that it uses in buying securities to determine if the security no
longer offers adequate return or does not comply with Rule 2a-7. WRIMCO may
also sell a security to take advantage of more attractive investment
opportunities or to raise cash.
All Funds
Each Fund may also invest in and use certain other types of instruments in
seeking to achieve its goal(s). For example, each Fund (other than Money
Market 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 about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in the Statement
of Additional Information ("SAI").
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 (other than Money Market 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.
Certain types of a 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.
For PABs and IDBs in which Municipal Bond Fund may invest, credit quality is
generally dependent on the credit standing of the company involved. To the
extent that this Fund invests in municipal bonds the payment of principal and
interest which is derived from revenue of similar projects, or in municipal
bonds of issuers located in the same geographic area, the Fund may be more
susceptible to the risks associated with economic, political or regulatory
occurrences that might adversely affect particular projects or areas. You
will find more information in the SAI about the types of projects in which
Municipal Bond Fund may invest from time to time and a discussion of the
risks associated with such projects.
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
investments.
YOUR ACCOUNT
Choosing a Share Class
Each Fund offers four classes of shares: Class A, Class B, Class C and Class
<PAGE>
Y (Money Market Fund does not offer Class Y). Each class has its own sales
charge, if any, and expense structure. The decision as to which class of
shares is best suited to your needs depends on a number of factors that you
should discuss with your financial advisor. Some factors to consider are how
much you plan to invest and how long you plan to hold your investment. If you
are investing a substantial amount and plan to hold your shares for a long
time, Class A shares may be the most appropriate for you. Class B and Class C
shares are not available for investments of $2 million or more. If you are
investing a lesser amount, you may want to consider Class B shares (if
investing for at least seven years) or Class C shares (if investing for less
than seven years). Class Y shares are designed for institutional investors
and others investing through certain intermediaries, as described below.
Since your objectives may change over time, you may want to consider another
class when you buy additional Fund shares. 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 a future
investment.
General Comparison of Class A, Class B and Class C Shares
Class A Class B Class C
Initial sales charge No initial sales charge No initial sales charge
No deferred sales Deferred sales charge on A 1% deferred sales
charge1 shares you sell within charge on shares you
six years after sell within twelve
purchase months after purchase
Maximum distribution Maximum distribution Maximum distribution
and service (12b-1) and service (12b-1) and service (12b-1)
fees of 0.25% fees of 1.00% fees of 1.00%
For an investment of Converts to Class A Does not convert to
$2 million or more, shares 8 years after the Class A shares, so
only Class A shares month in which the annual expenses do
are available shares were purchased, not decrease
thus reducing future
annual expenses
For an investment of
$300,000 or more,
financial advisors may
recommend purchase of
Class A shares due to a
reduced sales charge and
lower annual expenses
1.
A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
General Comparison of Class A, Class B and Class C Shares
Money Market Fund
Class A Class B Class C
No initial sales charge No initial sales charge No initial sales charge
Funds Plus Service Funds Plus Service Funds Plus Service
optional required for required for
direct investment direct investment
Deferred sales charge A 1% deferred sales
on shares you sell charge on shares
within six years you sell within
after purchase twelve months
after purchase
No distribution and Maximum distribution Maximum distribution
service (12b-1) fees and service (12b-1) and service (12b-1)
fees of 1.00% fees of 1.00%
For an investment of Converts to Class A Does not convert to
$2 million more, shares 8 years after Class A shares, so
only Class A shares the month in which annual expenses
are available the shares were do not decrease
purchased, thus
reducing future
annual expenses
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended, ("Rule 12b-
<PAGE>
1") for each of its Class A (except Money Market Fund Class A), Class B,
Class C and Class Y shares. Under the Class A Plan, each Fund (except Money
Market Fund) may pay Waddell & Reed, Inc. (the "Distributor") a fee of up to
0.25%, on an annual basis, of the average daily net assets of the Class A
shares. This fee is to compensate the Distributor for the amounts it spends
for, either directly or through third parties, distributing the Fund's Class
A shares, providing personal service to Class A shareholders and/or
maintaining Class A shareholder accounts. Under the Class B Plan and the
Class C Plan, each Fund may pay Waddell & Reed, Inc. a fee of up to 0.75%, on
an annual basis, of the average daily net assets of the shares of the class
to compensate the Distributor for, either directly or through third parties,
distributing the shares of that class and a fee of up to 0.25%, on an annual
basis, of the average daily net assets of the shares of that class to
compensate the Distributor for, either directly or through third parties,
providing personal service to shareholders of that class and/or maintaining
shareholder accounts for that class. 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 or Class C shares would exceed the maximum
amount of such charges that the Distributor is permitted to receive under
NASD rules as then in effect.
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, either directly or through
third parties, distributing the Class Y shares of that Fund, providing
personal service 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 ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Class A shares (except Class A shares of Money Market Fund) are subject to an
initial sales charge when you buy them, based on the amount of your
investment, according to the table below. Class A shares pay an annual 12b-1
fee of up to 0.25% of average Class A net assets. The ongoing expenses of
this class are lower than those for Class B or Class C shares.
High Income Fund
Size of Purchase
Sales Charge
as Approx. Reallowance
Sales Charge Percent of to Dealers as
as Percent of Amount Percent of
Offering Price Invested Offering Price
Under $100,000 5.75% 6.10% 5.00%
$100,000 to less than $200,000 4.75 4.99 4.00
$200,000 to less than $300,000 3.50 3.63 2.80
$300,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 1.50 1.52 1.20
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
$2,000,000 and over 0.00(1) 0.00(1) 0.50
Limited-Term Bond Fund
Municipal Bond Fund
Size of Purchase
Sales Charge
as Approx. Reallowance
Sales Charge Percent of to Dealers as
as Percent of Amount Percent of
Offering Price Invested Offering Price
Under $100,000 4.25% 4.44% 3.60%
$100,000 to less than $300,000 3.25 3.36 2.75
$300,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 1.50 1.52 1.20
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
$2,000,000 and over 0.00(1) 0.00(1) 0.50
(1) No sales charge is payable at the time of purchase on investments of $2
million or more, although for such investments a Fund may impose a CDSC of
<PAGE>
1% on certain redemptions made within twelve months of the purchase. The
CDSC is assessed on an amount equal to the lesser of the then current
market value or the cost of the shares being redeemed. Accordingly, no
sales charge is imposed on increases in NAV above the initial purchase
price.
Waddell & Reed, Inc. or its affilate(s) may pay additional compensation from
its own resources to securities dealers based upon the value of shares of a
Fund owned by the dealer for its own account or for its customers. Waddell &
Reed, Inc. or its affiliate(s) may also provide compensation from its own
resources to securities dealers with respect to shares of the Funds purchased
by customers of such dealers without payment of a sales charge.
Sales Charge Reductions
Lower sales charges are available by:
_ Combining additional purchases of Class A shares of any of the Funds in
the W&R Funds, except Class A shares of Money Market Fund unless
acquired by exchange for Class A shares on which a sales charge was paid
(or as a dividend or distribution on such acquired shares), with the NAV
of Class A shares already held ("Rights of Accumulation");
_ Grouping all purchases of Class A shares of W&R Funds, except shares of
Money Market Fund, made during a thirteen-month period ("Letter of
Intent"); and
_ Grouping purchases by certain related persons.
Additional information and applicable forms are available from Waddell &
Reed, Inc.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
_ Certain clients investing through a qualified fee-based program offered
by a third-party that has made arrangements to sell shares of the Funds.
Contingent Deferred Sales Charge. A CDSC may be assessed against your
redemption amount of Class B, Class C or certain Class A shares and paid to
the Distributor, as further described below. The purpose of the CDSC is to
compensate the Distributor for the costs incurred by it in connection with
the sale of the Fund's Class B or Class C shares or with Class A investments
of $2 million or more at NAV. The CDSC will not be imposed on shares
representing payment of dividends or other 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 the shares purchased during
the CDSC period. Solely for purposes of determining the number of months or
years from the time of any payment for the purchase of shares, all payments
during a month are totaled and deemed to have been made on the first day of
the month. The CDSC is applied to the lesser of amount invested or redemption
value.
To keep your CDSC as low as possible, each time you place a request to redeem
shares, the Fund assumes that a redemption is made first of shares not
subject to a deferred sales charge (including shares which represent
appreciation on shares held, reinvested dividends and distributions), and
then of shares that represent the lowest sales charge.
Unless instructed otherwise, a Fund, when requested to redeem a specific
dollar amount, will redeem additional shares of the applicable class that are
equal in value to the CDSC. For example, should you request a $1,000
redemption and the applicable CDSC is $27, the Fund will redeem shares having
an aggregate NAV of $1,027, absent different instructions.
Class B shares are not subject to an initial sales charge when you buy them.
However, you may pay a CDSC if you sell your Class B shares within six years
of their purchase, based on the table below. Class B shares pay an annual
12b-1 service fee of up to 0.25% of average net assets and a distribution fee
of up to 0.75% of average net assets. Over time, these fees will increase the
cost of your investment and may cost you more than if you had purchased Class
A shares. Class B shares and any dividends and distributions paid on such
shares automatically convert to Class A shares eight years after the end of
the month in which the shares were purchased. Such conversion will be on the
basis of the relative net asset values per share, without the imposition of
any sales load, fee or other charge. The Class A shares have lower ongoing
expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the
<PAGE>
CDSC discussed below.
Contingent Deferred Sales Charge
on Shares Sold Within Year As % of Amount Subject to Charge
1 5.0%
2 4.0%
3 3.0%
4 3.0%
5 2.0%
6 1.0%
7+ 0.0%
In the table, a "year" is a 12-month period. In applying the sales charge,
all purchases are considered to have been made on the first day of the month
in which the purchase was made.
For example, if a shareholder opens an account on July 14, 2000, then redeems
all Class B shares on July 12, 2001, the shareholder will pay a CDSC of 4%,
the rate applicable to redemptions made within the second year of purchase.
Class C shares are not subject to an initial sales charge when you buy them,
but if you sell your Class C shares within twelve months after purchase, you
will pay a 1% CDSC. For purposes of the CDSC, purchases of Class C shares
within a month will be considered as being purchased on the first day of the
month. Class C shares pay an annual 12b-1 service fee of up to 0.25% of
average net assets and an annual distribution fee of up to 0.75% of average
net assets. Over time, these fees will increase the cost of your investment
and may cost you more than if you had purchased Class A shares. Class C
shares do not convert to any other class.
For Class C shares, the CDSC will be applied to the lesser of the amount
invested or redemption value of shares that have been held for twelve months
or less.
The CDSC will not apply in the following circumstances:
_ redemptions of shares by certain clients investing through a qualified
fee-based program offered by a third-party that has made arrangements to
sell shares of the Funds.
_ redemptions of shares requested within one year of the shareholder's
death or disability, provided the Fund is notified of the death or
disability at the time of the request and furnished proof of such event
satisfactory to the Distributor.
_ redemptions of shares made to satisfy required minimum distributions
after age 70 1e2 from a qualified retirement plan, a required minimum
distribution from an individual retirement account, Keogh plan or
custodial account under section 403(b)(7) of the Internal Revenue Code
of 1986, as amended ("Code"), 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.
_ redemptions of shares made pursuant to a shareholder's participation in
Funds Plus Service or other systematic withdrawal service adopted for a
Fund. (The service and this exclusion from the CDSC do not apply to a
one-time withdrawal.)
_ redemptions of which the proceeds are reinvested in shares (must be
reinvested in the same class as that which was redeemed) of the Fund
within forty-five days after such redemption.
_ the exercise of certain exchange privileges.
_ redemptions effected pursuant to the Funds' right to liquidate a
shareholder's shares if the aggregate NAV of those shares is less than
$500.
_ 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 shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Fund at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Funds' right to liquidate a shareholder's account,
which requires certain notice.
Class Y shares are not subject to a sales charge. Class Y shares pay an
annual 12b-1 distribution and/or service fee of up to 0.25% of average net
<PAGE>
assets.
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 of the Code, including
401(k) plans, when the plan has 100 or more eligible employees and holds
the shares in an omnibus account on the Fund's records, and an
unaffiliated third party provides administrative, distribution and/or
other support services to the plan;
_ 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 administrative, distribution and/or
other support services; and
_ government entities or authorities and corporations whose investment is
$10 million or more and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support
services.
Ways to Set Up Your Account
The different ways to set up (register) your account are listed below.
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 Plans
To shelter your retirement savings from income taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current income taxes. In addition, contributions to these accounts
(other than Roth IRAs and Education IRAs) may be tax-deductible.
_ Individual Retirement Accounts (IRAs) allow a certain individual under
age 70 1e2, with earned income, to invest up to $2,000 per tax year. The
maximum for an investor and his or her spouse is $4,000 ($2,000 for each
spouse) or, if less, the couple's combined earned income for the taxable
year.
_ IRA Rollovers retain special tax advantages for certain distributions
from employer-sponsored retirement plans.
_ Roth IRAs allow certain individuals to make nondeductible contributions
up to $2,000 per year. The maximum annual contribution for an investor
and his or her spouse is $4,000 ($2,000 for each spouse) or, if less,
the couple's combined earned income for the taxable 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
nondeductible contributions, up to $500 per year, and permit tax-free
withdrawals to pay the higher education expenses of the beneficiary.
_ Simplified Employee Pension Plans (SEP-IRAs) provide business owners or
those with self-employed income (and their eligible employees) with many
of the same advantages as a Profit Sharing Plan, but with fewer
administrative requirements.
_ Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to and allow their
employees to contribute a portion of their wages pre-tax to retirement
accounts. This plan-type generally involves fewer administrative
requirements than 401(k) or other qualified plans.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves of up to 25% of their annual earned income,
with a maximum of $30,000 per year.
_ Pension and Profit-Sharing Plans, including 401(k) Plans, allow
corporations and nongovernmental tax-exempt organizations of all sizes
and/or their employees to contribute a percentage of the employees'
wages or other amounts 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
<PAGE>
systems, churches and 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 Transfers to Minors Act ("UTMA") or the
Uniform Gifts to Minors Act ("UGMA").
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.
Buying Shares
You may buy shares of each of the Funds through a financial advisor and
through other broker-dealers and banks that have selling agreements with the
Distributor. Some of these firms may charge you a fee and may have additional
requirements regarding the purchase of shares. To open your account you must
complete and sign an application.
To purchase any class of 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
To purchase Class Y shares (or Class A shares of Money Market Fund) by wire,
you must first obtain an account number by calling 800-366-2520, then mail a
completed application to Waddell & Reed, Inc., at the address above, 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, for the account of Waddell & Reed Number 9800007978, Special
Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
The price to buy a share of a Fund, called the offering price, is calculated
every business day.
The offering price of a share (the price to buy one share of a particular
class) is the next NAV calculated per share of that class plus, for Class A
shares, the sales charge shown in the tables.
In the calculation of a Fund's NAV:
_ The securities in a 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 NAVs as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by a 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 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.
<PAGE>
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:
_ All of your purchases must be made in U.S. dollars.
_ If you buy shares by check, and then sell those shares by any method
other than by exchange to another fund, the payment may be delayed for
up to ten days to ensure that your previous investment has cleared.
_ The Fund will be deemed to have received your purchase order when a
third party (or its designee) has received your order. Your order will
receive the 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 Funds reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500 (per Fund)
For certain exchanges $100 (per Fund)
For certain retirement accounts and accounts
opened with Automatic Investment Service $50 (per Fund)
To Add to an Account Any amount
For certain exchanges $100 (per Fund)
For Automatic Investment Service $25 (per Fund)
For Class Y:
To Open an Account
For a government entity or authority $10 million
or for a corporation (within first twelve months)
For other investors Any amount
To Add to an Account Any amount
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 to Waddell & Reed, Inc., 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, the Fund
and the class of shares that you wish to purchase.
To add to your Class Y account (or Class A account in Money Market Fund) 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, for the account of Waddell & Reed
Number 9800007978, Special Account for Exclusive Benefit of Customers FBO
Customer Name and Account Number.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class of a
Fund) is the NAV per share of that Fund class, subject to any CDSC applicable
to Class B, Class C shares or certain Class A shares.
To sell shares by written request: Complete an Account Service Request form
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 financial advisor, or mail it to:
<PAGE>
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed Services Company will send a
check to the address on the account.
To sell Class Y shares (and Class A shares of Money Market Fund) by telephone
or fax: If you have elected this method in your application or by subsequent
authorization, call 888-WADDELL, or fax your request to 913-236-1599, and
give your instructions to redeem Class Y shares of any Fund or Class A shares
of Money Market Fund and make payment by wire to your predesignated bank
account or by check to you at the address on the account.
To sell Class A shares of Money Market Fund by check: If you have elected
this method in your application or by subsequent authorization, the Fund will
provide you with forms or checks drawn on UMB Bank, n.a. You may make these
checks payable to the order of any payee in any amount of $250 or more.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated, subject to any applicable CDSC, after receipt of a written
request for redemption in good order by Waddell & Reed Services Company at
the address listed above. 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 Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If you do not, payment of the redemption proceeds on these
shares will be delayed until the earlier of 10 days or the date the Fund
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 when the
Fund's Board of Directors determines that conditions exist making cash
payments undesirable. A Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of its NAV during any 90-day
period for any one shareholder.
_ The Fund will be deemed to have received your order to sell shares when
the firm through which you purchased the shares (or its designee) has
received your order. Your order will receive the 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 shares at that day's
price.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must be signed by all
Joint Tenant persons required to sign for transactions, exactly
as their names appear on the account.
Sole Proprietorship The written instructions must be signed by the
individual owner of the business.
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
Retirement Account The written instructions must be signed by a
properly authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's
name is not in the account registration, provide a
currently certified copy of the trust document.
Business or At least one person authorized by corporate
Organization resolution to act on the account must sign the
written instructions.
Conservator, Guardian The written instructions must be signed by the
or Other Fiduciary person properly authorized by
<PAGE>
court order to act in the particular fiduciary
capacity.
The Fund 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 Funds reserve the right to redeem at NAV all shares of a Fund owned by
you having an aggregate NAV of less than $500 or less than $250 for Money
Market Fund. The Fund 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 or $250
for Money Market Fund. For Class B or Class C shares, these redemptions are
not subject to the deferred sales charge. The Fund will not apply its
redemption right to individual retirement plan accounts or accounts which
have an aggregate NAV of less than $500 due to market forces. Money Market
Fund may charge a fee of $1.75 per month on all accounts with a NAV of less
than $250, except for retirement plan accounts.
You may reinvest in any one of the Funds, without charge, all or part of the
amount of Class A shares you redeemed by sending to the applicable Fund the
amount you want to reinvest. The reinvested amounts must be received by the
Fund within forty-five days after the date of your redemption.
The CDSC will not apply to the proceeds of Class B, Class C or, where
otherwise applicable to certain Class A shares which are redeemed and then
reinvested in shares of the same class of the Fund within forty-five days
after such redemption. The Distributor will, with your reinvestment, restore
an amount equal to the deferred sales charge attributable to the amount
reinvested by adding the deferred sales charge amount to your reinvestment.
For purposes of determining future deferred sales charges, the reinvestment
will be treated as a new investment. You may do this only once as to Class B
shares, Class C shares and certain Class A shares of a Fund. This privilege
may be eliminated or modified at any time without prior notice to
shareholders.
Payments of principal and interest on loans made pursuant to a 401(a)
qualified plan (if such loans are permitted by the plan) may be reinvested 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
Personal Service
A toll-free call, 888-WADDELL, connects you to a Client Services
Representative or our automated customer telephone service. During normal
business hours, our Client Services staff is available to answer your
questions. You can access our web site, www.waddell.com, to obtain price
information about other funds in W&R Funds.
Exchanges
Except as provided below, you may sell your shares and buy shares of the same
class of any of the funds within the W&R Funds without the payment of an
additional sales charge if you buy Class A shares or payment of a CDSC when
you exchange Class B shares or Class C shares or Class A shares to which the
CDSC would otherwise apply. For Class B and Class C shares and Class A shares
to which the CDSC would otherwise apply, the time period for the CDSC will
continue to run. You may sell your Class Y shares of any of the Funds and buy
Class Y shares of another Fund except that exchanging Class Y shareholders of
a fund may buy Class A shares of Money Market Fund.
You may exchange any Class A shares of the Limited-Term Bond and Municipal
Bond Funds that you have held for at least six months and any Class A shares
<PAGE>
of these Funds acquired as payment of a dividend or distribution for Class A
shares of any other fund in the W&R Funds. You may exchange any Class A
shares of the Limited-Term Bond and Municipal Bond Funds that you have held
for less than six months only for Class A shares of Limited-Term Bond,
Municipal Bond and Money Market 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 A, Class B and Class C Shareholders
Flexible Withdrawal Service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account,
or between Fund accounts, automatically. While Regular Investment Plans do
not guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account with W&R
Funds.
Minimum Amount Minimum Frequency
$25 (per Fund) Monthly
Funds Plus Service
To move money from Money Market Fund to another Fund in W&R Funds, whether in
the same or a different account in the same class.
Minimum Amount Minimum Frequency
$100 (per Fund) Monthly
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year.
Usually, High Income Fund, Limited-Term Bond Fund, Money Market Fund and
Municipal Bond Fund distribute net investment income at the following times:
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 two options:
1. Share Payment Option. Your dividends, 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. If you do
not indicate a choice on your application, you will be assigned this
option.
2. Cash Option. You will be sent a check for your dividends, capital gains
and other distributions if the total distribution is five dollars or
greater. If the distribution total is less than five 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 shares of the same class 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 (which includes net short-term gains), if any, generally are taxable
to you as ordinary income, whether received in cash or paid in additional
<PAGE>
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 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.
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; the 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 the Fund.
Entities or other persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or IDBs should consult
their tax advisers before purchasing Municipal Bond Fund shares because, for
certain users 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. A portion of the dividends paid by a 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 a 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. No part of the dividends paid by Limited-Term Bond
Fund and Municipal Bond Fund is expected to be eligible for this deduction.
Taxes on transactions. Your redemption of Fund shares will result in a
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than what you paid for the redeemed shares (which normally
includes any sales charge paid). An exchange of Fund shares for shares of any
other fund in the W&R Funds generally will have similar tax consequences.
However, special rules apply when you dispose of a Fund's Class A shares
through a redemption or exchange within ninety days after your purchase and
then reacquire Class A shares of that Fund or acquire Class A shares of
another fund in the W&R Funds without paying a sales charge due to the forty-
five day reinvestment privilege or exchange privilege. See "Your Account." In
these cases, any gain on the disposition of the original Class A Fund shares
will be increased, or loss decreased, by the amount of the sales charge you
paid when those shares were acquired, and that amount will increase the
adjusted basis of the shares subsequently acquired. 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.
Withholding. Each Fund must withhold 31% of all taxable dividends, capital
gains and other 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, capital gains and other distributions also is required for
<PAGE>
shareholders subject to backup withholding.
State and local income taxes. The portion of the dividends paid by Limited-
Term Bond Fund and Money Market Fund (and, to a lesser extent, the other
Funds) attributable to interest earned on 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 income 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.
THE MANAGEMENT OF THE FUNDS
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Funds' Board
of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO has served as investment manager
to the W&R Funds since its inception. WRIMCO is located at 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Louise D. Rieke is primarily responsible for the management of the High
Income Fund. Ms. Rieke has held her Fund responsibilities since July 31,
1997. She is Vice President of WRIMCO, Vice President of the Fund 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, a
former affiliate of WRIMCO. Ms. Rieke has served as the portfolio manager for
investment companies managed by WRIMCO and its predecessors since July 1986
and has been an employee of such since May 1971.
W. Patrick Sterner is primarily responsible for the management of the
Limited-Term Bond Fund. Mr. Sterner has held his Fund responsibilities since
September 1992. He is Vice President of WRIMCO, Vice President of the Fund
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.
Bryan J. Bailey is primarily responsible for the management of the Municipal
Bond Fund. Mr. Bailey has held his Fund responsibilities since June 14, 2000.
He is Vice President of WRIMCO and Vice President of the Fund. Mr. Bailey has
served as the Assistant Portfolio Manager for investment companies managed by
WRIMCO since January 1999 and has been an employee of WRIMCO since July 1993.
Mira Stevovich is primarily responsible for the management of the Money
Market Fund. Ms. Stevovich has held her Fund responsibilities since the
inception of the Fund. She is Vice President of WRIMCO, Vice President and
Assistant Treasurer of the Fund and Vice President and Assistant Treasurer of
other investment companies for which WRIMCO serves as investment manager. Ms.
Stevovich has served as the Portfolio Manager for investment companies
managed by WRIMCO and its predecessors since May 1998 and has been an
employee of such since March 1987.
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.
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 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.
Management fees for the Fund as a percent of the Fund's net assets for the
<PAGE>
fiscal year ended March 31, 2000 were 0.53%;
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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.13%;
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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.54%; and
for Money Market Fund, 0.40% of annual net assets.
WRIMCO has voluntarily agreed to waive its management fee for any day that a
Fund's net assets are less than $25 million, subject to WRIMCO's right to
change or modify this waiver.
FINANCIAL HIGHLIGHTS
The following information is to help you understand the financial performance
of each Fund's Class C 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 each Fund's financial
statements for the fiscal year ended March 31, 2000, is included in the SAI,
which is available upon request.
HIGH INCOME FUND
For a Class C share outstanding throughout each period(1):
For the For the
fiscal year period from
ended March 31, 7/31/97(2) to
2000 1999 3/31/98
Class C Per-Share Data
Net asset value, beginning of period $9.94 $10.79 $10.00
Income from investment operations:
Net investment income 0.69 0.63 0.37
Net realized and unrealized gain
(loss) on investments (0.67) (0.82) 0.79
Total from investment operations 0.02 (0.19) 1.16
Less distributions:
Declared from net investment income (0.69) (0.63) (0.37)
From capital gains (0.00) (0.03) (0.00)
Total distributions (0.69) (0.66) (0.37)
Net asset value, end of period $9.27 $9.94 $10.79
Class C Ratios/Supplemental Data
Total return 0.17% -1.72% 11.77%
Net assets, end of period
(in thousands) $22,877 $25,427 $11,812
Ratio of expenses to average
net assets 2.17% 2.20% 2.52%3
Ratio of net investment income to
average net assets 7.16% 6.29% 5.98%3
Portfolio turnover rate 71.31% 50.98% 67.82%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.
(2) Commencement of operations.
(3) Annualized.
HIGH INCOME FUND
For a Class Y share outstanding throughout the period:
For the For the
fiscal year period from
ended March 31, 12/30/98(1) to
2000 3/31/99
Class Y Per-Share Data
Net asset value, beginning of period $9.94 $9.97
<PAGE>
Income from investment operations:
Net investment income 0.77 0.20
Net realized and unrealized
gain (loss) on investments (0.67) 0.00
Total from investment operations 0.10 0.20
Less distributions:
Declared from net investment income (0.77) (0.20)
From capital gains (0.00) (0.03)
Total distributions (0.77) (0.23)
Net asset value, end of period $9.27 $9.94
Class Y Ratios/Supplemental Data
Total return 0.94% 2.45%
Net assets, end of period (in thousands) $6 $6
Ratio of expenses to average net assets 1.40% 0.26%(2)
Ratio of net investment income to
average net assets 7.85% 8.55%(2)
Portfolio turnover rate 71.31% 50.98%(2)
(1) Commencement of operations.
(2) Annualized.
LIMITED-TERM BOND FUND
For a Class C share outstanding throughout each period(1):
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $10.16 $10.14 $9.90 $10.00 $9.70
Income from investment
operations:
Net investment
income 0.47 0.44 0.45 0.44 0.41
Net realized and
unrealized gain
(loss) on investments (0.40) 0.02 0.24 (0.09) 0.30
Total from investment
operations 0.07 0.46 0.69 0.35 0.71
Less distributions:
Declared from net
investment income (0.47) (0.44) (0.45) (0.44) (0.41)
From capital gains (0.00) (0.00) (0.00) (0.01) (0.00)
Total distributions (0.47) (0.44) (0.45) (0.45) (0.41)
Net asset value,
end of period $9.76 $10.16 $10.14 $9.90 $10.00
Class C Ratios/Supplemental Data
Total return 0.73% 4.65% 7.15% 3.52% 7.41%
Net assets, end of
period (in thousands) $18,966 $21,311 $18,148 $17,770 $23,682
Ratio of expenses
to average net assets 1.81% 2.11% 2.12% 2.07% 2.10%
Ratio of net investment
income to average
net assets 4.75% 4.34% 4.52% 4.40% 4.14%
Portfolio turnover rate 37.02% 32.11% 27.37% 23.05% 22.08%
1.
The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
LIMITED-TERM BOND FUND
For a Class Y share outstanding throughout each period:
For the
period from
For the fiscal year ended March 31, 12/29/95(1) to
2000 1999 1998 1997 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $10.16 $10.14 $9.90 $10.00 $10.16
<PAGE>
Income from investment
operations:
Net investment
income 0.57 0.53 0.53 0.52 0.11
Net realized and
unrealized gain (loss)
on investments (0.40) 0.02 0.24 (0.09) (0.16)
Total from investment
operations 0.17 0.55 0.77 0.43 (0.05)
Less distributions:
Declared from net
investment income (0.57) (0.53) (0.53) (0.52) (0.11)
From capital gains (0.00) (0.00) (0.00) (0.01) (0.00)
Total distributions (0.57) (0.53) (0.53) (0.53) (0.11)
Net asset value,
end of period $9.76 $10.16 $10.14 $9.90 $10.00
Class Y Ratios/Supplemental Data
Total return 1.69% 5.60% 7.91% 4.33% -0.49%
Net assets, end of
period (in thousands) $1,229 $263 $184 $105 $1
Ratio of expenses
to average net assets 0.69% 1.20% 1.32% 1.04% 1.18%(2)
Ratio of net investment
income to average
net assets 6.03% 5.25% 5.32% 5.62% 4.70%(2)
Portfolio turnover rate 37.02% 32.11% 27.37% 23.05% 22.08%(2)
(1) Commencement of operations.
(2) Annualized.
MUNICIPAL BOND FUND
For a Class C share outstanding throughout each period(1):
For the fiscal year ended March 31,
2000 1999 1998 1997 1996
Class C Per-Share Data
Net asset value,
beginning of period $11.24 $11.45 $10.74 $10.63 $10.30
Income from investment
operations:
Net investment
income 0.42 0.42 0.44 0.45 0.43
Net realized and
unrealized gain
(loss) on investments (1.11) 0.10 0.71 0.11 0.33
Total from investment
operations (0.69) 0.52 1.15 0.56 0.76
Less distributions:
Declared from net
investment income (0.42) (0.42) (0.44) (0.45) (0.43)
From capital gains (0.02) (0.31) (0.00) (0.00) (0.00)
Total distributions (0.44) (0.73) (0.44) (0.45) (0.43)
Net asset value,
end of period $10.11 $11.24 $11.45 $10.74 $10.63
Class C Ratios/Supplemental Data
Total return -6.21% 4.64% 10.89% 5.32% 7.48%
Net assets, end of
period (in thousands) $28,361 $42,906 $40,023 $36,618 $33,869
Ratio of expenses
to average net assets 1.98% 1.88% 1.89% 1.92% 1.93%
Ratio of net investment
income to average
net assets 3.94% 3.68% 3.94% 4.18% 4.05%
Portfolio turnover rate 16.95% 41.53% 27.86% 34.72% 42.02%
(1) The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
<PAGE>
MUNICIPAL BOND FUND
For a Class Y share outstanding throughout each period:
For the For the
fiscal For the For the fiscal For the
year period from period year period from
ended 12/30/98(3) ended ended 12/29/95(1)
3/31/00 to 3/31/99 6/23/97(2) 3/31/97 to 3/31/96
Class Y Per-Share Data
Net asset value,
beginning of period $11.24 $11.58 $10.74 $10.63 $10.94
Income from
investment operations:
Net investment
income 0.48 0.13 0.10 0.52 0.12
Net realized and
unrealized gain
(loss) on
investments (1.11) (0.03) 0.29 0.11 (0.31)
Total from investment
operations (0.63) 0.10 0.39 0.63 (0.19)
Less distributions:
Declared from net
investment income (0.48) (0.13) (0.10) (0.52) (0.12)
From capital gains (0.02) (0.31) (0.00) (0.00) (0.00)
Total distributions (0.50) (0.44) (0.10) (0.52) (0.12)
Net asset value,
end of period $10.11 $11.24 $11.03 $10.74 $10.63
Class Y Ratios/Supplemental Data
Total return -5.69% 0.80% 3.22% 5.96% -1.80%
Net assets, end of
period (in thousands) $2 $2 $0 $1 $1
Ratio of expenses
to average net assets 1.40% 1.00%(4) 4.95%(4) 1.28% 1.18%(4)
Ratio of net investment
income to average
net assets 4.52% 4.40%(4) 4.12%(4) 4.83% 4.33%(4)
Portfolio turnover
rate 16.95% 41.53%(4) 27.86%(4) 34.72% 42.02%(4)
(1) Initial commencement of operations.
(2) All outstanding shares were redeemed on June 23, 1997, at the ending net
asset value shown in the table.
(3) Recommencement of operations.
(4) Annualized.
This space is intended for your notes and calculations.
W&R FUNDS
Custodian
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64106
Legal Counsel
Kirkpatrick & Lockhart llp
1800 Massachusetts Avenue, N.W.
Washington, D. C. 20036
Independent Auditors
Deloitte & Touche llp
1010 Grand Boulevard
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
<PAGE>
888-WADDELL
Underwriter
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
Shareholder Servicing Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
Accounting Services Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
You can get more information about each Fund in the --
_ Statement of Additional Information (SAI), which contains detailed
information about the Funds, 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).
_ 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 the Funds' performance during the year
covered by the report.
To request a copy of the Funds' current SAI or copies of the 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. Copies of the SAI, Annual and/or Semiannual reports may also be
requested via e-mail at [email protected].
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 may also be obtained, after paying a duplicating fee,
by electronic request at [email protected] or 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 202-942-
8090.
The Funds' SEC file number is: 811-6569.
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
WRP3110(6-00)
<PAGE>
W&R FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
June 30, 2000
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with each
prospectus ("Prospectus") for the W&R Funds, Inc. (formerly known as
Waddell & Reed Funds, Inc.) (the "Corporation") dated June 30, 2000,
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 ..........................
Investment Strategies, Policies and Practices.....
Investment Management and Other Services .........
Purchase, Redemption and Pricing of Shares .......
Directors and Officers ...........................
Payments to Shareholders .........................
Taxes ............................................
Portfolio Transactions and Brokerage .............
Other Information ................................
Appendix A .......................................
Financial Statements .............................
<PAGE>
W&R Funds, Inc. (formerly known as 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 twelve Funds (each a "Fund" and
collectively the "Funds") total return information, yield information
and/or performance rankings in advertisements and sales materials.
Total Return
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 and for Class A
shares of Asset Strategy Fund, High Income Fund, International Growth
Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Science and
Technology Fund, Small Cap Growth Fund, Tax-Managed Equity Fund and
Total Return Fund, deducting the maximum sales charge of 5.75%; and
for Class A shares of Limited-Term Bond Fund and Municipal Bond Fund,
deducting the maximum sales charge of 4.25%. Class A shares of Money
Market Fund do not have an initial sales charge. See "Purchase,
Redemption and Pricing of Shares." All dividends and distributions
are assumed to be reinvested in shares of the applicable class at net
asset value ("NAV") as of the day the dividend or distribution is
paid. No sales load is charged on reinvested dividends or
distributions on 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 the Class C shares
of each fund as of March 31, 2000, which is the most recent balance
sheet included in this SAI, for the periods shown were as follows:
One-Year Period Five-Year Period Period from
From 4-1-99 From 4-1-95 9/21/92* to
to 3-31-00 to 3-31-00 3-31-00
------------------------------------------
Asset Strategy Fund 39.60% 12.77%**
Small Cap Growth Fund 73.38% 31.48% 29.45%
(formerly known as Growth Fund)
High Income Fund 0.17% 3.65%***
International Growth Fund 97.89% 31.75% 20.54%
Limited-Term Bond Fund 0.73% 4.66% 3.96%
Municipal Bond Fund -6.21% 4.26% 4.75%
Science and Technology Fund159.75% 76.18%***
Total Return Fund 23.98% 21.79% 17.73%
The returns shown are based on the performance of the Fund's prior
Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on October 4,
1999. The prior Class B performance has been adjusted to reflect the
current CDSC structure applicable to Class C. Accordingly, these
returns reflect no CDSC since it only applies to Class C shares held
for twelve months or less.
*Date of initial public offering of prior Class B.
**For the period from April 20, 1995, the date of initial public
offering of prior Class B, to March 31, 2000.
***For the period from July 31, 1997, the date of initial public
offering of prior Class B, to March 31, 2000.
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.
The average annual total return quotations for Class Y shares as
of March 31, 2000, which is the most recent balance sheet included in
this SAI, for the periods shown were as follows:
One-Year Period Period from class
From 4-1-99 inception* to
to 3-31-00 3-31-00
--------------- --------------
Asset Strategy Fund 40.85% 15.15%
Small Cap Growth Fund 74.71% 32.67%
(formerly known as Growth Fund)
High Income Fund 0.94% 2.72%
International Growth Fund 99.74% 37.79%
Limited-Term Bond Fund 1.69% 4.43%
Municipal Bond Fund -5.69% -3.74%**
Science and Technology Fund158.67% 107.24%
Total Return Fund 24.96% 21.51%
*For each of these Funds (other than Municipal Bond Fund, Science and
Technology Fund and High Income Fund), December 29, 1995; for
Science and Technology Fund, June 9, 1998; and for High Income Fund,
December 30, 1998.
**For the period from December 30, 1998, through March 31, 2000.
No total return information is provided for Class A or Class B of
a Fund since neither class had commenced operations as of March 31,
2000.
A Fund may also quote unaveraged or cumulative total return for a
class which reflects the change in value of an investment in that
class over a stated period of time. Cumulative total returns will be
calculated according to the formula indicated above but without
averaging the rate for the number of years in the period.
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, 2000, the date of the most recent balance
sheet included in this SAI, for Class C shares of each of Limited-Term
Bond Fund and Municipal Bond Fund are:
Limited-Term Bond Fund 6.02%
Municipal Bond Fund 4.52%
The yield computed according to the formula for the 30-day period
ended on March 31, 2000, the date of the most recent balance sheet
included in this SAI, for Class Y shares of each of Limited-Term Bond
Fund and Municipal Bond Fund are:
Limited-Term Bond Fund 7.40%
Municipal Bond Fund 5.24%
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 C shares of Municipal Bond
Fund computed according to the formula for the 30-day period ended on
March 31, 2000, the date of the most recent balance sheet included in
this SAI, is 5.20%, 6.02%, 6.25%, 6.69% and 7.04% 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,
2000, the date of the most recent balance sheet included in this SAI,
is 6.03%, 6.98%, 7.25%, 7.75% and 8.17% for marginal tax brackets of
15%, 28%, 31%, 36% and 39.6%, respectively.
No yield information is provided for Class A or Class B of
Limited-Term Bond Fund or Municipal Bond Fund since neither class had
commenced operations as of March 31, 2000.
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 were reflected, it would reduce the performance quoted.
No performance information is provided for Large Cap Growth Fund,
Mid Cap Growth Fund, Money Market Fund or Tax-Managed Equity Fund
since they had not commenced operations as of March 31, 2000.
Performance Rankings and Other Information
The Distributor or the Corporation also may from time to time
publish for one or more of the twelve 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.
Performance information for a Fund may be accompanied by
information about market conditions and other factors that affected
the Fund's performance for the period(s) shown.
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(s). 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.
The ability of Asset Strategy Fund to purchase and hold precious
metals such as gold, silver and platinum may allow it to benefit from
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 metal 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 on sales; a negative return will be realized if
the metal is sold at a loss. Investments in precious metals do not
provide a yield. Asset Strategy Fund's direct investment in precious
metals may be limited by tax considerations. See "Taxes" below.
High Income Fund
High Income Fund may invest in certain high-yield, high-risk,
non-investment grade debt securities (commonly referred to as "junk
bonds"). The market for such securities may differ from that for
investment grade debt securities. See the discussion below for
information about the risks associated with non-investment grade debt
securities. See Appendix A to this SAI for a description of bond
ratings.
Money Market Fund
Money Market Fund may only invest in the money market obligations
and instruments listed below. In addition, as a money market fund,
and in order for the Fund to use the "amortized cost method" of
valuing its portfolio securities, the Fund must comply with Rule 2a-7
("Rule 2a-7") under the Investment Company Act of 1940, as amended
(the "1940 Act"). Under Rule 2a-7, investments are limited to those
that are U.S. dollar denominated and that are rated in one of the two
highest rating categories by the requisite nationally recognized
statistical rating organization(s) ("NRSRO(s)") or are comparable
unrated securities. See Appendix A to this SAI for a description of
some of these ratings. In addition, Rule 2a-7 limits investments in
securities of any one issuer (except U.S. Government securities) to no
more than 5% of the Fund's total assets. Investments in securities
rated in the second highest rating category by the requisite NRSRO(s)
or comparable unrated securities are limited to no more than 5% of the
Fund's total assets, with investment in such securities of any one
issuer being limited to the greater of one percent of the Fund's total
assets or $1,000,000. In accordance with Rule 2a-7, the Fund may
invest in securities with a remaining maturity of not more than 397
calendar days. See discussion under "Determination of Offering
Price."
(1) U.S. Government Securities: See "U.S. Government
Securities."
(2) Bank Obligations and Instruments Secured Thereby: Subject
to the limitations described above, time deposits, certificates of
deposit, bankers' acceptances and other bank obligations if they are
obligations of a bank subject to regulation by the U.S. Government
(including obligations issued by foreign branches of these banks) or
obligations issued by a foreign bank having total assets equal to at
least U.S. $500,000,000, and instruments secured by any such
obligation. A "bank" includes commercial banks and savings and loan
associations. Time deposits are monies kept on deposit with U.S.
banks or other U.S. financial institutions for a stated period of time
at a fixed rate of interest. At present, bank time deposits are not
considered by the Board of Directors or WRIMCO, to be readily
marketable. There may be penalties for the early withdrawal of such
time deposits, in which case, the yield of these investments will be
reduced.
(3) Commercial Paper Obligations Including Variable Amount
Master Demand Notes: Commercial paper rated as described above. A
variable amount master demand note represents a borrowing arrangement
under a letter agreement between a commercial paper issuer and an
institutional investor.
(4) Corporate Debt Obligations: Corporate debt obligations if
they are rated as described above.
(5) Canadian Government Obligations: Obligations of, or
obligations guaranteed by, the Government of Canada, a Province of
Canada or any agency, instrumentality or political subdivision of that
Government or any Province. The Fund will not invest in Canadian
Government obligations if more than 10% of the value of its total
assets would then be so invested, subject to the diversification
requirements applicable to the Money Market Fund.
(6) Certain Other Obligations: Obligations other than those
listed in (1) through (5) (such as municipal obligations) only if any
such other obligation is guaranteed as to principal and interest by
either a bank or a corporation whose securities the Fund is eligible
to hold under the Rule.
The value of the obligations and instruments in which the Fund
invests will fluctuate depending in large part on changes in
prevailing interest rates. If these rates go up after the Fund buys
an obligation or instrument, its value may go down; if these rates go
down, its value may go up. Changes in interest rates will be more
quickly reflected in the yield of a portfolio of short-term
obligations than in the yield of a portfolio of long-term obligations.
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
(other than Money Market Fund) may invest in preferred stock rated in
any rating category of the established rating services 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 securities rise.
Similarly, long-term bonds are generally more sensitive to interest
rate changes than short-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 (other than Money Market Fund) may invest in debt
securities rated in any rating category of the established rating
services, including securities rated in the lowest category
(securities rated D by Standard & Poor's ("S&P") and C by Moody's
Investors Service, 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 however, 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 as 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 Money Market Fund and 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.
Each Fund (other than Money Market Fund and Municipal Bond Fund)
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 Money Market Fund and 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 (also known as 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.
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.
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 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.
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 ("IDBs"),
which are also generally referred to as private activity bonds
("PABs"). Only those IDBs and PABs 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, IDBs and PABs 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 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 (with the result, 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 guaranteed by the U.S. Government 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.
Indexed Securities
Each Fund (other than Money Market Fund and 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 and, for Money
Market Fund, subject to the requirements of Rule 2a-7. 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.
Asset Strategy Fund may invest in direct debt instruments, subject to
its 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 the 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 the 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 the 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. 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 the Fund in the event of fraud or
misrepresentation. In the absence of definitive regulatory guidance,
the 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, the 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 the 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 the Fund. Direct indebtedness purchased by the Fund
may include letters of credit, revolving credit facilities, or other
standby financing commitments obligating the Fund to pay additional
cash on demand. These commitments may have the effect of requiring
the 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. The Fund will
set aside appropriate liquid assets in a segregated custodial account
to cover its potential obligations under standby financing
commitments.
For purposes of the limitations on the amount of total assets
that Asset Strategy Fund will invest in any one issuer or in issuers
within the same industry, the 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 the 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 the 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
Each Fund (other than Limited-Term Bond Fund and Municipal Bond
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. There is no assurance that WRIMCO
will be able to anticipate these potential events or counter their
effects.
The considerations noted above generally are intensified 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.
Certain of the Funds could also 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.
Each of the Funds (other than Limited-Term Bond Fund, Money
Market Fund and Municipal Bond Fund) may purchase and sell foreign
currency and invest in foreign currency deposits, and may enter into
forward currency contracts. 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."
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. Under the Funds'
current securities lending procedures, a Fund may lend securities only
to broker-dealers and financial institutions deemed creditworthy by
WRIMCO.
Any securities loan that a Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines").
At the time of each loan, the Fund must receive collateral equal to no
less than 100% of the market value of the securities loaned. 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. 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.
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.
There may be risks of delay in receiving additional collateral
from the borrower if the market value of the securities loaned
increases, as well as risks of delay in recovering the securities
loaned or even loss of rights in the collateral should the borrower of
the securities fail financially.
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 will
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.
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 NAV 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 NAV
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.
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, floor and collar
transactions;
(vii) non-government stripped fixed-rate mortgage-backed
securities; and
(viii) direct debt instruments.
The assets used as cover for OTC options written by a Fund will
be considered illiquid unless the OTC options are sold to qualified
dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in
the option agreement. The cover for an OTC option written subject to
this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
Options, Futures and Other Strategies
General. WRIMCO may use certain options, futures contracts
(sometimes referred to as "futures"), options on futures contracts,
forward currency contracts, swaps, caps, floors, collars, 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 NAV.
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. Since each
Fund (other than Municipal Bond Fund, Limited-Term Bond Fund and Money
Market Fund) is authorized to invest in foreign securities, those
Funds may purchase and sell foreign currency derivatives.
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.
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 NAV 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. 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.
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.
Foreign Currency Hedging Strategies--Special Considerations.
Each Fund (other than Limited-Term Bond Fund, Municipal Bond Fund and
Money Market 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, Money Market 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, Floors and Collars. A Fund may enter into swaps,
caps, floors and collars 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 on a notional principal
amount, 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, floors and collars, 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. 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
NAV 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) Each Fund (other than Asset Strategy 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) Each Fund (other than Asset Strategy Fund) may not acquire
shares of an investment company that issues redeemable
securities. Total Return Fund, Small Cap Growth Fund,
International Growth Fund, High Income Fund, Mid Cap Growth
Fund, Large Cap Growth Fund, Science and Technology Fund and
Tax-Managed Equity 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. Each
of these Funds (other than High Income Fund and Science and
Technology Fund) may purchase such securities if, as a
result of such purchase, no more than 10% of its total
assets are invested in such securities. High Income Fund
and Science and Technology Fund do not intend to invest more
than 5% of their respective total assets in such securities.
Asset Strategy Fund does not intend to purchase shares of
open end investment companies. Notwithstanding the
foregoing, each of these Funds may also acquire investment
company shares as part of a merger, consolidation or other
reorganization;
(iii) Each Fund (other than Asset Strategy 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 (see "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
(see "Repurchase Agreements" above);
(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, floors,
collars 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, floors, collars 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 a 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 each 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) Money Market Fund and Municipal Bond Fund may not purchase
warrants;
(x) Each Fund (other than Asset Strategy Fund) may not purchase
or sell physical commodities; however, this policy does not
prevent these Funds (other than Limited-Term Bond Fund,
Money Market Fund, or Municipal Bond Fund) from purchasing
and selling foreign currency, futures contracts, options,
forward contracts, swaps, caps, floors, collars 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) No Fund may 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, Small Cap Growth Fund, Limited-Term Bond
Fund, Municipal Bond Fund, International Growth Fund,
Science and Technology Fund and High Income FundEach Fund
(other than Asset Strategy 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 total 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;
Each Fund may not pledge, mortgage, or hypothecate assets as
security for indebtedness except to secure permitted
borrowings;
(xii) Each Fund may not invest in interests in oil, gas or mineral
leases or mineral development programs, including oil and gas
limited partnerships;
(xiii) At least 80% of Municipal Bond Fund's net assets will be
invested during normal market conditions in municipal bonds
of investment grade; and
(xiv) No Fund may participate on a joint, or a joint and several
basis, in any trading account in securities.
The method of determining who is an issuer for purposes of the 5%
limitation in fundamental restriction (ix) is non-fundamental. In
particular, in applying this limitation:
(a) For municipal bonds created by a particular government but
backed only by the assets and revenues of a subdivision of
that government, such as an agency, instrumentality,
authority or other subdivision, the Fund considers such
subdivision to be the issuer;
(b) For IDBs and PABs, the nongovernmental user of facilities
financed by them is considered a separate issuer; and
(c) The Fund considers a guarantee of a municipal bond to be a
separate security that would be given a value and included
in the limitation if the value of all municipal bonds
created by the guarantor and owned by the Fund exceeds 10%
of the value of the Fund's total assets.
The following investment restrictions are not fundamental and may
be changed by the Board of Directors without shareholder approval:
(i) Under normal market conditions, at least 65% of the
total assets of Small Cap Growth Fund will be invested
in small-cap growth stocks; at least 65% of the total
assets of Large Cap Growth Fund will be invested in large-
cap growth stocks; at least 65% of the total assets of Mid
Cap Growth Fund will be invested in mid-cap growth stocks;
at least 65% of the total assets of International Growth
Fund will be invested in growth stocks; and at least 65% of
Tax-Managed Equity Fund's total assets will be invested
in equity securities.
(ii) During normal market conditions, at least 80% of
International Growth Fund's total assets will be invested in
foreign securities and at least 65% of its total 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 total assets would be
invested in issuers 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) Municipal Bond Fund does not intend to invest more than 50%
of its total assets in industrial development bonds. Up to
10% of Municipal Bond Fund's total assets may be invested in
debt securities other than municipal bonds. Municipal Bond
Fund will have less than 25% of its total 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
least 65% of Municipal Bond Fund's total assets will be
invested during normal market conditions in bonds exclusive
of other municipal debt obligations.
(vii) Money Market Fund may not purchase the securities of any one
issuer (other than U.S. Government securities) if, as a
result of such purchase, more than 5% of its total assets
would be invested in the securities of any one issuer, as
determined in accordance with Rule 2a-7. Money Market Fund
may not invest more than 5% of its total assets in
securities rated in the second highest rating category by
the requisite rating organization(s) or comparable unrated
securities, with investments in such securities of any one
issuer (except U.S. Government securities) limited to the
greater of 1% of the Fund's total assets or $1,000,000, as
determined in accordance with Rule 2a-7;
(viii) Subject to the diversification requirements of Rule 2a-7,
Money Market Fund may invest up to 10% of its total assets
in Canadian Government obligations. Money Market Fund may
not invest more than 25% of its total assets in a
combination of Canadian Government obligations and foreign
bank obligations;
(ix) Each Fund (other than Asset Strategy Fund and Money Market
Fund) does not currently intend to invest in non-investment
grade debt securities if, as a result, more than 5% of its
total assets, respectively, 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 total assets
in securities rated in the lowest tier of investment grade
debt securities (those rated BBB by S&P or Baa by MIS).
Money Market Fund may not invest in such securities.
(x) 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.
(xi) Each of Total Return Fund and Small Cap 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. Each of Large Cap Growth Fund, Mid Cap
Growth Fund and Tax-Managed Equity Fund may invest up to 25%
of its total assets, respectively, in foreign securities.
Limited-Term Bond Fund and Municipal Bond Fund may not
invest in foreign securities.
(xii) 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.
(xiii) Each Fund may not purchase a security if, as a result, more
than 10% (15% for Asset Strategy Fund, Large Cap Growth
Fund, Mid Cap Growth Fund and Tax-Managed Equity Fund) of
its net assets would consist of illiquid investments.
(xiv) Each Fund (other than Large Cap Growth Fund, Mid Cap
Growth Fund, Small Cap Growth Fund, Science and Technology
Fund, High Income Fund and Tax-Managed Equity Fund) may not
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.
(xv) 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 total assets that are at risk in
futures contracts, options on futures contracts and currency
options.
(xvi) 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.
An investment policy or limitation that states a maximum
percentage of a Fund's assets that may be so invested or prescribes
quality standards is typically applied immediately after, and based
on, a Fund's acquisition of an asset. Accordingly, a subsequent
change in the asset's value, net assets, or other circumstances will
not be considered when determining whether the investment complies
with a Fund's investment policies and limitations.
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,
2000, and 1999 for each of the Funds then in existence were as
follows:
2000 1999
----- ----
Asset Strategy Fund 204.12% 168.17%
Small Cap Growth Fund % 51.41%
High Income Fund 71.31% 50.98%
International Growth Fund 125.71% 116.25%
Limited-Term Bond Fund 37.02% 32.11%
Municipal Bond Fund 16.95% 41.53%
Science and Technology Fund 44.19% 51.00%
Small Cap Growth Fund 82.24% 51.41%
Total Return Fund 75.64% 54.73%
The portfolio turnover rate for the common stock portion of Asset
Strategy Fund's portfolio for the fiscal year ended March 31, 2000 was
205.97%; the rate for the remainder of the portfolio was 118.86%.
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 which 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.
WRIMCO and/or its predecessors have served as investment manager
to each of the registered investment companies in the Waddell & Reed
Advisors Funds (formerly the United Group of Funds), W&R Funds, Inc.
(formerly, Waddell & Reed Funds, Inc.) and Target/United Funds, Inc.
since each company's inception date Waddell & Reed, Inc. serves as
principal underwriter for the Funds, the investment companies in the
Waddell & Reed Advisors United Group of Mutual Funds and acts as principal
underwriter and distributor for variable life insurance and variable
annuity policies 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, preparation of prospectuses for existing shareholders,
preparation of proxy statements and certain shareholder 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,
2000, 1999 and 1998 for each of the Funds then in existence were as
follows:
2000 1999 1998
---- ----- ----
Asset Strategy Fund $ 289,366$ 201,083$ 127,507
High Income Fund 136,556(1)123,728 24,352(2)
International Growth Fund 1,274,648 725,596 553,692
Limited-Term Bond Fund 30,177(1)107,424 101,985
Municipal Bond Fund 202,017 226,707 216,501
Science and Technology
Fund 1,213,722 130,141 17,585(2)
Small Cap Growth Fund 5,008,973 2,846,036 2,041,002
Total Return Fund 3,827,376 3,391,371 2,837,414
(1)Effective June 30, 1999, WRIMCO has voluntarily agreed to waive its
investment management fee on any day that a Fund's net assets are
less than $25 million, subject to WRIMCO's right to change or modify
this waiver. If WRIMCO had not waived any portion of its fee, the
management fees paid to WRIMCO by High Income Fund and Limited-Term
Bond Fund for the fiscal year ended March 31, 2000 would have been
$161,459 and $116,160, respectively.
(2)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
A, Class B and Class C 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. Money Market Fund pays the Agent a monthly fee of $1.75 for
each shareholder account that was in existence at any time during the
prior month plus, for Class A shareholder accounts, $0.75 for each
shareholder check processed in the prior 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 the 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; charges of any sub-agent used by Agent in performing
services under the Shareholder Servicing Agreement; 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,
2000, 1999 and 1998 for each of the Funds then in existence were as
follows:
2000 1999 1998
---- ----- ----
Asset Strategy Fund $20,833 $15,000 $10,000
High Income Fund 18,333 10,000 833*
International Growth Fund 41,667 30,000 30,000
Limited-Term Bond Fund 10,000 10,000 10,000
Municipal Bond Fund 20,000 20,000 20,000
Science and Technology Fund 38,333 10,833 2,972*
Small Cap Growth Fund 66,667 54,167 49,167
Total Return Fund 64,167 60,000 59,167
*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 the Distribution and Service Plan (the "Plan") for Class A
shares adopted by the Corporation pursuant to Rule 12b-1 under the
1940 Act, each Fund (other than Money Market Fund) may pay Waddell &
Reed, Inc., a fee not to exceed 0.25% of the Fund's average annual net
assets attributable to Class A shares, paid monthly, to compensate
Waddell & Reed, Inc. for its costs and expenses in connection with,
either directly or through others, the distribution of the Class A
shares and/or the provision of personal services to Class A
shareholders and/or maintenance of Class A shareholder accounts.
Under the Plans adopted for Class B shares and Class C shares
respectively, each Fund may pay the Distributor a service fee not to
exceed 0.25% of the Fund's average annual net assets attributable to
that class, paid monthly, to compensate Waddell & Reed, Inc. for its
services, either directly or through others, in connection with the
provision of personal services to shareholders of that class and/or
the maintenance of shareholder accounts of that class and a
distribution fee not to exceed 0.75% of the Fund's average annual net
assets attributable to that class, paid monthly, to compensate the
Distributor for its services, either directly or through others, in
connection with the distribution of shares of that class. Under a
Distribution and Service Plan for Class Y shares (the "Class Y Plan")
adopted by the Corporation pursuant to Rule 12b-1, the Corporation,
with respect to each Fund, 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 NAV.
The Distributor offers the Corporation's shares through its
financial advisors, registered representatives and sales managers
("sales force") and through other broker-dealers, banks and other
appropriate intermediaries. In distributing shares, the Distributor
will pay commissions and incentives to the sales forces 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 Plans permit
Waddell & Reed, Inc. to receive compensation for the class-related
distribution activities through the distribution fee, subject to the
limit contained in the Plan. The Plans also contemplate that Waddell
& Reed, Inc. may be compensated for amounts it expends in
compensating, training and supporting registered financial advisors,
sales managers and/or other appropriate personnel in providing
personal services to shareholders of each Fund and/or maintaining
shareholder accounts; increasing services provided to shareholders of
each Fund by office personnel located at field sales offices; engaging
in other activities useful in providing personal service to
shareholders of each Fund and/or maintenance of shareholder accounts;
and in compensating broker-dealers who may regularly sell shares of
each Fund, and other third parties, for providing shareholder services
and/or maintaining shareholder accounts with respect to Fund shares.
Each Plan and the Underwriting Agreement contemplate that the
Distributor may be compensated for these class-related distribution
efforts through the distribution fee.
The sales force and other parties 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, as well as other parties may also provide services
to shareholders through telephonic means and written communications.
There were no service fees or distribution fees paid by a Fund for
Class A or Class B for the fiscal year ended March 31, 2000, because
these classes had not commenced operations. For the fiscal year ended
March 31, 2000, the Corporation paid (or accrued) the following
amounts to the Distributor as distribution fees and service fees,
respectively, under the old Class B and the Class C Plan for each of
the Funds: Asset Strategy Fund - $298,166 and $99,239; High Income
Fund - $192,388 and $64,017 ; International Growth Fund - $1,120,202
and $369,673 ; Limited-Term Bond Fund - $165,345 and $54,787;
Municipal Bond Fund - $283,621 and $94,586; Small Cap Growth Fund -
$4,386,944 and $1,451,477; Science and Technology Fund - $1,086,121
and $343,339 ; and Total Return Fund - $4,079,148 and $1,361,454 .
For the fiscal year ended March 31, 2000, 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: Asset
Strategy Fund - $935; High Income Fund - $20; International Growth
Fund - $5,238; Limited-Term Bond Fund - $1,402; Municipal Bond Fund -
$4; Science and Technology Fund - $2,076; Small Cap Growth Fund -
$26,447; and Total Return Fund - $4,078. 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 shares of a Fund. The service fees were paid to
compensate the Distributor for providing personal services to the
particular Fund's shareholders and for the maintenance of shareholder
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(s) of a Fund. Further, continuing sales of 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 Plans 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 each Fund and
its affected shareholders. Each 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 Plans or any agreement referred to in the Plans
(hereafter the "Plan Directors").
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, 2000, the
Distributor earned deferred sales charges from each of the Funds with
respect to Class C shares then in existence as follows: Total Return
Fund - $450,125; Small Cap Growth Fund - $222,350; Limited-Term Bond
Fund - $21,714; Municipal Bond Fund - $85,655; International Growth
Fund - $72,554; Asset Strategy Fund - $33,466; Science and Technology
Fund - $48,775; and High Income Fund - $45,801.
Custodial and Auditing Services
The custodian for each Fund is UMB Bank, n.a., 928 Grand
Boulevard, Kansas City, Missouri. In general, the custodian is
responsible for holding each Fund's cash and securities. Deloitte &
Touche LLP, 1010 Grand Boulevard, Kansas City, Missouri, the Funds'
independent auditors, audits the Corporation's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The NAV of each class of the shares of a Fund is the value of the
assets of that class, less the class's liabilities, divided by the
total number of outstanding shares of that class.
Class A shares of the Funds are sold at their next determined NAV
plus the sales charge described in the Prospectus. The sales charge
is paid to Waddell & Reed, Inc., the Fund's Distributor.
The offering price of a Class A share is its NAV next calculated
following acceptance of a purchase order plus the sales charge
described in the Prospectus. The offering price of a Class B, Class C
or a Class Y share is its NAV next calculated 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 NAV 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
futures contract 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 NAV 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 under the procedures
established by, and under the general supervision and responsibility
of, the Corporation's 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 NAV 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 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 A, Class B and Class C shares, initial investments must
be at least $500 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 for these
individuals. 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 $10 million. There
is no initial investment minimum for other Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares only)
Account Grouping
Large purchases of Class A shares are subject to lower sales
charges. The schedule of sales charges appears in the Prospectus.
For the purpose of taking advantage of the lower sales charges
available for large purchases, a purchase in any of categories 1
through 7 listed below made by an individual or deemed to be made by
an individual may be grouped with purchases in any other of these
categories:
1. Purchases by an individual for his or her own account (includes
purchases under the W&R Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her
own account (includes W&R Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint
account;
4. Purchases by that individual or his or her spouse for the account
of their child under age 21;
5. Purchase by any custodian for the child of that individual or
spouse in a Uniform Transfers to Minors Act ("UTMA") or Uniform
Gifts to Minors Act ("UGMA") account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), or salary reduction plan
account under Section 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), provided that such purchases are subject
to a sales charge (see "Net Asset Value Purchases"), tax-
sheltered annuity account ("TSA") or Keogh Plan account, provided
that the individual and spouse are the only participants in the
Keogh Plan; and
7. Purchases by a trustee under a trust where that individual or his
or her spouse is the settlor (the person who establishes the
trust).
For the foregoing categories, an individual's domestic partner is
treated as his or her spouse.
Examples:
A. Grandmother opens a UGMA account for grandson A; Grandmother
has an account in her own name; A's father has an account in
his own name; the UGMA account may be grouped with A's
father's account but may not be grouped with Grandmother's
account;
B. H establishes a trust naming his children as beneficiaries
and appointing himself and his bank as co-trustees; a
purchase made in the trust account is eligible for grouping
with an IRA account of W, H's wife;
C. H's will provides for the establishment of a trust for the
benefit of his minor children upon H's death; his bank is
named as trustee; upon H's death, an account is established
in the name of the bank, as trustee; a purchase in the
account may be grouped with an account held by H's wife in
her own name.
D. X establishes a trust naming herself as trustee and R, her
son, as successor trustee and R and S as beneficiaries; upon
X's death, the account is transferred to R as trustee; a
purchase in the account may not be grouped with R's
individual account. If X's spouse, Y, was successor
trustee, this purchase could be grouped with Y's individual
account.
All purchases of Class A shares made for a participant in a
multi-participant Keogh plan may be grouped only with other purchases
made under the same plan; a multi-participant Keogh plan is defined as
a plan in which there is more than one participant where one or more
of the participants is other than the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the
only participants in the plan; they may group their
purchases made under the plan with any purchases in
categories 1 through 7 above.
Example B: H has established a Keogh Plan; his wife, W, is a
participant and they have hired one or more employees who
also become participants in the plan; H and W may not
combine any purchases made under the plan with any
purchases in categories 1 through 7 above; however, all
purchases made under the plan for H, W or any other
employee will be combined.
All purchases of Class A shares made under a "qualified" employee
benefit plan of an incorporated business will be grouped. A
"qualified" employee benefit plan is established pursuant to Section
401 of the Code. All qualified employee benefit plans of any one
employer or affiliated employers will also be grouped. An affiliate
is defined as an employer that directly, or indirectly, controls or is
controlled by or is under control with another employer. All
qualified employee benefit plans of an employer who is a franchisor
and those of its franchisee(s) may also be grouped.
Example: Corporation X sets up a defined benefit plan; its
subsidiary, Corporation Y, sets up a 401(k) plan; all
contributions made under both plans will be grouped.
All purchases of Class A shares made under a simplified employee
pension plan ("SEP"), payroll deduction plan or similar arrangement
adopted by an employer or affiliated employers (as defined above) may
be grouped provided that the employer elects to have all such
purchases grouped at the time the plan is set up. If the employer
does not make such an election, the purchases made by individual
employees under the plan may be grouped with the other accounts of the
individual employees described above in "Account Grouping."
Account grouping as described above is available under the
following circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for
grouping may be combined for purposes of determining the availability
of a reduced sales charge. In order for an eligible purchase to be
grouped, the investor must advise Waddell & Reed, Inc. at the time the
purchase is made that it is eligible for grouping and identify the
accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at
the same time, H's parents open up three UGMA accounts for H
and W's three minor children and invest $10,000 in each
child's name; the combined purchase of $105,000 of Class A
shares is subject to a reduced sales load of 4.75% provided
that Waddell & Reed, Inc. is advised that the purchases are
entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional
purchase is made in that account or in any account eligible for
grouping with that account, the additional purchase is combined with
the NAV of the existing account(s) as of the date the new purchase is
accepted by Waddell & Reed, Inc. for the purpose of determining the
availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in one of
the Funds three years ago. His account has a NAV of
$80,000. His wife, W, now wishes to invest $20,000 in Class
A shares of that (or another) Fund. W's purchase will be
combined with H's existing account and will be entitled to a
reduced sales charge of 4.75%. H's original purchase was
subject to a full sales charge and the reduced charge does
not apply retroactively to that purchase.
In order to be entitled to Rights of Accumulation, the purchaser
must inform Waddell & Reed, Inc. that the purchaser is entitled to a
reduced charge and provide Waddell & Reed, Inc. with the name and
number of the existing account(s) with which the purchase may be
combined.
Letter of Intent
The benefit of a reduced sales charge for larger purchases of
Class A shares is also available under a Letter of Intent ("LOI"). By
signing an LOI form, which is available from Waddell & Reed, Inc., the
purchaser indicates an intention to invest, over a 13-month period, a
dollar amount which is sufficient to qualify for a reduced sales
charge. The 13-month period begins on the date the first purchase
made under the LOI is accepted by Waddell & Reed, Inc. Each purchase
made from time to time under the LOI is treated as if the purchaser
were buying at one time the total amount which he or she intends to
invest. The sales charge applicable to all purchases of Class A
shares made under the terms of the LOI will be the sales charge in
effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in
order to qualify for a reduced sales charge under an LOI, the
investor's Rights of Accumulation (see above) will be taken into
account; that is, Class A shares already held in the same account in
which the purchase is being made or in any account eligible for
grouping with that account, as described above, will be included.
Example: H signs an LOI indicating his intent to invest in his own
name a dollar amount sufficient to entitle him to purchase
Class A shares at the sales charge applicable to a purchase
of $100,000. H has an IRA account and the Class A shares
held under the IRA in a Fund have a NAV as of the date the
LOI is accepted by Waddell & Reed, Inc. of $15,000; H's
wife, W, has an account in her own name invested in another
Fund which charges the same sales load as the Fund, with a
NAV as of the date of acceptance of the LOI of $10,000; H
needs to invest $75,000 in Class A shares over the 13-month
period in order to qualify for the reduced sales load
applicable to a purchase of $100,000.
A copy of the LOI signed by a purchaser will be returned to the
purchaser after it is accepted by Waddell & Reed, Inc. and will set
forth the dollar amount of Class A shares which must be purchased
within the 13-month period in order to qualify for the reduced sales
charge.
The minimum initial investment under an LOI is 5% of the dollar
amount which must be invested under the LOI. An amount equal to 5% of
the purchase required under the LOI will be held "in escrow." If a
purchaser does not, during the period covered by the LOI, invest the
amount required to qualify for the reduced sales charge under the
terms of the LOI, he or she will be responsible for payment of the
sales charge applicable to the amount actually invested. The
additional sales charge owed on purchases of Class A shares made under
an LOI which is not completed will be collected by redeeming part of
the shares purchased under the LOI and held "in escrow" unless the
purchaser makes payment of this amount to Waddell & Reed, Inc. within
20 days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an
investor intends to invest, and is large enough to qualify for a sales
charge lower than that available under the LOI, the lower sales charge
will apply.
An LOI does not bind the purchaser to buy, or Waddell & Reed,
Inc. to sell, the shares covered by the LOI.
With respect to LOIs for $2,000,000 or purchases otherwise
qualifying for no sales charge under the terms of the LOI, the initial
investment must be at least $200,000.
The value of any shares redeemed during the 13-month period which
were acquired under the LOI will be deducted in computing the
aggregate purchases under the LOI.
LOIs are not available for purchases made under an SEP where the
employer has elected to have all purchases under the SEP grouped.
Other Funds in the Waddell & Reed Advisors Funds and W&R Funds,
Inc.
Reduced sales charges for larger purchases of Class A shares
apply to purchases of any of the Class A shares of any of the funds in
the Waddell & Reed Advisors Funds and W&R Funds, Inc. subject to a
sales charge. A purchase of Class A shares, or Class A shares held,
in any of the funds in the Waddell & Reed Advisors Funds and/or the
W&R Funds, Inc. subject to a sales charge will be treated as an
investment in the Fund for the purposes of determining the applicable
sales charge. For these purposes, Class A shares of Waddell & Reed
Advisors Cash Management, Inc. (formerly, United Cash Management,
Inc.) or W&R Funds, Inc. Money Market Fund that were acquired by
exchange of another Waddell & Reed Advisors Fund or W&R Funds, Inc.
Class A shares on which a sales charge was paid, plus the shares paid
as dividends on those acquired shares, are also taken into account.
Net Asset Value Purchases of Class A Shares
Class A shares of a Fund may be purchased at NAV by the Directors
and officers of the Corporation or of any affiliated entity of Waddell
& Reed, Inc., employees of Waddell & Reed, Inc. or of any of its
affiliates, financial advisors of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each
such Director, officer, employee and financial advisor. "Child"
includes stepchild; "parent" includes stepparent. Purchases of Class
A shares in an IRA sponsored by Waddell & Reed, Inc. established for
any of these eligible purchasers may also be at NAV. Purchases of
Class A shares in any tax-qualified retirement plan under which the
eligible purchaser is the sole participant may also be made at NAV.
Trusts under which the grantor and the trustee or a co-trustee are
each an eligible purchaser are also eligible for NAV purchases of
Class A shares. "Employees" include retired employees. A "retired
employee" is an individual separated from service from Waddell & Reed,
Inc., or from an affiliated company with a vested interest in any
Employee Benefit Plan sponsored by Waddell & Reed, Inc. or any of its
affiliated companies. "Financial advisors" include retired financial
advisors. A "retired financial advisor" is any financial advisor who
was, at the time of separation from service from Waddell & Reed, Inc.,
a Senior Financial Advisor. A custodian under a UGMA or UTMA
purchasing for the child or grandchild of any employee or Waddell &
Reed Financial Advisor may purchase Class A shares at NAV whether or
not the custodian himself is an eligible purchaser.
Until March 31, 2001, Class A shares may also be purchased at NAV
by persons who are clients of Legend Equities Corporation ("Legend")
if the purchase is made with the proceeds of the redemption of shares
of a mutual fund which is not within the Waddell & Reed Advisors Funds
or W&R Funds, Inc. and the purchase is made within 60 days of such
redemption.
Purchases of Class A shares in a 401(k) plan having 100 or more
eligible employees and purchases of Class A shares in a 457 plan
having 100 or more eligible employees may be made at NAV.
Purchases of Class A shares by certain clients investing through
a qualified fee-based program offered by a third party that has made
arrangements to sell shares of the Funds may be made at NAV.
Shares may also be issued at NAV in a merger, acquisition or
exchange offer made pursuant to a plan of reorganization to which the
Fund is a party.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus, there are a number of
instances in which a Fund's Class A shares are sold or issued on a
basis other than at the maximum public offering price, that is, NAV
plus the highest sales charge. Some of these instances relate to
lower or eliminated sales charges for larger purchases of Class A
shares, whether made at one time or over a period of time as under
an LOI or Rights of Accumulation. See the table of sales charges in
the Prospectus. The reasons for these quantity discounts are, in
general, that (i) they are traditional and have long been permitted
in the industry and are therefore necessary to meet competition as to
sales of shares of other funds having such discounts, (ii) certain
quantity discounts are required by rules of the National Association
of Securities Dealers, Inc. (as is elimination of sales charges on the
reinvestment of dividends and distributions), and (iii) they are
designed to avoid an unduly large dollar amount of sales charges on
substantial purchases in view of reduced selling expenses. Quantity
discounts are made available to certain related persons for reasons of
family unity and to provide a benefit to tax-exempt plans and
organizations.
In general, the reasons for the other instances in which there
are reduced or eliminated sales charges for Class A shares are as
follows. Exchanges at NAV are permitted because a sales charge has
already been paid on the shares exchanged. Sales of Class A shares
without a sales charge are permitted to Directors, officers and
certain others due to reduced or eliminated selling expenses and since
such sales may aid in the development of a sound employee
organization, encourage responsibility and interest in the Corporation
and an identification with its aims and policies. Limited
reinvestments of redemptions of Class A shares at no sales charge are
permitted to attempt to protect against mistaken or not fully informed
redemption decisions. Class A shares may be issued at no sales charge
in plans of reorganization due to reduced or eliminated sales expenses
and since, in some cases, such issuance is exempted by the 1940 Act
from the otherwise applicable restrictions as to what charge must be
imposed. Reduced or eliminated sales charges may also be used for
certain short-term promotional activities by Waddell & Reed, Inc. In
no case in which there is a reduced or eliminated sales charge are the
interests of existing Class A shareholders adversely affected since,
in each case, each Fund receives the NAV per share of all shares sold
or issued.
Flexible Withdrawal Service for Class A, Class B and Class C
Shareholders
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
A, Class B or Class C shares that you own of a Fund. It would be a
disadvantage to an investor to make additional purchases of shares
while a withdrawal program is in effect because it would result in
duplication of sales charges. Class B and Class C shares and certain
Class A shares to which the CDSC otherwise applies that are redeemed
under the Service are not subject to a CDSC. Applicable forms to
start the Service are available through Waddell & Reed Services
Company.
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.
To qualify for the Service, you must have invested at least
$10,000 in Class A, Class B or Class C shares which you still own of
any of the Funds, you must own Class A, Class B or Class C shares
having a value of at least $10,000. The value for this purpose is the
value at the current offering price.
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 the Service.
The dividends and distributions on shares of a class of a Fund
that you have made available for the Service are paid in additional
shares of that class of the Fund. All payments under the Service are
made by redeeming shares, which may involve a gain or loss for tax
purposes. To the extent that payments exceed dividends and
distributions, the number of 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, 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 Privileges
Class A Share Exchanges
Once a sales charge has been paid on shares of a fund in the W&R
Funds, Inc. or the Waddell & Reed Advisors Funds, these shares and
any shares added to them from dividends or distributions paid in shares
may be freely exchanged for corresponding shares of another fund in the
W&R Funds, Inc. or the Waddell & Reed Advisors Funds. The shares you
exchange must be worth at least $100 or you must already own shares of
a fund in the W&R Funds, Inc. or the Waddell & Reed Advisors Funds into
which you want to exchange.
Except where the special rules described below apply, you may
exchange Class A shares you own in a Fund for Class A shares of
another Fund or, for customers of Waddell & Reed, Inc. or Legend
Equities, Corp. ("Legend"), for Class A shares of a fund in Waddell &
Reed Advisors Funds, without charge if (i) a sales charge was paid on
these shares, or (ii) the shares were received in exchange for shares
for which a sales charge was paid, or (iii) the shares were acquired from
reinvestment of dividends and distributions paid on such shares.
There may have been one or more such exchanges so long as a sales
charge was paid on the shares originally purchased. Also, shares
acquired without a sales charge because the purchase was $2 million or
more will be treated the same as shares on which a sales charge was
paid.
Special rules apply to Limited-Term Bond Fund and Municipal Bond
Fund shares. Class A shares of one of these Funds may be exchanged
for Class A shares of another Fund (or, for customers of Waddell &
Reed, Inc. or Legend, for Class A shares of a fund within the Waddell
& Reed Advisors Funds only if (i) you received the shares to be exchanged
as a result of one or more exchanges of shares on which a maximum sales
charge was originally paid (currently, 5.75%), or (ii) the shares to be
exchanged have been held for at least six months from the date of the
original purchase. However, you may exchange, and these restrictions do not
apply to exchanges of, Class A shares of Limited-Term Bond, Municipal
Bond Fund or Money Market Fund (or, for customers of Waddell & Reed,
Inc. or Legend, Class A shares of Waddell & Reed Advisors Municipal
Bond Fund, Inc., Waddell & Reed Advisors Government Securities Fund,
Inc. or Waddell & Reed Advisors Cash Management, Inc.).
Class B Share Exchanges
You may exchange Class B shares of one Fund for Class B shares of
another Fund or, for customers of Waddell & Reed, Inc. or Legend, for
Class B shares of a fund in the Waddell & Reed Advisors Funds 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.
Class C Share Exchanges
You may exchange Class C shares of one Fund for Class C shares of
another Fund or, for customers of Waddell & Reed, Inc. or Legend, for
Class C shares of a fund in the Waddell & Reed Advisors Funds without charge.
The redemption of a Fund's Class C 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.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of
any other Fund or, for customers of Waddell & Reed, Inc. or Legend,
for Class Y shares of a fund within the Waddell & Reed Advisors Funds
as well as for Class A shares of Money Market Fund.
General Exchange Information
The exchange will be made at the NAVs 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 NAV 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
Your account may be set up as a funding vehicle for a retirement
plan. For individual taxpayers meeting certain requirements, Waddell
<PAGE>
& 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 or Tax-
Managed Equity Fund) or shares of certain other funds in the Waddell &
Reed Advisors Funds.
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 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 (or
to any combination of Roth and traditional IRAs). 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 $25,500, 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 plan 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,
generally, than 401(k) or other qualified plans.
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.
Pension and Profit-Sharing Plans, including 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 from receipt of request, 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 NAV.
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 NAV during
any 90-day period for any one shareholder.
Reinvestment Privilege
Each Fund offers a one-time reinvestment privilege that allows
you to reinvest without charge all or part of any amount of Class A
shares you redeem from the Fund by sending that Fund the amount you
wish to reinvest. The amount you return will be reinvested in Class A
shares of that Fund at the NAV next calculated after the Fund receives
the returned amount. Your written request to reinvest and the amount
to be reinvested must be received within forty-five days after your
redemption request was received. You can do this only once as to
Class A shares of a Fund, and the Fund must be offering Class A shares
at the time your reinvestment request is received. You do not use up
this privilege by redeeming Class A shares to invest the proceeds at
NAV in a Keogh plan or an IRA.
There is also a reinvestment privilege for Class B and Class C
shares and, where applicable, certain Class A shares under which you
may reinvest in any one or more of the Funds all or part of any amount
of the 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 in
shares of the same class. If Fund shares of that class are then being
offered, you can put all or part of your redemption payment back into
such shares of that Fund at the NAV next calculated after you have
returned the amount. Your written request to do this must be received within
forty-five days after your redemption request was received. You can
do this only once as to Class B, once as to Class C and Class A 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 shares to invest the proceeds at NAV 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 NAV 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 the past five years of each
Director and officer of the Corporation is stated 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 of
the Corporation but are 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 Waddell & Reed Advisors Funds, W&R
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 and Director of Waddell & Reed Financial,
Inc.; President, Chairman of the Board of Directors, Director and
Chief Executive Officer of Waddell & Reed Financial Services, Inc.;
Chairman of the Board of Directors and Director of WRIMCO, Waddell &
Reed, Inc. and Waddell & Reed Services Company; formerly, President of
each of the 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 of 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 of Garney Companies, Inc., a specialty
utility contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
263 West 3rd Avenue
San Mateo, California 94402
Chairman and Chief Executive Officer of George S. and Delores
Dor'e Eccles Foundation; Director of First Security Corp., a bank
holding company, and Director of Fluor Corp., a company with interests
in coal; formerly, President of Hewlett Foundation. Date of birth:
March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, 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 at the University of
Oklahoma; Adjunct Professor of Law at the University of Oklahoma
College of Law; Managing Member, Harroz Investments, L.L.C.; formerly,
Vice President for Executive Affairs of the University of Oklahoma;
formerly, 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; Chairman of the Board of Directors, Gilliland & Hayes,
P.A., a law firm; formerly, President of Gilliland & Hayes, P.A.;
formerly, Director of Central Properties, Inc. 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.;
Executive 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.; Director and
Treasurer of Waddell & Reed Services Company; Chairman of the Board of
Directors, Chief Executive Officer, President and Director of
Fiduciary Trust Company of New Hampshire, an affiliate of Waddell &
Reed, Inc.; Director of Legend Group Holdings, LLC, Legend Advisory
Corporation, Legend Equities Corporation, Advisory Services
Corporation, The Legend Group, Inc. and LEC Insurance Agency, Inc.;
formerly, Vice President of each of the funds in the Fund Complex;
formerly, Director and Treasurer of Waddell & Reed Asset Management
Company; formerly, President of Waddell & Reed Services Company. 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, and Director of
Waddell & Reed Financial, Inc.; Executive 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; Chairman of
the Board of Directors of Austin, Calvert & Flavin, Inc., an affiliate
of WRIMCO; formerly, President, Chief Executive Officer, Chief
Investment Officer and Director of Waddell & Reed Asset Management
Company. 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 its 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 each of the funds 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 and Vice President of Network Rehabilitation
Services; Board Member, Member of Executive Committee and Finance
Committee of Truman Medical Center; 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;
Director of Columbian Bank and Trust. Date of birth: April 9, 1953.
ELEANOR B. SCHWARTZ
1213 West 95th Court, Chartwell 4
Kansas City, Missouri 64114
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.
Daniel C. Schulte
Vice President, Assistant Secretary and General Counsel of the
Fund and each of the other funds in the Fund Complex; Vice President,
Secretary and General Counsel of Waddell & Reed Financial, Inc.,;
Senior Vice President, Secretary and General Counsel of Waddell & Reed
Financial Services Company, Waddell & Reed, Inc., WRIMCO and Waddell &
Reed Services Company; Secretary and Director of Fiduciary Trust
Company of New Hampshire, an affiliate of Waddell & Reed, Inc.;
formerly, Assistant Secretary of Waddell & Reed Financial, Inc.;
formerly, an attorney with Klenda, Mitchell, Austerman & Zuercher,
L.L.C. Date of birth: December 8, 1965.
Kristen A. Richards
Vice President, Secretary and Associate General Counsel of the
Fund and each of the other funds in the Fund Complex; Vice President
and Associate General Counsel of WRIMCO; formerly, Assistant Secretary
of the Fund and each of the other funds in the Fund Complex; formerly,
Compliance Officer of WRIMCO. Date of birth: December 2, 1967.
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 two other Funds in the Fund
Complex; Senior Vice President of, and Director of Research for,
WRIMCO; formerly, Vice President of Waddell & Reed Asset Management
Company. Date of birth: September 15, 1953.
Daniel P. Becker
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: November 27, 1964.
Bryan J. Bailey
Vice President of the Corporation and one other Fund in the Fund
Complex; Vice President of WRIMCO; formerly, Assistant Portfolio Manager
for investment companies managed by WRIMCO. Date of birth: April 17, 1963.
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.
Cynthia P. Prince-Fox
Vice President of the Corporation and three other funds in the
Fund Complex; Vice President of WRIMCO; Vice President and Portfolio
Manager for Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO;
formerly, Vice President of, and a portfolio manager for, Waddell &
Reed Asset Management Company. Date of birth: January 11, 1959.
Louise D. Rieke
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of, and a
portfolio manager for, Waddell & Reed Asset Management Company. Date
of birth: April 24, 1949.
Grant P. Sarris
Vice President of the Fund and two other Funds in the Fund
Complex, and Vice President of WRIMCO. Date of birth: September 14,
1966.
Mark G. Seferovich
Vice President of the Corporation and two other Funds in the Fund
Complex and Senior Vice President of WRIMCO; formerly, Vice President
of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Date of birth: April 6, 1947.
Zachary H. Shafran
Vice President of the Corporation and one other Fund in the Fund
Complex and Vice President of WRIMCO; formerly, an investment analyst
with WRIMCO. Date of birth: October 12, 1965.
W. Patrick Sterner
Vice President of the Corporation and one other fund in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of, and a
portfolio manager for, Waddell & Reed Asset Management Company. Date
of birth: January 11, 1949.
Mira Stevovich
Vice President and Assistant Treasurer of the Corporation, Vice
President of two other funds in the Fund Complex and Assistant
Treasurer of all Funds in the Fund complex; Vice President of WRIMCO.
Date of birth: July 30, 1953.
Daniel J. Vrabac
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of, and a
portfolio manager for, 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, and a
portfolio manager for, 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 Corporation'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, whereby an incumbent Director who has attained the
age of 70 may, or if elected on or after May 31, 1993 and has attained
the age of 75 must, resign his or her position as Director and, unless
he or she elects otherwise, will serve as Director Emeritus provided
the Director has served as a Director of the Corporation for at least
five years which need not have been consecutive. A Director Emeritus
receives fees in recognition of his or her past services whether or
not services are rendered in his or her capacity as Director Emeritus,
but he or she has no authority or responsibility with respect to the
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 each serves as Director Emeritus.
The Corporation, the funds in the Waddell & Reed Advisors
Funds and Target/United Funds, Inc. pay to each Director, effective October
1, 1999, an annual base fee of $50,000, plus $3,000 for each meeting of the
Board of Directors attended and effective January 1, 2000, an annual base fee
of $52,000 plus $3,250 for each meeting of the Board of Directors attended,
plus reimbursement of expenses for 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. (Prior to October 1, 1999, the Corporation, the funds in the
Waddell & Reed Advisors Funds and Target/United Funds, Inc. paid to each
Director an annual base fee of $48,000 plus $2,500 for each meeting of the
Board of Directors attended.) The fees to the Directors are divided among the
Corporation, the funds in the Waddell & Reed Advisors Funds and
Target/United Funds, Inc. based on the funds' relative size. During
the Corporation's fiscal year ended March 31, 2000, 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 3,155 61,000
John A. Dillingham 3,155 61,000
David P. Gardner 3,037 58,500
Linda K. Graves 3,155 61,000
Joseph Harroz, Jr. 3,155 61,000
John F. Hayes 3,155 61,000
Glendon E. Johnson 3,155 61,000
William T. Morgan 3,155 61,000
Ronald C. Reimer 3,155 61,000
Frank J. Ross, Jr. 3,155 61,000
Eleanor B. Schwartz 3,155 61,000
Frederick Vogel III 3,155 61,000
*No pension or retirement benefits have been accrued as a part of
Corporation expenses.
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of May 31, 2000, 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, 2000, 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
------------------- ---------- ------------ -------
Fiduciary Trust Co NH TR Total Return
CMPP Okanogan Cnty Class Y 12,643 8.47%
Hosp Dist 3
FBO Unallocated Assets
Qualified Plan 1329481
P. O. Box 793
Omak WA 98841-0793
David Johnson Tr Total Return
Church TSA Archdiocese Class Y 123,406 82.67%
of OK
FBO Unallocated Assets Small Cap Growth
Church Sponsored Class Y 86,501 10.93%
403(B) Plan
P. O. Box 32180 Limited-Term Bond
Oklahoma City OK Class Y 31,039 24.38%
43123-0380
International Growth
Class Y 40,654 23.35%
Asset Strategy
Class Y 32,417 97.51%
Trust Company of Small Cap Growth
Knoxville Class Y 542,749 68.58%
P. O. Box 789
620 Market St Suite 300
Knoxville TN 37902-2290
Oltrust & Co Small Cap Growth
P. O. Box 966 Class Y 74,533 9.42%
Evansville IN 47706-0966
M E Collins Contracting Limited-Term Bond
Co Inc Class Y 6,437 5.06%
401K and Profit Sharing
980 E 25th St Box 83
Wahoo NE 68066
Illinois National Bank Limited-Term Bond
Trust Department Class Y 89,613 70.37%
322 E Capitol Ave
Springfield IL 62701-1710
Waddell & Reed Inc Municipal Bond
ATTN: Ty Towery Class Y 190 100.00%
P. O. Box 29217
Shawnee Mission KS High Income
66201-9217 Class Y 225 30.70%
Brian E Stahl TR International Growth
Qualified 401(k) Plan Class Y 12,091 6.95%
Bedford Reinforced Plastics Inc
FBO Unallocated Assets
264 Reynoldsdale Rd
Bedford PA 15522-7401
Quad City Bank & International Growth
Trust Co Cust Class Y 40,602 23.32%
3551 7th St Suite 100
Moline IL 61265-6156
Allfirst Trust Company International Growth
NA Class Y 30,680 17.62%
FBO Various Customers
Security Processing 109-911
P. O. Box 1596
Baltimore MD 21203-1596
Waddell & Reed International Growth
Financial, Inc. Class Y 43,432 24.95%
401(k) and Thrift Plan
6300 Lamar Avenue Science and Technology
Overland Park KS 66201 Class Y 45,575 97.57%
High Income
Class Y 508 69.30%
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 the 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, Large Cap Growth Fund, Mid Cap Growth
Fund, Small Cap 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, (ii) you want your
dividends and distributions paid in shares of the 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
the Fund of the same class as that with respect to which they were
paid. However, a total dividend and/or distribution amount less than
five dollars will be automatically paid in shares of the Fund of the
same class as that with respect to which they were paid. You can
change your instructions at any time. If you give no instructions,
your dividends and distributions will be paid in shares of the Fund of
the same class as that with respect to which they were paid. All
payments in shares are at NAV without any sales charge. The NAV 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.
Even if you receive dividends and distributions on Fund shares in
cash, you can thereafter reinvest them in shares of the Fund at NAV
(i.e., no sales charge) next calculated after receipt by Waddell & Reed,
Inc. of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
General
Each of the Funds have qualified since inception for treatment as
a regulated investment company ("RIC") under the Code (other than
Large Cap Growth Fund, Mid Cap Growth Fund, Money Market Fund and Tax-
Managed Equity Fund, which each intend to so qualify), 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 it distributes to its
shareholders. To continue to qualify for treatment as a RIC, a Fund
must distribute to its shareholders for each taxable year at least 90%
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 continue to manage its portfolio so as to avoid failing to
satisfy those requirements for these reasons.
If a Fund failed to qualify for treatment as a RIC for any
taxable year, (a) it would be taxed as an ordinary corporation on the
full amount of its taxable income for that year (even if it
distributed that income to its shareholders) and (b) the shareholders
would treat all distributions out of its earnings and profits,
including distributions of net capital gains and, for Municipal Bond
Fund, distributions that otherwise would be "exempt-interest
dividends" described in the following paragraph, as dividends (that
is, ordinary income). In addition, a Fund could be required to
recognize unrealized gains, pay substantial taxes and interest, and
make substantial distributions before requalifying for RIC treatment.
Dividends paid by Municipal Bond Fund will qualify as "exempt-
interest dividends," and thus will be excludable from shareholders'
gross income, if Municipal Bond Fund satisfies the additional
requirement that, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consists of securities the
interest on which is excludable from gross income under section
103(a); Municipal Bond Fund intends to continue to satisfy this
requirement. The aggregate dividends excludable from all
shareholders' gross income may not exceed Municipal Bond Fund's net
tax-exempt income. Municipal Bond Fund uses the average annual method
to determine the exempt income portion of each distribution, and the
percentage of income designated as tax-exempt for any particular
distribution may be substantially different from the percentage of
Municipal Bond Fund's income that was tax-exempt during the period
covered by the distribution. The treatment of dividends from
Municipal Bond Fund under state and local income tax laws may differ
from the treatment thereof under the Code.
Dividends and distributions declared by a Fund in December of any
year and payable to its shareholders of record on a date in that month
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 a 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. For these purposes, the
Fund may defer into the next calendar year net capital losses incurred
between November 1 and the end of the current calendar year. It is
the policy of the Fund to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax.
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, Large Cap Growth Fund, Mid Cap
Growth Fund, Tax-Managed Equity Fund, Asset Strategy Fund, Total
Return Fund, Small Cap Growth Fund, Science and Technology Fund and
High Income Fund may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is any foreign corporation
that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50%
of its assets produce, or are held for the production of, passive
income. Under certain circumstances, a Fund will be subject to
Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders.
The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income 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 may 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
under the election (and under regulations proposed in 1992 that
provided a similar election with respect to the stock of certain
PFICs). 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.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies,
including forward currency contracts, (2) on the disposition of each
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 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 as ordinary income, rather than affecting the amount of
its net capital gain.
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. 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,
futures contracts and forward currency 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. In addition, these rules may postpone
the recognition of loss that would otherwise be recognized under the
mark-to-market rules discussed above. The regulations under section
1092 also provide certain "wash sale" rules which 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 position, 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 identical
property. In addition, if the appreciated financial position is
itself a short sale or such a contract, acquisition of the underlying
property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to any
transaction during any taxable year that otherwise would be treated as
a constructive sale if the transaction is closed within 30 days after
the end of that year and the Fund holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time
during that 60-day period is the Fund's risk of loss regarding that
position reduced by reason of certain specified transactions with
respect to substantially identical or related property, such as having
an option to sell, being contractually obligated to sell, making a
short sale, or granting an option to buy substantially identical stock
or securities).
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 IDBs or 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 IDBs or 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,
Money Market 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 effected 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, yet not
always, place concurrent orders for all or most accounts for which the
manager has responsibility or WRIMCO may otherwise combine orders for
a Fund with those of other funds in the Corporation, Waddell & Reed
Advisors Funds and Target/United Funds, Inc. or other accounts for which
it has investment discretion, including accounts affiliated with WRIMCO.
WRIMCO, at its discretion, may aggregate such orders. Under current
written procedures, 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,
for a transaction not involving an initial public offering ("IPO"), WRIMCO
will ordinarily allocate the transaction pro rata based on the orders
placed, subject to certain variances provided for in the written
procedures. For a partially filled IPO order, subject to certain
variances specified in the written procedures, WRIMCO generally
allocates the shares as follows: the IPO shares are initially
allocated pro rata among the included funds and/or advisory accounts
grouped according to investment objective, based on relative total
assets of each group; and the shares are then allocated within each
group pro rata based on relative total assets of the included funds
and/or advisory accounts, except that (a) within a group having a
small cap-related investment objective, shares are allocated on a
rotational basis after taking into account the impact of the
anticipated initial gain on the value of the included fund or
advisory account and (b) within a group having a mid-cap-related
investment objective, shares are allocated based on the portfolio
manager's judgment, including but not limited to such factors as the
fund's or advisory account's investments strategies and policies, cash
availability, any minimum investment policy, liquidity, anticipated
term of the investment and current securities positions.
In all cases, WRIMCO seeks to implement its allocation procedures
to achieve a fair and equitable allocation of securities among its
funds and other advisory accounts. Sharing in large transactions
could affect the price a Fund pays or receives or the amount it buys
or sells. As well, a better negotiated commission may be 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 for 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 the commission 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 request 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,
2000, 1999 and 1998. 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.
2000 1999 1998
---- ----- -----
Asset Strategy Fund $ 137,754 $ 51,488 $26,334
Small Cap Growth Fund 330,466 172,608 82,603
High Income Fund 4,396 616 ---*
International Growth Fund 897,915 475,534 386,865
Limited-Term Bond Fund --- --- ---
Municipal Bond Fund --- --- 1,371
Science and Technology Fund 60,770 16,836 4,802*
Total Return Fund 542,947 355,480 288,547
---------- ---------- --------
Total $1,974,248 $1,072,562 $790,522
========== ========== ========
*For the period from July 31, 1997, the date of the initial public
offering, to March 31, 1998.
The next table shows for each of the Funds the transactions,
other than principal transactions, which were directed to broker-
dealers who provided research services as well as execution and the
brokerage commissions paid during the fiscal year ended March 31, 2000
for each of the Funds. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
Amount of Brokerage
Transactions Commissions
------------ -----------
Asset Strategy Fund ...............$ 46,600,896 $ 85,383
Small Cap Growth Fund ............. 125,246,870 197,312
High Income Fund* ................. 1,246,501 1,575
International Growth Fund ......... 9,446,864 10,287
Limited-Term Bond Fund ............ --- ---
Municipal Bond Fund ............... --- ---
Science and Technology Fund*....... 19,763,159 20,057
Total Return Fund ................. 334,514,750 406,125
------------ --------
Total ..........................$536,819,040 $720,739
============ ========
As of March 31, 2000, each of the following Funds held securities
issued by their respective regular broker-dealers, as follows: Asset
Strategy Fund owned Bank of America Corporation (parent of Bank of
America Securities LLC, a regular broker of the Funds) securities in
the aggregate amount of $566,325 and Total Return Fund owned Bank of
America Corporation securities in the aggregate amount of $8,741,331
and Citigroup Inc. securities in the aggregate amount of $8,581,036.
The Corporation, WRIMCO and Waddell & Reed, Inc. have adopted a
Code of Ethics under Rule 17j-1 of the 1940 Act that permits their
respective directors, officers and employees to invest in securities,
including securities that may be purchased or held by a Fund. The
Code of Ethics subjects covered personnel to certain restrictions that
include prohibited activities, pre-clearance requirements and
reporting obligations.
OTHER INFORMATION
General
The Corporation was organized on January 29, 1992. Prior to June
30, 2000, the Corporation was known as Waddell & Reed Funds, Inc.
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 four classes of its shares: Class A, Class B,
Class C and Class Y (except Money Market Fund does not offer Class Y
shares). Each class of a Fund represents an interest in the same
assets of the Fund and differs as follows: each class of shares has
exclusive voting rights on matters pertaining to matters appropriately
limited to that class; Class A shares are subject to an initial sales
charge and to an ongoing distribution and/or service fee and certain
Class A shares are subject to a CDSC; Class B and Class C shares are
subject to a CDSC and to ongoing distribution and service fees; Class
B shares converts to Class A shares eight years after the month in
which the shares were purchased; and Class Y shares are not subject
to a CDSC but are subject to an ongoing distribution and service fee
that differs in amount from that of the Class B and Class C 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 four classes, dividends and
liquidation proceeds of Class B and Class C shares are expected to be
lower than for Class A shares of the same Fund. Shares are fully paid
and nonassessable when purchased.
The Corporation does not hold annual meetings of shareholders;
however, certain significant corporate matters, such as the approval
of a new investment advisory agreement or a change in a fundamental
investment policy, which require shareholder approval will be
presented to shareholders at a meeting called by the Board of
Directors for such purpose.
Special meetings of shareholders may be called for any purpose
upon receipt by a Fund of a request in writing signed by shareholders
holding not less than 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 twelve 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 June 30, 2000 the Distributor purchased for investment 300,000
Class A shares of Large Cap Growth Fund, Mid Cap Growth Fund and
Tax-Managed Equity Fund, respectively, at a NAV of $10 per share and
3,000,000 Class A shares of Money Market Fund at a NAV of $1 per share.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of
securities which the Corporation may use. The Corporation may also
use ratings provided by other nationally recognized statistical rating
organizations in determining the securities eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
A Standard & Poor's ("S&P") corporate bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment of creditworthiness may take
into consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold
a security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished to S&P by
the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes
in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default -- capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt.
Capacity to pay interest and repay principal is very strong, and debt
rated AA differs from AAA issues only in 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.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Troy
Ounces Value
BULLION - 1.69%
Gold ................................... 3,204 $ 892,014
(Cost: $934,404)
Shares
COMMON STOCKS
Amusement and Recreation Services - 1.01%
Walt Disney Company (The) .............. 12,900 533,738
Business Services - 2.41%
Clear Channel Communications, Inc.* .... 10,800 745,875
Shared Medical Systems Corporation ..... 10,100 523,938
Total ................................. 1,269,813
Chemicals and Allied Products - 17.49%
American Home Products Corporation ..... 14,800 793,650
Biogen, Inc.* .......................... 6,900 481,706
Bristol-Myers Squibb Company ........... 9,600 554,400
Dial Corporation (The)* ................ 47,200 649,000
Forest Laboratories, Inc.* ............. 14,200 1,199,900
IntraBiotics Pharmaceuticals, Inc.* .... 17,700 266,053
Lilly (Eli) and Company ................ 10,800 680,400
Merck & Co., Inc. ...................... 7,200 447,300
Pharmacia Corporation ................. 17,100 880,650
Pharmacyclics, Inc.* ................... 11,200 623,350
Procter & Gamble Company (The) ......... 8,600 483,750
Schering-Plough Corporation ............ 19,100 701,925
Smith International, Inc.* ............. 8,400 651,000
Warner-Lambert Company ................. 8,300 809,250
Total ................................. 9,222,334
Coal Mining - 0.98%
CONSOL Energy Inc. ..................... 48,900 516,506
Communication - 1.47%
EchoStar Communications Corporation, Class A* 9,800 774,200
Depository Institutions - 2.12%
Bank of America Corporation ............ 10,800 566,325
U. S. Bancorp. ......................... 25,200 551,250
Total ................................. 1,117,575
Eating and Drinking Places - 2.87%
Papa John's International, Inc.* ....... 26,700 881,934
Wendy's International, Inc. ............ 31,300 631,869
Total ................................. 1,513,803
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 9.75%
Analog Devices, Inc.* .................. 7,460 $ 600,996
Intel Corporation ...................... 6,300 830,419
JDS Uniphase Corporation* .............. 4,300 518,284
LSI Logic Corporation* ................. 10,140 736,418
Maxim Integrated Products, Inc.* ....... 10,400 739,375
Nortel Networks Corporation ............ 6,150 774,900
Rambus Inc.* ........................... 1,400 411,031
Samsung Electronics (A) ................ 1,750 530,423
Total ................................. 5,141,846
Fabricated Metal Products - 0.97%
Parker Hannifin Corporation ............ 12,400 512,275
Food and Kindred Products - 1.30%
American Italian Pasta Company,
Class A* .............................. 27,900 687,037
Food Stores - 1.18%
Kroger Co. (The)* ...................... 35,500 623,469
General Merchandise Stores - 3.27%
BJ's Wholesale Club, Inc.* ............. 21,200 818,850
Target Corporation ..................... 12,100 904,475
Total ................................. 1,723,325
Health Services - 1.01%
Columbia/HCA Healthcare Corporation .... 21,100 534,094
Holding and Other Investment Offices - 1.28%
ABB Ltd. (A) ........................... 2,900 342,018
"Shell" Transport and Trading Company,
p.l.c. (The), ADR ..................... 6,800 333,625
Total ................................. 675,643
Industrial Machinery and Equipment - 3.48%
Cooper Cameron Corporation* ............ 9,000 601,875
Illinois Tool Works, Inc. .............. 8,900 491,725
Ingersoll-Rand Company ................. 11,400 504,450
Invensys plc (A) ....................... 53,000 236,253
Total ................................. 1,834,303
Instruments and Related Products - 2.32%
Beckman Coulter, Inc. .................. 11,200 718,900
PE Corporation - PE Biosystems Group ... 5,200 501,800
Total ................................. 1,220,700
Insurance Carriers - 2.35%
American International Group, Inc. ..... 5,775 632,363
CIGNA Corporation ...................... 8,000 606,000
Total ................................. 1,238,363
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Leather and Leather Products - 0.96%
Kenneth Cole Productions, Inc.,
Class A* .............................. 12,900 $ 506,325
Lumber and Wood Products - 0.98%
Weyerhaeuser Company ................... 9,100 518,700
Metal Mining - 2.94%
Homestake Mining Company ............... 123,400 740,400
Newmont Mining Corporation ............. 36,000 807,750
Total ................................. 1,548,150
Motion Pictures - 1.96%
AT&T Corp. - Liberty Media Group,
Class A* .............................. 17,400 1,030,950
Nondepository Institutions - 2.16%
Fannie Mae ............................. 9,800 553,087
Freddie Mac ............................ 13,300 587,694
Total ................................. 1,140,781
Oil and Gas Extraction - 4.01%
Burlington Resources Incorporated ...... 11,600 429,200
Schlumberger Limited ................... 7,300 558,450
Transocean Sedco Forex Inc. ............ 13,087 671,527
USX Corporation - Marathon Group ....... 17,400 453,487
Total ................................. 2,112,664
Paper and Allied Products - 3.30%
Bowater Incorporated ................... 11,300 603,137
International Paper Company ............ 13,500 577,125
Smurfit-Stone Container Corporation* ... 32,900 558,272
Total ................................. 1,738,534
Petroleum and Coal Products - 2.64%
Exxon Mobil Corporation ................ 5,300 412,406
Lyondell Chemical Company .............. 38,400 566,400
Texaco Inc. ............................ 7,700 412,913
Total ................................. 1,391,719
Prepackaged Software - 2.85%
Microsoft Corporation* ................. 7,200 767,025
Oracle Corporation* .................... 9,400 732,906
Total ................................. 1,499,931
Primary Metal Industries - 2.13%
AK Steel Holding Corporation ........... 52,300 542,613
Reynolds Metals Company ................ 8,700 581,812
Total ................................. 1,124,425
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 1.44%
Gentex Corporation* .................... 20,450 $ 757,289
Wholesale Trade -- Nondurable Goods - 1.38%
Cardinal Health, Inc. .................. 15,800 724,825
TOTAL COMMON STOCKS - 82.01% $43,233,317
(Cost: $35,318,434)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITY - 0.55%
Fabricated Metal Products
Crown Cork & Seal Company, Inc.,
7.125%, 9-1-02 ........................ $ 300 $ 289,716
(Cost: $299,560)
OTHER GOVERNMENT SECURITY - 0.49%
Argentina
Republic of Argentina (The),
0.0%, 10-15-01 ........................ 300 $ 256,500
(Cost: $261,014)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
5.625%, 12-31-02 ...................... 4,000 3,915,640
7.5%, 2-15-05 ......................... 60 62,737
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 7.55% $ 3,978,377
(Cost: $4,048,778)
Number of
Contracts
OPTIONS
AT&T Corp. - Liberty Media Group, Class A,
April 2000 Put Options,
Expires 4-22-00 ....................... 174 1,088
Analog Devices, Inc., June 2000 Put Options,
Expires 6-17-00 ....................... 160 2,500
Applied Materials, Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 84 1,050
Applied Micro Circuits Corporation, May 2000
Put Options, Expires 5-20-00 .......... 50 1,406
Clear Channel Communications, Inc., April 2000
Put Options, Expires 4-22-00 .......... 54 11,475
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Number of
Contracts Value
OPTIONS (Continued)
DoubleClick Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 38 $ 2,969
EchoStar Communications Corporation, Class A,
June 2000 Put Options, Expires 6-17-00. 98 612
JDS Uniphase Corporation, June 2000 Put Options,
Expires 6-17-00 ....................... 82 17,938
Maxim Integrated Products, Inc., May 2000
Put Options, Expires 5-20-00 .......... 104 650
Microsoft Corporation, April 2000 Put Options,
Expires 4-22-00 ....................... 72 2,250
Nortel Networks Corporation, June 2000 Put Options,
Expires 6-17-00 ....................... 61 3,431
Oracle Corporation, June 2000 Put Options,
Expires 6-17-00 ....................... 131 2,456
Rambus Inc., May 2000 Put Options,
Expires 5-20-00 ....................... 63 7,088
TMP Worldwide Inc., June 2000 Put Options,
Expires 6-17-00 ....................... 68 6,375
Teradyne, Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 111 4,856
Time Warner Incorporated, June 2000 Put Options,
Expires 6-17-00 ....................... 64 1,200
Yahoo! Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 22 2,750
TOTAL OPTIONS - 0.13% $ 70,094
(Cost: $453,881)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Fabricated Metal Products - 0.06%
Danaher Corporation,
6.1325%, Master Note .................. $ 29 29,000
Instruments and Related Products - 4.17%
Snap-On Inc.,
6.01%, 4-10-00 ........................ 2,200 2,196,695
Total Commercial Paper - 4.23% 2,225,695
Commercial Paper (backed by irrevocable bank
letter of credit) - 4.91%
Nondepository Institutions
ED&F Man Finance Inc. (Rabobank Nederland),
5.97%, 4-4-00 ......................... 2,600 $ 2,589,867
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Value
TOTAL SHORT-TERM SECURITIES - 9.14% $ 4,815,562
(Cost: $4,815,562)
TOTAL INVESTMENT SECURITIES - 101.56% $53,535,580
(Cost: $46,131,633)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.56%) (819,750)
NET ASSETS - 100.00% $52,715,830
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS
Automotive Dealers and Service Stations - 0.81%
O'Reilly Automotive, Inc.* ............. 460,000 $ 6,612,500
Business Services _ 23.05%
Acxiom Corporation* .................... 920,000 30,963,750
Cerner Corporation* .................... 736,700 19,867,878
CheckFree Holdings Corporation* ........ 350,000 24,707,812
FactSet Research Systems, Inc. ......... 338,000 9,147,125
Fiserv, Inc.* .......................... 261,900 9,731,222
Getty Images, Inc.* .................... 576,500 20,735,984
GO.com* ................................ 615,000 12,838,125
MemberWorks Incorporated* .............. 465,000 18,643,594
Primark Corporation* ................... 590,000 14,233,750
Sanchez Computer Associates, Inc.* ..... 166,800 5,843,212
Shared Medical Systems Corporation ..... 417,600 21,663,000
Total ................................. 188,375,452
Chemicals and Allied Products - 2.38%
Pharmacyclics, Inc.* ................... 349,100 19,429,597
Communication - 5.96%
COLT Telecom Group plc, ADR* ........... 125,000 24,656,250
Emmis Communications Corporation,
Class A* .............................. 520,000 24,098,750
Total ................................. 48,755,000
Computer Programming Services - 2.42%
USINTERNETWORKING, Inc.* ............... 511,100 19,837,069
Eating and Drinking Places - 2.16%
Papa John's International, Inc.* ....... 535,200 17,678,325
Electronic and Other Electric Equipment - 10.96%
Advanced Fibre Communications, Inc.* ... 627,500 39,316,797
Glenayre Technologies, Inc.* ........... 620,000 10,850,000
Rambus Inc.* ........................... 134,100 39,370,922
Total ................................. 89,537,719
Engineering and Management Services - 3.58%
Gene Logic Inc.* ....................... 89,900 3,764,562
Incyte Pharmaceuticals, Inc.* .......... 128,000 11,188,000
MAXIMUS, Inc.* ......................... 470,000 14,335,000
Total ................................. 29,287,562
Food and Kindred Products - 1.98%
American Italian Pasta Company,
Class A* .............................. 656,300 16,161,388
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Health Services - 0.70%
American Healthcorp, Inc.* ............. 500,000 $ 1,984,375
Amsurg Corp., Class A* ................. 118,000 700,625
Amsurg Corp., Class B* ................. 484,509 3,028,181
Total ................................. 5,713,181
Instruments and Related Products - 2.94%
Lunar Corporation* ..................... 420,000 4,935,000
VISX, Incorporated* .................... 1,050,000 19,129,688
Total ................................. 24,064,688
Personal Services - 0.48%
Stewart Enterprises, Inc., Class A ..... 800,000 3,925,000
Prepackaged Software - 6.81%
Citrix Systems, Inc.* .................. 300,000 19,865,625
Dendrite International, Inc.* .......... 893,200 18,785,112
Transaction Systems Architects,
Inc., Class A* ........................ 590,000 17,036,250
Total ................................. 55,686,987
Radio Communication - 2.02%
Western Wireless Corporation, Class A* . 360,600 16,531,256
Stone, Clay and Glass Products - 0.44%
Department 56, Inc.* ................... 240,000 3,555,000
Telephone Communication - 5.74%
Illuminet Holdings, Inc.* .............. 200,200 9,853,594
Intermedia Communications Inc.* ........ 432,500 20,881,641
RCN Corporation* ....................... 300,000 16,153,125
Total ................................. 46,888,360
Transportation by Air - 1.64%
Midwest Express Holdings, Inc.* ........ 523,600 13,417,250
Transportation Equipment - 2.99%
Gentex Corporation* .................... 659,200 24,411,000
Wholesale Trade -- Durable Goods - 1.97%
MSC Industrial Direct Co., Inc., Class A* 893,800 16,088,400
Wholesale Trade -- Nondurable Goods - 2.05%
Allscripts, Inc.* ...................... 279,500 16,770,000
TOTAL COMMON STOCKS - 81.08% $662,725,734
(Cost: $432,812,149)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 0.86%
Rohm and Haas Co.,
6.38%, 4-3-00 ......................... $ 7,000 $ 6,997,519
Electric, Gas and Sanitary Services - 2.88%
Bay State Gas Co.,
5.87%, 4-5-00 ......................... 10,000 9,993,478
Puget Sound Energy Inc.,
6.22%, 4-10-00 ........................ 3,600 3,594,402
Western Resources, Inc.,
6.3%, 4-14-00 ......................... 10,000 9,977,250
Total ................................. 23,565,130
Fabricated Metal Products - 0.08%
Danaher Corporation,
6.1325%, Master Note .................. 681 681,000
Food and Kindred Products - 0.69%
General Mills, Inc.,
5.9875%, Master Note .................. 5,678 5,678,000
Instruments and Related Products - 0.49%
Snap-On Inc.,
6.01%, 4-10-00 ........................ 4,000 3,993,990
Miscellaneous Retail - 2.74%
Toys _R_ Us Inc.,
6.17%, 4-7-00 ......................... 22,434 22,410,930
Nondepository Institutions - 2.49%
PACCAR Financial Corp.,
6.0329%, Master Note .................. 3,047 3,047,000
Penney (J. C.) Funding Corp.,
6.05%, 4-3-00 ......................... 17,300 17,294,185
Total ................................. 20,341,185
Paper and Allied Products - 2.44%
International Paper Company,
6.19%, 4-18-00 ........................ 20,000 19,941,539
Printing and Publishing - 1.79%
American Greetings Corp.,
6.1%, 4-13-00 ......................... 14,675 14,645,161
Radio Communication - 2.69%
Dominion Resources Inc.,
6.1%, 4-13-00 ......................... 22,000 21,955,267
Total Commercial Paper - 17.15% 140,209,721
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (backed by irrevocable bank
letter of credit) - 1.22%
Oil and Gas Extraction
Louis Dreyfus Corp. (Dresdner Bank AG),
5.97%, 4-4-00 ......................... $10,000 $ 9,995,025
Municipal Obligations - 0.74%
Indiana
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project),
5.88%, 4-6-00 ......................... 6,000 6,000,000
TOTAL SHORT-TERM SECURITIES - 19.11% $156,204,746
(Cost: $156,204,746)
TOTAL INVESTMENT SECURITIES - 100.19% $818,930,480
(Cost: $589,016,895)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.19%) (1,584,496)
NET ASSETS - 100.00% $817,345,984
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS, RIGHTS AND WARRANTS
Business Services - 0.11%
Cybernet Internet Services International,
Inc., Warrants (B)* ................... 250 $ 25,000
Communication - 2.45%
Classic Communications, Inc., Class A* . 8,000 125,000
Crown Castle International Corp.* ...... 2,500 94,609
Infinity Broadcasting Corporation,
Class A* .............................. 10,500 339,937
Total ................................. 559,546
Electronic and Other Electric Equipment - 0.75%
Level 3 Communications, Inc.* .......... 1,500 158,578
Metricom, Inc., Warrants* .............. 250 12,500
Total ................................. 171,078
Engineering and Management Services - 0.10%
Harris Interactive Inc.* ............... 3,600 23,794
Food and Kindred Products - 1.25%
Keebler Foods Company .................. 10,000 286,875
Paper and Allied Products - 0.00%
SF Holdings Group, Inc., Class C (B)* .. 50 1
Telephone Communication - 1.07%
Allegiance Telecom, Inc., Warrants (B)* 250 37,500
ONO Finance Plc, Rights (B)* ........... 250 37,500
OnePoint Communications Corp., Warrants (B)* 100 2,000
Primus Telecommunications Group,
Incorporated, Warrants* ............... 300 18,600
VersaTel Telecom International N.V.,
Warrants (B)* ......................... 250 150,000
Total ................................. 245,600
TOTAL COMMON STOCKS, RIGHTS AND WARRANTS - 5.73% $1,311,894
(Cost: $1,072,036)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.22%
Hines Horticulture, Inc.,
11.75%, 10-15-05 .................... $ 49 49,245
Amusement and Recreation Services - 6.26%
Hollywood Park, Inc.,
9.25%, 2-15-07 ...................... 250 246,250
Mohegan Tribal Gaming Authority,
8.75%, 1-1-09 ....................... 250 234,375
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Amusement and Recreation Services (Continued)
Premier Parks Inc.:
9.75%, 6-15-07....................... $500 $ 471,250
0.0%, 4-1-08 (C) .................... 750 480,000
Total ............................... 1,431,875
Apparel and Other Textile Products - 1.02%
Tropical Sportswear Int'l Corporation,
11.0%, 6-15-08 ...................... 250 232,500
Auto Repair, Services and Parking - 1.08%
Avis Rent A Car, Inc.,
11.0%, 5-1-09 ....................... 250 246,250
Business Services - 6.13%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-06 ..................... 250 255,000
Cybernet Internet Services International, Inc.,
14.0%, 7-1-09 ....................... 250 200,000
Lamar Advertising Company,
8.625%, 9-15-07 ..................... 250 236,250
National Equipment Services, Inc.,
10.0%, 11-30-04 ..................... 500 474,500
PSINet Inc.,
10.0%, 2-15-05 ...................... 250 236,250
Total ............................... 1,402,000
Chemicals and Allied Products - 1.87%
Chattem, Inc.,
8.875%, 4-1-08 ...................... 500 427,500
Communication - 14.86%
ACME Television, LLC,
0.0%, 9-30-04 (C) ................... 100 89,000
Chancellor Media Corporation of
Los Angeles,
8.0%, 11-1-08 ....................... 250 246,250
Charter Communications Holdings, LLC
and Charter Communications Holdings
Capital Corporation,
8.625%, 4-1-09 ...................... 250 220,000
Classic Cable, Inc.,
9.375%, 8-1-09 ...................... 500 462,500
Crown Castle International Corp.,
0.0%, 5-15-11 (C) ................... 500 286,250
EchoStar DBS Corporation,
9.375%, 2-1-09 ...................... 500 482,500
ICG Services, Inc.,
0.0%, 5-1-08 (C) .................... 100 54,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
LIN Holdings Corp.,
0.0%, 3-1-08 (C) .................... $250 $ 154,375
MetroNet Communications Corp.,
0.0%, 6-15-08 (C) ................... 500 399,480
Salem Communications Corporation,
9.5%, 10-1-07 ....................... 75 69,750
Spanish Broadcasting System, Inc.,
9.625%, 11-1-09 ..................... 250 241,250
SpectraSite Holdings, Inc.,
0.0%, 3-15-10 (B)(C) ................ 250 123,750
Telewest Communications plc,
0.0%, 10-1-07 (C) ................... 250 233,750
United International Holdings, Inc.,
0.0%, 2-15-08 (C) ................... 500 337,500
Total ............................... 3,400,355
Eating and Drinking Places - 3.34%
Domino's Inc.,
10.375%, 1-15-09 .................... 100 91,500
Foodmaker, Inc.,
8.375%, 4-15-08 ..................... 500 458,125
NE Restaurant Company, Inc.,
10.75%, 7-15-08 ..................... 250 215,313
Total ............................... 764,938
Electronic and Other Electric Equipment - 1.58%
Elgar Holdings, Inc.,
9.875%, 2-1-08 ...................... 250 122,500
Level 3 Communications, Inc.,
11.0%, 3-15-08 (B) .................. 250 240,000
Total ............................... 362,500
Fabricated Metal Products - 0.50%
AXIA Incorporated,
10.75%, 7-15-08 ..................... 150 115,500
Furniture and Home Furnishings Stores - 0.47%
MTS, INCORPORATED,
9.375%, 5-1-05 ...................... 250 108,125
Health Services - 2.08%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-02 ....................... 250 240,625
Tenet Healthcare Corporation,
8.625%, 1-15-07 ..................... 250 235,625
Total ............................... 476,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Hotels and Other Lodging Places - 1.97%
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-09 ........................ $250 $ 230,000
Lodgian Financing Corp.,
12.25%, 7-15-09 ..................... 250 220,625
Total ............................... 450,625
Miscellaneous Retail - 1.04%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-08 ...................... 100 30,000
Michaels Stores, Inc.,
10.875%, 6-15-06 .................... 200 207,750
Total ............................... 237,750
Motion Pictures - 1.53%
AMC Entertainment Inc.,
9.5%, 3-15-09 ....................... 250 127,500
Regal Cinemas, Inc.,
9.5%, 6-1-08 ........................ 500 222,500
Total ............................... 350,000
Paper and Allied Products - 1.58%
Buckeye Technologies Inc.,
8.0%, 10-15-10 ...................... 250 226,250
SF Holdings Group, Inc.,
0.0%, 3-15-08 (C) ................... 250 134,375
Total ............................... 360,625
Primary Metal Industries - 1.84%
ISG Resources, Inc.,
10.0%, 4-15-08 ...................... 220 197,450
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-07 ..................... 250 223,750
Total ............................... 421,200
Radio Communication - 8.54%
Microcell Telecommunications Inc.,
0.0%, 6-1-06 (C) .................... 100 88,500
Nextel Communications, Inc.,
0.0%, 2-15-08 (C) ................... 100 67,500
Nextel International, Inc.,
0.0%, 4-15-08 (C) ................... 375 232,500
Nextel Partners, Inc.,
0.0%, 2-1-09 (C) .................... 500 320,000
Sprint Spectrum L.P.,
0.0%, 8-15-06 (C) ................... 600 574,254
Tritel PCS, Inc.,
0.0%, 5-15-09 (C) ................... 250 155,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Radio Communication (Continued)
US Unwired Inc.,
0.0%, 11-1-09 (B)(C) ................ $500 $ 267,500
VoiceStream Wireless Corporation,
10.375%, 11-15-09 (B) ............... 250 248,750
Total ............................... 1,954,004
Rubber and Miscellaneous Plastics Products - 0.99%
Home Products International, Inc.,
9.625%, 5-15-08 ..................... 250 227,500
Telephone Communication - 18.82%
Alestra, S. de R.L. de C.V.,
12.625%, 5-15-09 .................... 250 250,625
Allegiance Telecom, Inc.,
0.0%, 2-15-08 (C) ................... 250 177,500
Concentric Network Corporation,
12.75%, 12-15-07 .................... 250 261,250
Hyperion Telecommunications, Inc.:
0.0%, 4-15-03 (C) ................... 250 230,000
12.0%, 11-1-07 ...................... 250 251,250
ITC /\ DeltaCom, Inc.:
11.0%, 6-1-07 ....................... 250 253,750
8.875%, 3-1-08 ...................... 100 93,000
NEXTLINK Communications, Inc.,
9.625%, 10-1-07 ..................... 250 228,750
Nuevo Grupo Iusacell, S.A. de C.V.,
14.25%, 12-1-06 (B) ................. 150 162,750
ONO Finance Plc,
13.0%, 5-1-09 ....................... 250 260,000
OnePoint Communications Corp.,
14.5%, 6-1-08 ....................... 100 65,000
Primus Telecommunications Group, Incorporated:
11.75%, 8-1-04 ...................... 300 289,500
12.75% 10-15-09 ..................... 250 243,750
Qwest Communications International Inc.,
0.0%, 10-15-07 (C) .................. 250 210,260
RSL Communications, Ltd.,
10.5%, 11-15-08 ..................... 250 213,750
Time Warner Telecom LLC and Time
Warner Telecom Inc.,
9.75%, 7-15-08 ...................... 500 490,000
VersaTel Telecom International N.V.,
13.25%, 5-15-08 ..................... 250 255,625
Viatel, Inc.,
11.5%, 3-15-09 ...................... 250 225,000
Winstar Communications, Inc.,
12.75%, 4-15-10 (B) ................. 150 145,500
Total ............................... 4,307,260
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textile Mill Products - 1.45%
Anvil Knitwear, Inc.,
10.875%, 3-15-07 .................... $400 $ 332,000
Transportation by Air - 2.06%
Atlas Air, Inc.,
9.375%, 11-15-06 .................... 500 471,250
Transportation Equipment - 1.36%
Delco Remy International, Inc.,
8.625%, 12-15-07 .................... 250 230,000
Federal-Mogul Corporation,
7.875%, 7-1-10 ...................... 100 81,450
Total ............................... 311,450
Transportation Services - 1.03%
Railworks Corporation,
11.5%, 4-15-09 ...................... 250 236,250
Wholesale Trade -- Durable Goods - 1.78%
Heafner (J.H.) Company, Inc. (The),
10.0%, 5-15-08 ...................... 500 407,500
Wholesale Trade -- Nondurable Goods - 0.37%
Amscan Holdings, Inc.,
9.875%, 12-15-07 .................... 100 84,375
TOTAL CORPORATE DEBT SECURITIES - 83.77% $19,168,827
(Cost: $20,715,374)
OTHER GOVERNMENT SECURITY - 1.13%
Mexico
United Mexican States,
9.75%, 4-6-05 ....................... 250 $ 259,375
(Cost: $249,914)
SHORT-TERM SECURITIES
Fabricated Metal Products - 3.03%
Danaher Corporation,
6.1325%, Master Note .................. 693 693,000
Food and Kindred Products - 0.75%
General Mills, Inc.,
5.9875%, Master Note .................. 172 172,000
Nondepository Institutions - 1.76%
PACCAR Financial Corp.,
6.0329, Master Note ................... 403 403,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Value
TOTAL SHORT-TERM SECURITIES - 5.54% $ 1,268,000
(Cost: $1,268,000)
TOTAL INVESTMENT SECURITIES - 96.17% $22,008,096
(Cost: $23,305,324)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 3.83% 875,352
NET ASSETS - 100.00% $22,883,448
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS
Australia - 1.97%
Novogen LTD (A)* ....................... 377,999 $ 1,146,471
Solution 6 Holdings Limited (A)(B)* .... 550,200 3,554,451
Total ................................. 4,700,922
Canada - 8.13%
AT&T Canada Inc.* ...................... 86,800 5,311,075
BCE Inc. (A) ........................... 23,000 2,863,924
Nortel Networks Corporation ............ 34,000 4,284,000
Research in Motion Limited* ............ 20,000 2,132,500
Rogers Communications Inc., Class B (A)* 48,500 1,434,714
724 Solutions Inc.* .................... 27,300 3,371,550
Total ................................. 19,397,763
China - 0.03%
Jinpan International Limited* .......... 27,900 76,725
Finland - 2.82%
Nokia, AB (A) .......................... 18,500 3,914,739
Perlos Oy (A)* ......................... 79,250 2,822,806
Total ................................. 6,737,545
France - 13.09%
AXA-UAP (A) ............................ 10,000 1,418,058
Alcatel Alsthom CGE, SA, ADR ........... 75,000 3,285,937
ALTEN (A)* ............................. 13,800 2,592,489
ALTRAN TECHNOLOGIES (A) ................ 10,000 2,441,625
Cross Systems (A)* ..................... 7,000 2,211,825
Fi System (A)* ......................... 30,000 2,800,687
Havas Advertising (A) .................. 5,000 2,704,938
Intercall (A)* ......................... 26,750 2,330,794
Suez Lyonnaise des Eaux (A) ............ 21,613 3,716,723
Total, S.A., B Shares (A) .............. 17,000 2,547,429
Unilog SA (A) .......................... 17,910 2,296,228
Vivendi (A) ............................ 25,000 2,884,469
Total ................................. 31,231,202
Germany - 8.13%
Biodata Information
Technology AG (A)* .................... 5,000 1,891,063
Biodata Information
Technology AG (A)(B)* ................. 2,500 945,531
EM.TV & Merchandising AG (A) ........... 25,000 2,053,837
Heyde AG (A)* ........................... 41,000 6,516,745
Intershop Communications GmbH (A)* ..... 3,886 1,960,885
Rhoen-Klinikum AG (A) .................. 32,319 1,299,709
Singulus Technologies AG (A)* .......... 34,400 3,376,145
Utimaco Safeware AG (A)* ............... 40,000 1,344,330
Total ................................. 19,388,245
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Hong Kong - 2.45%
China Telecom (Hong Kong) Limited (A)* . 400,000 $ 3,506,068
China.com Corporation, Class A* ........ 29,000 2,344,469
Total ................................. 5,850,537
Ireland - 0.42%
Partner Communications, ADR* ........... 60,000 997,500
Italy - 1.97%
TELECOM ITALIA S.p.A.,Ordinary
Shares (A) ............................ 150,000 2,240,550
UniCredito Italiano SpA (A) ............ 614,000 2,445,685
Total ................................. 4,686,235
Korea - 1.18%
Samsung Electronics (A) ................ 9,300 2,818,819
Japan - 14.13%
Alpha Systems, Inc. (A) ................ 12,100 2,652,216
Benesse Corporation (A) ................ 17,800 1,855,431
Benesse Corporation, New (A)* .......... 17,800 1,818,322
Keyence Corporation (A) ................ 5,500 2,196,785
Kyocera Corporation (A) ................ 14,900 2,490,833
NTT Mobile Communications Network,
Inc. (A) .............................. 120 4,921,578
Nippon Telegraph and Telephone
Corporation (A) ....................... 160 2,540,672
ROHM CO., LTD. (A) ..................... 4,400 1,530,248
SECOM Co., Ltd. (A) .................... 18,000 1,543,108
SOFTBANK CORP. (A) ..................... 3,000 2,674,135
Sony Corporation (A) ................... 13,000 1,836,337
Sony Corporation, New (A)* ............. 13,000 1,849,001
TransCosmos Inc. (A) ................... 8,850 2,500,243
Uni-Charm Corporation (A) .............. 50,000 3,287,871
Total ................................. 33,696,780
Luxembourg - 0.37%
Thiel Logistik AG (A)(B)* .............. 16,000 888,560
Netherlands - 7.35%
EQUANT N.V. (A)* ....................... 24,565 2,039,270
Ordina N.V. (A)* ....................... 58,406 2,069,178
Koninklijke Philips Electronics N.V.,
Ordinary Shares (A) ................... 16,860 2,834,790
QIAGEN N.V. (A)* ....................... 27,450 3,942,506
Royal Dutch Petroleum Company (A) ...... 43,200 2,523,618
United Pan-Europe
Communications N.V. (A)* .............. 87,975 4,113,247
Total ................................. 17,522,609
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Spain - 0.80%
Tele Pizza, S.A. (A)* .................. 217,080 $ 1,912,258
Sweden - 4.33%
A-Com AB (A)* .......................... 92,000 1,534,808
Entra Data AB (A) ...................... 60,000 1,842,047
Framtidsfabriken AB (A)* ............... 118,000 2,884,484
Information Highway AB (A)* ............ 444,250 4,065,914
Total ................................. 10,327,253
Switzerland - 3.49%
Clariant Limited, Registered Shares (A) 7,000 2,635,314
Phoenix Mecano AG (A) .................. 6,882 3,360,707
Roche Holdings AG (A) .................. 215 2,335,158
Total ................................. 8,331,179
United Kingdom - 15.29%
Allied Zurich p.l.c. (A) ............... 258,700 2,819,116
Baltimore Technologies plc (A)* ........ 16,500 2,261,675
Capita Group plc (The) (A) ............. 142,000 3,637,370
COLT Telecom Group plc, ADR* ........... 35,000 6,903,750
Computacenter plc (A)(B)* .............. 72,000 1,255,133
Energis (A)(B)* ........................ 30,500 1,425,119
Energis plc (A)* ....................... 40,025 1,870,176
Misys plc (A) .......................... 157,507 2,214,133
Reckitt Benckiser plc (A) .............. 136,690 1,294,782
Sage Group plc (The) (A) ............... 200,000 2,260,640
Sema Group plc (A) ..................... 117,572 2,322,837
Vodafone AirTouch Public Limited
Company (A) ........................... 1,474,115 8,213,769
Total ................................. 36,478,500
United States - 1.24%
Global TeleSystems Group, Inc.* ........ 75,200 1,541,600
Magic Software Enterprises Ltd.* ....... 75,000 1,420,313
Total ................................. 2,961,913
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 2000
Shares Value
TOTAL COMMON STOCKS - 87.19% $208,004,545
(Cost: $127,733,072)
PREFERRED STOCKS
Brazil - 1.26%
Petroleo Brasileiro S.A. - Petrobras (A) 4,720,000 1,278,898
Telebras S.A., ADR ..................... 11,500 1,721,406
Total ................................. 3,000,304
Germany - 3.48%
MLP AG (A) ............................. 14,000 8,311,100
TOTAL PREFERRED STOCKS - 4.74% $ 11,311,404
(Cost: $4,146,741)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 2.51%
Rohm and Haas Company,
6.38%, 4-3-00 ......................... $6,000 5,997,874
Food and Kindred Products - 1.43%
General Mills, Inc.,
5.9875%, Master Note .................. 3,409 3,409,000
Nondepository Institutions - 0.25%
PACCAR Financial Corp.,
6.0329%, Master Note .................. 595 595,000
Total Commercial Paper - 4.19% 10,001,874
Commercial Paper (backed by irrevocable bank
letter of credit)
Oil and Gas Extraction - 2.39%
Louis Dreyfus Corp. (Dresdner Bank AG),
5.97%, 4-4-00 ......................... 5,700 5,697,164
TOTAL SHORT-TERM SECURITIES - 6.58% $ 15,699,038
(Cost: $15,699,038)
TOTAL INVESTMENT SECURITIES - 98.51% $235,014,987
(Cost: $147,578,851)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.49% 3,560,974
NET ASSETS - 100.00% $238,575,961
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Auto Repair, Services and Parking - 2.96%
Hertz Corporation (The),
7.375%, 6-15-01 ....................... $600 $ 598,476
Communication - 3.02%
Westinghouse Electric Corporation,
8.875%, 6-1-01 ........................ 600 610,956
Depository Institutions - 7.85%
Mercantile Bancorporation Inc.,
7.625%, 10-15-02 ...................... 600 601,932
Society National Bank,
6.75%, 6-15-03 ........................ 275 269,066
Wells Fargo & Company,
8.375%, 5-15-02 ....................... 700 714,364
Total ................................. 1,585,362
Electric, Gas and Sanitary Services - 5.63%
NorAm Energy Corp.,
6.375%, 11-1-03 ....................... 500 480,980
UtiliCorp United,
6.875%, 10-1-04 ....................... 500 477,450
WMX Technologies, Inc.,
7.0%, 5-15-05 ......................... 200 178,376
Total ................................. 1,136,806
Food and Kindred Products - 3.60%
Grand Metropolitan Investment Corp.,
7.125%, 9-15-04 ....................... 734 726,711
General Merchandise Stores - 2.53%
J.C. Penney Company, Inc.,
7.6%, 4-1-07 .......................... 600 510,864
Industrial Machinery and Equipment - 1.96%
Black & Decker Corp.,
7.5%, 4-1-03 .......................... 400 395,632
Instruments and Related Products - 4.05%
Baxter International Inc.,
8.125%, 11-15-01 ...................... 350 353,034
Raytheon Company,
6.75%, 8-15-07 ........................ 500 464,930
Total ................................. 817,964
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Insurance Carriers - 1.73%
Aon Corporation,
7.4%, 10-1-02 ......................... $350 $ 348,866
Nondepository Institutions - 16.23%
American General Finance Corporation,
6.2%, 3-15-03 ......................... 500 486,190
Aristar, Inc.,
5.85%, 1-27-04 ........................ 500 473,800
Avco Financial Services, Inc.,
7.375%, 8-15-01 ....................... 700 700,651
Ford Motor Credit Company,
6.7%, 7-16-04 ......................... 500 485,945
General Motors Acceptance Corporation,
7.0%, 9-15-02 ......................... 700 692,699
Household Finance Corporation,
9.0%, 9-28-01 ......................... 428 437,639
Total ................................. 3,276,924
Petroleum and Coal Products - 3.15%
Chevron Corporation Profit Sharing/Savings
Plan Trust Fund,
8.11%, 12-1-04 ........................ 374 380,791
USX Corporation,
9.8%, 7-1-01 .......................... 250 256,143
Total ................................. 636,934
Railroad Transportation - 5.82%
Norfolk Southern Corporation,
7.35%, 5-15-07 ........................ 588 573,976
Union Pacific Corporation,
7.875%, 2-15-02 ....................... 600 601,002
Total ................................. 1,174,978
Transportation Equipment - 2.85%
Lockheed Martin Corporation,
7.25%, 5-15-06 ........................ 600 574,998
TOTAL CORPORATE DEBT SECURITIES - 61.38% $12,395,471
(Cost: $12,785,169)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BOND - 1.16%
Kansas
Kansas Development Finance Authority,
Health Facilities Revenue Bonds
(Stormont-Vail HealthCare, Inc.), Taxable,
7.25%, 11-15-02 ....................... $235 $ 235,000
(Cost: $235,000)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.05%, 9-15-20 ........................ 383 374,178
6.5%, 6-15-24 ......................... 631 614,631
Federal National Mortgage Association:
6.0%, 11-1-00 ......................... 128 121,392
7.95%, 3-7-05 ......................... 500 496,170
6.21%, 8-15-05 ........................ 500 473,830
7.5%, 11-15-06 ........................ 500 488,045
8.0%, 2-1-08 .......................... 87 87,950
6.5%, 12-1-10 ......................... 372 358,179
6.0%, 1-1-11 .......................... 304 286,098
6.5%, 2-1-11 .......................... 356 343,192
7.0%, 5-1-11 .......................... 226 221,532
7.0%, 7-1-11 .......................... 246 241,288
7.0%, 9-1-12 .......................... 295 289,892
6.0%, 11-1-13 ......................... 436 410,772
7.0%, 9-1-14 .......................... 481 472,837
7.0%, 4-1-26 .......................... 295 283,607
Government National Mortgage Association:
6.5%, 10-15-08 ........................ 131 126,941
7.0%, 7-15-10 ......................... 219 215,460
6.5%, 1-15-14 ......................... 426 411,450
7.0%, 4-15-29 ......................... 576 559,160
7.0%, 7-15-29 ......................... 394 382,122
TOTAL UNITED STATES GOVERNMENT SECURITIES - 35.94% $ 7,258,726
(Cost: $7,482,713)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 2000
Value
TOTAL SHORT-TERM SECURITIES - 1.16% $ 234,000
(Cost: $234,000)
TOTAL INVESTMENT SECURITIES - 99.64% $20,123,197
(Cost: $20,736,882)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.36% 71,789
NET ASSETS - 100.00% $20,194,986
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ARIZONA - 0.97%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-13 .......................... $ 270 $ 275,062
ARKANSAS - 1.40%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-13 ......................... 400 396,500
COLORADO - 9.34%
City of Aspen, Colorado, Sales Tax Revenue Bonds,
Series 1999,
5.25%, 11-1-15 ........................ 1,050 1,006,687
Boulder County, Colorado, Hospital Development
Revenue Bonds (Longmont United Hospital
Project), Series 1997,
5.6%, 12-1-27 ......................... 1,000 836,250
Colorado Health Facilities Authority, Hospital
Revenue Bonds (Steamboat Springs Health Care
Association Project), Series 1997,
5.75%, 9-15-22 ........................ 1,000 805,000
Total ................................. 2,647,937
DISTRICT OF COLUMBIA - 1.39%
District of Columbia, Redevelopment Land
Agency (Washington, D.C.), Sports Arena
Special Tax Revenue Bonds (Series 1996),
5.625%, 11-1-10 ....................... 390 393,412
FLORIDA - 2.44%
Housing Finance Authority of Palm Beach
County, Florida, Multifamily Housing
Revenue Bonds (Windsor Park Apartments
Project), Series 1998A,
5.9%, 6-1-38 .......................... 750 691,875
ILLINOIS - 1.62%
School District Number 116, Champaign County,
Illinois (Urbana), General Obligation School
Building Bonds, Series 1999C,
0.0%, 1-1-11 .......................... 850 460,062
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
INDIANA - 6.57%
Dyer (Indiana) Redevelopment Authority,
Economic Development Lease Rental Bonds,
Series 1999,
6.5%, 1-15-24 ......................... $1,500 $ 1,477,500
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-16 ......................... 400 387,500
Total ................................. 1,865,000
IOWA - 1.22%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-13 .......................... 340 345,100
MARYLAND - 3.71%
Montgomery County Revenue Authority
(Maryland), Golf Course System Revenue
Bonds, Series 1996A,
6.125%, 10-1-22 ....................... 650 621,563
Maryland Health and Higher Educational
Facilities Authority, Project and
Refunding Revenue Bonds, Doctors Community
Hospital Issue, Series 1993,
5.75%, 7-1-13 ......................... 500 430,000
Total ................................. 1,051,563
MASSACHUSETTS - 6.66%
Massachusetts Health and Educational Facilities
Authority, Revenue Bonds, Caritas Christi
Obligated Group Issue, Series A,
5.625%, 7-1-20 ........................ 1,250 989,062
Massachusetts Industrial Finance Agency,
Resource Recovery Revenue Refunding Bonds
(Ogden Haverhill Project), Series 1998A,
5.5%, 12-1-13 ......................... 1,000 898,750
Total ................................. 1,887,812
MICHIGAN - 5.63%
Michigan Strategic Fund, Limited Obligation
Revenue Bonds (Porter Hills Presbyterian
Village, Inc. Project), Series 1998,
5.375%, 7-1-28 ........................ 1,000 823,750
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MICHIGAN (Continued)
City of Flint Hospital Building Authority,
Revenue Rental Bonds, Series 1998B (Hurley
Medical Center),
5.375%, 7-1-18 ........................ $1,000 $ 772,500
Total ................................. 1,596,250
MINNESOTA - 4.75%
City of Victoria, Minnesota, Private School Facility
Revenue Bonds (Holy Family Catholic High School
Project), Series 1999A,
5.6%, 9-1-19 .......................... 1,500 1,346,250
MISSOURI - 10.82%
The Industrial Development Authority of the
County of Taney, Missouri, Hospital Revenue
Bonds (The Skaggs Community Hospital
Association), Series 1998,
5.3%, 5-15-18 ......................... 1,860 1,513,575
Health and Educational Facilities Authority
of the State of Missouri, Educational Facilities
Revenue Bonds (Southwest Baptist University
Project), Series 1998,
5.375%, 10-1-23 ....................... 700 627,375
Tax Increment Financing Commission of Kansas City,
Missouri, Tax Increment Refunding and Improvement
Revenue Bonds (Briarcliff West Project), Series 1999,
6.1%, 8-1-14 .......................... 500 480,000
City of Fenton, Missouri, Public Facilities
Authority, Leasehold Revenue Bonds,
Series 1997 (City of Fenton, Missouri, Lessee),
5.25%, 1-1-18 ......................... 500 447,500
Total ................................. 3,068,450
NEBRASKA - 1.84%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, 1993-2
Series A-5A,
6.2%, 6-1-13 .......................... 500 522,500
OKLAHOMA - 4.40%
Oklahoma Housing Finance Agency, Single
Family Mortgage Revenue Bonds
(Homeownership Loan Program),
1996 Series A,
7.05%, 9-1-26 ......................... 925 974,719
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OKLAHOMA (Continued)
Tulsa Public Facilities Authority (Oklahoma):
Assembly Center Lease Payment Revenue
Bonds, Refunding Series 1985,
6.6%, 7-1-14 .......................... $ 200 $ 221,000
Recreational Facilities Revenue Bonds,
Series 1985,
6.2%, 11-1-12 ......................... 50 51,688
Total ................................. 1,247,407
PENNSYLVANIA - 5.88%
Montgomery County Industrial Development
Authority, Retirement Community Revenue Bonds
(Adult Communities Total Services, Inc.
Obligated Group), Series 1996B,
5.625%, 11-15-12 ...................... 1,750 1,669,063
TENNESSEE - 9.91%
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%, 5-1-23 .......................... 1,955 1,793,713
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-23 ........................ 1,000 1,017,500
Total ................................. 2,811,213
TEXAS - 5.97%
Texas Department of Housing and Community
Affairs, Single Family Mortgage Revenue
Bonds, 1997 Series D (AMT) TEAMS Structure,
5.7%, 9-1-29 .......................... 1,000 940,000
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B Bonds,
5.85%, 5-1-22 ......................... 800 754,000
Total ................................. 1,694,000
UTAH - 6.13%
Tooele County, Utah, Hazardous Waste Treatment
Revenue Bonds (Union Pacific Corporation/
USPCI, Inc. Project), Series A,
5.7%, 11-1-26 ......................... 2,000 1,740,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
TOTAL MUNICIPAL BONDS - 90.65% $25,709,456
(Cost: $28,001,278)
SHORT-TERM SECURITIES
Food and Kindred Products - 9.08%
General Mills, Inc.,
5.9875%, Master Note .................. 2,575 2,575,000
Nondepository Institutions - 0.01%
PACCAR Financial Corp.,
6.0329%, Master Note .................. 4,000 4,000
TOTAL SHORT-TERM SECURITIES - 9.09% $ 2,579,000
(Cost: $2,579,000)
TOTAL INVESTMENT SECURITIES - 99.74% $28,288,456
(Cost: $30,580,278)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.26% 74,723
NET ASSETS - 100.00% $28,363,179
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS
Business Services - 23.20%
Acxiom Corporation* .................... 60,000 2,019,375
America Online, Inc.* .................. 48,000 3,228,000
Broadbase Software, Inc.* .............. 45,000 3,574,687
CacheFlow Inc.* ........................ 20,000 2,265,000
CheckFree Holdings Corporation* ........ 27,000 1,906,031
Clear Channel Communications, Inc.* .... 20,000 1,381,250
Critical Path, Inc.* ................... 28,000 2,379,125
DoubleClick Inc.* ...................... 40,000 3,746,250
eBay Inc.* ............................. 16,000 2,815,500
Getty Images, Inc.* .................... 66,600 2,395,519
Inktomi Corporation* ................... 26,000 5,069,188
InterNAP Network Services Corporation* . 50,000 2,307,812
MemberWorks Incorporated* .............. 22,000 882,062
NBC Internet, Inc., Class A* ........... 30,000 1,291,875
Netcentives Inc.* ...................... 50,000 1,509,375
Netopia, Inc.* ......................... 37,250 2,680,836
Redback Networks* ...................... 20,000 5,966,875
S1 Corporation* ........................ 45,000 3,857,344
Sanchez Computer Associates, Inc.* ..... 86,000 3,012,688
724 Solutions Inc.* .................... 19,000 $ 2,346,500
ShopNow.com Inc.* ...................... 100,000 1,468,750
TMP Worldwide Inc.* .................... 62,400 4,859,400
Yahoo! Inc.* ........................... 30,000 5,134,687
Total ................................. 66,098,129
Chemicals and Allied Products - 3.23%
Albany Molecular Research, Inc.* ..... 50,000 2,896,875
Forest Laboratories, Inc.* ........... 35,000 2,957,500
Pharmacyclics, Inc.* ................. 60,000 3,339,375
Total ............................... 9,193,750
Communication - 3.15%
COLT Telecom Group plc, ADR* ........... 8,000 1,578,000
EchoStar Communications Corporation,
Class A* .............................. 48,000 3,792,000
USA Networks, Inc.* .................... 160,000 3,605,000
Total ................................. 8,975,000
Computer Programming Services - 4.36%
Cysive, Inc.* .......................... 25,875 1,778,906
Portal Software, Inc.* ................. 77,000 4,386,594
VeriSign, Inc.* ........................ 20,000 2,988,750
webMethods, Inc.* ...................... 13,500 3,280,922
Total ................................. 12,435,172
Depository Institutions - 0.96%
Concord EFS, Inc.* ..................... 120,000 2,748,750
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 22.56%
Applied Micro Circuits Corporation* .... 30,000 $ 4,500,937
Broadcom Corporation, Class A* ......... 30,000 7,287,188
Data Critical Corporation* ............. 100,000 1,456,250
Finisar Corporation* ................... 19,500 2,856,750
Gemstar International Group Limited* ... 48,000 4,126,500
Inet Technologies, Inc.* ............... 50,000 2,648,437
JDS Uniphase Corporation* .............. 76,000 9,160,375
Kopin Corporation* ..................... 25,000 1,717,969
Micron Technology, Inc.* ............... 31,000 3,906,000
Nokia Corporation, Series A, ADR ....... 18,000 3,910,500
Nortel Networks Corporation ............ 25,000 3,150,000
Rambus Inc.* ........................... 45,000 13,211,719
Sycamore Networks, Inc.* ............... 30,000 3,866,250
Wink Communications, Inc.* ............. 75,000 2,493,750
Total ................................. 64,292,625
Engineering and Management Services - 3.16%
Gene Logic Inc.* ....................... 40,000 1,675,000
Incyte Pharmaceuticals, Inc.* .......... 26,100 2,281,303
MAXIMUS, Inc.* ......................... 30,000 915,000
Paychex, Inc. .......................... 45,000 2,355,469
Sequenom, Inc.* ........................ 45,000 1,788,750
Total ................................. 9,015,522
Industrial Machinery and Equipment - 6.60%
Apple Computer, Inc.* .................. 30,900 4,195,641
Crossroads Systems, Inc.* .............. 10,000 1,033,750
Foundry Networks, Inc.* ................ 30,000 4,249,687
Juniper Networks, Inc.* ................ 30,000 7,882,500
Palm, Inc.* ............................ 32,500 1,457,422
Total ................................. 18,819,000
Instruments and Related Products - 0.55%
PE Corporation - Celera Genomics Group* 17,000 1,556,562
Miscellaneous Retail - 1.18%
Amazon.com, Inc.* ...................... 50,000 3,348,438
Prepackaged Software - 23.68%
Allaire Corporation* ................... 39,000 2,946,937
Ariba, Inc.* ........................... 32,000 6,703,000
BindView Development Corporation* ...... 75,000 2,327,344
BroadVision, Inc.* ..................... 210,000 9,456,563
Citrix Systems, Inc.* .................. 70,000 4,635,312
E.piphany, Inc.* ....................... 11,100 1,482,197
eGain Communications Corporation* ...... 40,000 1,598,750
HNC Software Inc.* ..................... 20,000 1,439,375
Intuit Inc.* ........................... 90,000 4,890,937
Macromedia, Inc.* ...................... 41,000 3,704,094
MatrixOne, Inc.* ....................... 10,750 429,664
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Prepackaged Software (Continued)
NetIQ Corporation* ..................... 56,500 $ 3,790,797
Phone.com, Inc.* ....................... 41,500 6,768,391
Transaction Systems Architects, Inc.,
Class A*............................... 26,000 750,750
Veritas Software Corp.* ................ 60,000 7,760,625
Vignette Corporation* .................. 55,000 8,815,469
Total ................................. 67,500,205
Radio Communication - 1.82%
Nextel Communications, Inc.* ........... 35,000 5,187,656
Telephone Communication - 2.03%
Illuminet Holdings, Inc.* .............. 40,000 1,968,750
Next Level Communications, Inc.* ....... 35,000 3,815,000
Total ................................. 5,783,750
Wholesale Trade -- Nondurable Goods - 1.64%
Allscripts, Inc.* ...................... 40,000 2,400,000
Ventro Corporation* .................... 40,000 2,263,750
Total ................................. 4,663,750
TOTAL COMMON STOCKS - 98.12% $279,618,309
(Cost: $134,390,382)
TOTAL SHORT-TERM SECURITIES - 1.72% $ 4,902,925
(Cost: $4,902,925)
TOTAL INVESTMENT SECURITIES - 99.84% $284,521,234
(Cost: $139,293,307)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.16% 459,983
NET ASSETS - 100.00% $284,981,217
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 2.01%
Walt Disney Company (The) .............. 284,700 $11,779,463
Building Materials and Garden Supplies - 0.66%
Home Depot, Inc. (The) ................. 60,150 3,879,675
Business Services - 2.16%
Aether Systems, Inc. ................... 8,300 1,510,600
America Online, Inc.* .................. 67,600 4,546,100
Clear Channel Communications, Inc.* .... 95,800 6,616,187
Total ................................. 12,672,887
Chemicals and Allied Products - 18.53%
Air Products and Chemicals, Inc. ....... 139,200 3,958,500
American Home Products Corporation ..... 130,500 6,998,063
Biogen, Inc.* .......................... 36,400 2,541,175
Bristol-Myers Squibb Company ........... 45,400 2,621,850
Dow Chemical Company (The) ............. 55,200 6,292,800
du Pont (E.I.) de Nemours and Company .. 159,400 8,428,275
Forest Laboratories, Inc.* ............. 78,900 6,667,050
Johnson & Johnson ...................... 71,900 5,037,494
Lilly (Eli) and Company ................ 102,700 6,470,100
Merck & Co., Inc. ...................... 123,900 7,697,287
Pfizer Inc. ............................ 187,300 6,848,156
Pharmacia & Upjohn, Inc. ............... 156,700 9,284,475
Pharmacia Corporation .................. 232,100 11,953,150
Schering-Plough Corporation ............ 209,100 7,684,425
Warner-Lambert Company ................. 168,100 16,389,750
Total ................................. 108,872,550
Communication - 2.68%
Cox Communications, Inc., Class A* ..... 203,700 9,879,450
General Motors Corporation ............. 46,900 5,839,050
Total ................................. 15,718,500
Depository Institutions - 4.01%
Bank of America Corporation ............ 166,700 8,741,331
Chase Manhattan Corporation (The) ...... 71,200 6,207,750
Citigroup Inc. ......................... 144,675 8,581,036
Total ................................. 23,530,117
Electronic and Other Electric Equipment - 8.82%
Analog Devices, Inc.* .................. 109,400 8,813,537
General Electric Company ............... 83,500 12,958,156
Intel Corporation ...................... 125,300 16,516,106
Rambus Inc.* ........................... 46,100 13,534,672
Total ................................. 51,822,471
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Fabricated Metal Products - 0.68%
Gillette Company (The) ................. 106,550 $ 4,015,603
Food Stores - 3.97%
Kroger Co. (The)* ...................... 747,900 13,134,994
Safeway Inc.* .......................... 224,600 10,163,150
Total ................................. 23,298,144
Furniture and Fixtures - 0.52%
Lear Corporation* ...................... 107,500 3,023,437
Furniture and Home Furnishing Stores - 3.27%
Best Buy Co., Inc.* .................... 52,200 4,489,200
Circuit City Stores, Inc.
- Circuit City Group .................. 194,900 11,864,538
Tandy Corporation ...................... 56,300 2,857,225
Total ................................. 19,210,963
General Merchandise Stores - 1.68%
Target Corporation ..................... 68,400 5,112,900
Wal-Mart Stores, Inc. .................. 85,900 4,767,450
Total ................................. 9,880,350
Holding and Other Investment Offices - 1.59%
ABB Ltd. (A) ........................... 81,050 9,309,929
Industrial Machinery and Equipment - 8.10%
Baker Hughes Incorporated .............. 223,800 6,769,950
Cisco Systems, Inc.* ................... 122,000 9,432,125
Dell Computer Corporation* ............. 207,500 11,198,516
EMC Corporation* ....................... 84,700 10,587,500
International Business Machines Corporation 81,400 9,605,200
Total ................................. 47,593,291
Instruments and Related Products - 3.23%
Guidant Corporation* ................... 162,900 9,580,556
Medtronic, Inc. ........................ 131,900 6,784,606
Raytheon Company, Class A .............. 138,999 2,614,919
Total ................................. 18,980,081
Insurance Carriers - 3.11%
American International Group, Inc. ..... 73,500 8,048,250
Aon Corporation ........................ 71,900 2,318,775
Chubb Corporation (The) ................ 117,300 7,925,081
Total ................................. 18,292,106
Motion Pictures - 2.06%
Time Warner Incorporated ............... 121,200 12,120,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 5.97%
Associates First Capital Corporation,
Class A ............................... 586,842 $ 12,580,425
Fannie Mae ............................. 195,400 11,027,888
Freddie Mac ............................ 259,300 11,457,819
Total ................................. 35,066,132
Oil and Gas Extraction - 5.70%
Anadarko Petroleum Corporation ......... 176,700 6,836,081
Burlington Resources Incorporated ...... 249,400 9,227,800
Schlumberger Limited ................... 164,100 12,553,650
Transocean Sedco Forex Inc. ............ 95,146 4,882,179
Total ................................. 33,499,710
Paper and Allied Products - 1.16%
International Paper Company ............ 159,900 6,835,725
Petroleum and Coal Products - 2.83%
Exxon Mobil Corporation ................ 110,784 8,620,380
Royal Dutch Petroleum Company .......... 139,400 8,024,213
Total ................................. 16,644,593
Prepackaged Software - 3.67%
Microsoft Corporation* ................. 138,500 14,754,578
Oracle Corporation* .................... 87,400 6,814,469
Total ................................. 21,569,047
Primary Metal Industries - 0.97%
Alcoa Incorporated ..................... 81,400 5,718,350
Radio Communication - 1.44%
Vodafone Airtouch Public Limited
Company, ADR .......................... 152,700 8,484,394
Security and Commodity Brokers - 0.62%
Charles Schwab Corporation (The) ....... 63,700 3,618,956
Telephone Communication - 5.27%
MCI WORLDCOM, Inc.* .................... 96,000 4,359,000
Nippon Telegraph and
Telephone Corporation (A) ............. 330 5,240,136
SBC Communications Inc. ................ 265,200 11,138,400
Telefonaktiebolaget LM Ericsson,
ADR, Class B .......................... 109,000 10,218,750
Total ................................. 30,956,286
Transportation Equipment - 0.58%
Lockheed Martin Corporation ............ 165,200 3,376,275
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Wholesale Trade -- Nondurable Goods - 2.34%
Cardinal Health, Inc. .................. 180,700 $ 8,289,613
Enron Corp. ............................ 73,000 5,465,875
Total ................................. 13,755,488
TOTAL COMMON STOCKS - 97.63% $573,524,523
(Cost: $371,358,774)
PREFERRED STOCK - 0.39%
Communication
Cox Communications, Inc., 7.0% Convertible 35,700 $ 2,266,950
(Cost: $1,785,000)
TOTAL SHORT-TERM SECURITIES - 2.80% $ 16,452,444
(Cost: $16,452,444)
TOTAL INVESTMENT SECURITIES - 100.82% $592,243,917
(Cost: $389,596,218)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.82%) (4,799,077)
NET ASSETS - 100.00% $587,444,840
See Notes to Schedules of Investments on page .
<PAGE>
WADDELL & REED FUNDS, INC.
MARCH 31, 2000
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) 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, 2000, the value of these
securities amounted to $1,440,251 in High Income Fund, or 6.29% of net
assets and $10,413,263 in International Growth Fund, or 4.36% of net
assets.
(C) 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 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2000
(In Thousands Except for Per Share Amounts)
Asset High
Strategy Growth Income
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 3).. $53,536 $818,930 $22,008
Cash ................... 1 2 1
Receivables:
Fund shares sold ...... 99 1,387 11
Investment securities sold 1,708 4,268 854
Dividends and interest. 83 153 519
Prepaid insurance premium --- 2 ---
------- -------- -------
Total assets ........ 55,427 824,742 23,393
Liabilities ------- -------- -------
Payable to Fund shareholders 57 3,697 231
Payable for investment
securities purchased .. 2,620 3,330 243
Accrued service fee -
Class C (Note 2)....... 10 172 5
Accrued transfer agency and
dividend disbursing -
Class C (Note 2)....... 9 130 7
Accrued distribution
fee - Class C (Note 2). 1 17 ---
Dividends payable ...... --- --- 20
Accrued accounting
services fee (Note 2).. 3 7 1
Accrued management fee (Note 2) 1 19 ---
Other .................. 10 24 3
------- -------- -------
Total liabilities ... 2711 7,396 510
------- -------- -------
Total net assets ... $52,716 $817,346 $22,883
Net Assets ======= ======== =======
$0.01 par value capital stock
Capital stock ......... $ 35 $ 377 $ 25
Additional paid-in capital 38,030 426,671 25,369
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment loss . (1) --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 7,248 160,384 (1,214)
Net unrealized appreciation
(depreciation) of
investments ......... 7,404 229,914 (1,297)
------- -------- -------
Net assets applicable to
outstanding units
of capital ......... $52,716 $817,346 $22,883
======= ======== =======
Net asset value, redemption and
offering price per share:
Class C shares ......... $15.21 $21.64 $9.27
Class Y shares ......... $15.26 $22.65 $9.27
Capital shares outstanding:
Class C shares ......... 3,432 37,004 2,466
Class Y shares ......... 33 740 1
Capital shares authorized 500,000 500,000 500,000
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2000
(In Thousands Except for Per Share Amounts)
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 3).. $235,015 $20,123 $28,288
Cash ................... 2 1 1
Receivables:
Fund shares sold ...... 784 6 1
Investment securities sold 15,119 --- ---
Dividends and interest. 252 322 456
Prepaid insurance premium --- --- ---
-------- ------- -------
Total assets ........ 251,172 20,452 28,746
Liabilities -------- ------- -------
Payable to Fund shareholders 1,057 227 348
Payable for investment
securities purchased .. 11,379 --- ---
Accrued service fee -
Class C (Note 2)....... 50 4 6
Accrued transfer agency and
dividend disbursing -
Class C (Note 2)....... 44 7 7
Accrued distribution
fee - Class C (Note 2). 5 --- 1
Dividends payable ...... --- 11 12
Accrued accounting
services fee (Note 2).. 4 1 2
Accrued management fee (Note 2) 6 --- ---
Other .................. 51 7 7
-------- ------- -------
Total liabilities ... 12,596 257 383
-------- ------- -------
Total net assets ... $238,576 $20,195 $28,363
Net Assets ======== ======= =======
$0.01 par value capital stock
Capital stock ......... $ 83 $ 21 $ 28
Additional paid-in capital 116,697 21,063 30,706
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment loss .. (252) --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 34,701 (275) (79)
Net unrealized appreciation
(depreciation) of
investments ......... 87,347 (614) (2,292)
-------- ------- -------
Net assets applicable to
outstanding units
of capital ......... $238,576 $20,195 $28,363
======== ======= =======
Net asset value, redemption and
offering price per share:
Class C shares ......... $28.58 $9.76 $10.11
Class Y shares ......... $29.86 $9.76 $10.11
Capital shares outstanding:
Class C shares ......... 8,163 1,944 2,805
Class Y shares ......... 177 126 ---*
Capital shares authorized 500,000 500,000 500,000
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2000
(In Thousands Except for Per Share Amounts)
Science and Total
Technology Return
Fund Fund
Assets ------------ ------------
Investment securities--at
value (Notes 1 and 3).. $284,521 $592,244
Cash ................... 2 1
Receivables:
Fund shares sold ...... 1,767 432
Investment securities sold --- 209
Dividends and interest. 37 408
Prepaid insurance premium --- 2
-------- --------
Total assets ........ 286,327 593,296
Liabilities -------- --------
Payable to Fund shareholders 832 4,121
Payable for investment
securities purchased .. 368 1,446
Accrued service fee -
Class C (Note 2)....... 63 119
Accrued transfer agency and
dividend disbursing -
Class C (Note 2)....... 51 114
Accrued distribution
fee - Class C (Note 2). 6 12
Dividends payable ...... --- ---
Accrued accounting
services fee (Note 2).. 4 6
Accrued management fee (Note 2) 7 11
Other .................. 15 22
-------- --------
Total liabilities ... 1,346 5,851
-------- --------
Total net assets ... $284,981 $587,445
Net Assets ======== ========
$0.01 par value capital stock
Capital stock ......... $ 63 $ 427
Additional paid-in capital 134,385 327,515
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment loss .. --- (27)
Accumulated undistributed
net realized gain (loss)
on investments ...... 5,305 56,885
Net unrealized appreciation
(depreciation) of
investments ......... 145,228 202,645
-------- --------
Net assets applicable to
outstanding units
of capital ......... $284,981 $587,445
======== ========
Net asset value, redemption and
offering price per share:
Class C shares ......... $45.03 $13.76
Class Y shares ......... $45.36 $14.08
Capital shares outstanding:
Class C shares ......... 6,282 42,548
Class Y shares ......... 46 153
Capital shares authorized 500,000 500,000
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Asset High
Strategy Growth Income
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 800 $ 6,820 $2,386
Dividends ............. 191 346 1
------- -------- ------
Total income ........ 991 7,166 2,387
------- -------- ------
Expenses (Note 2):
Distribution fee - Class C 298 4,387 192
Investment management fee 289 5,009 162
Service fee - Class C.. 99 1,451 64
Transfer agency and dividend
disbursing - Class C 114 1,247 82
Registration fees ..... 39 75 39
Accounting services fee 21 67 18
Custodian fees ........ 9 17 4
Audit fees ............ 11 15 10
Legal fees ............ 1 18 2
Shareholder servicing fee -
Class Y ............. 1 17 ---*
Distribution fee - Class Y 1 27 ---*
Other ................. 9 120 6
------- -------- ------
Total ............... 892 12,450 579
Less expenses in excess of
voluntary waiver of management
fee (Note 2) ....... --- --- (25)
------- -------- ------
Total expenses ..... 892 12,450 554
------- -------- ------
Net investment income (loss) 99 (5,284) 1,833
------- -------- ------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ......... 8,830 236,897 (453)
Realized net loss from foreign
currency transactions . (2) --- ---
Realized net gain on forward
currency contracts --- --- ---
Realized net loss on put options (63) --- ---
------- -------- ------
Realized net gain (loss)
on investments ...... 8,765 236,897 (453)
------- -------- ------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ 5,620 112,584 (1,279)
Unrealized appreciation on
.options during the period 70 --- ---
------- -------- ------
Unrealized appreciation
(depreciation) ...... 5,690 112,584 (1,279)
------- -------- ------
Net gain (loss) on investments 14,455 349,481 (1,732)
------- -------- ------
Net increase (decrease) in net
assets resulting from
operations ....... $14,554 $344,197 $ 101
======= ======== ======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 333 $1,480 $2,232
Dividends ............. 1,006 --- ---
-------- ------ ------
Total income ........ 1,339 1,480 2,232
-------- ------ ------
Expenses (Note 2):
Distribution fee - Class C 1,120 165 284
Investment management fee 1,275 116 202
Service fee - Class C.. 370 55 94
Transfer agency and dividend
disbursing - Class C 430 76 81
Registration fees ..... 57 42 41
Accounting services fee 42 10 20
Custodian fees ........ 203 3 3
Audit fees ............ 15 12 11
Legal fees ............ 5 1 2
Shareholder servicing fee -
Class Y ............. 3 1 ---*
Distribution fee - Class Y 5 1 ---*
Other ................. 35 5 7
-------- ------ ------
Total ............... 3,560 487 745
Less expenses in excess of
voluntary waiver of management
fee (Note 2) ....... --- (86) ---
-------- ------ ------
Total expenses ..... 3,560 401 745
-------- ------ ------
Net investment income (loss) (2,221) 1,079 1,487
-------- ------ ------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ......... 44,714 (122) 48
Realized net loss from foreign
currency transactions . (324) --- ---
Realized net gain on forward
currency contracts .... 28 --- ---
Realized net loss on put options --- --- ---
-------- ------ ------
Realized net gain (loss)
on investments ...... 44,418 (122) 48
-------- ------ ------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ 66,004 (799) (4,314)
Unrealized appreciation on
.options during the period --- --- ---
-------- ------ ------
Unrealized appreciation
(depreciation) ...... 66,004 (799) (4,314)
-------- ------ ------
Net gain (loss) on investments 110,422 (921) (4,266)
-------- ------ ------
Net increase (decrease) in net
assets resulting from
operations ....... $108,201 $ 158 $(2,779)
======== ====== =======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Science and Total
Technology Return
Fund Fund
Investment Income (Loss) ------------ -----------
Income (Note 1B):
Interest and amortization $ 729 $ 5,620
Dividends ............. 23 4,521
-------- --------
Total income ........ 752 10,141
-------- --------
Expenses (Note 2):
Distribution fee - Class C 1,086 4,079
Investment management fee 1,214 3,827
Service fee - Class C.. 343 1,361
Transfer agency and dividend
disbursing - Class C 377 1,182
Registration fees ..... 73 62
Accounting services fee 38 64
Custodian fees ........ 11 47
Audit fees ............ 11 18
Legal fees ............ 4 16
Shareholder servicing fee -
Class Y ............. 1 2
Distribution fee - Class Y ---* 4
Other ................. 34 114
-------- --------
Total ............... 3,192 10,776
Less expense in excess of
voluntary waiver of management
fee (Note 2) ....... --- ---
-------- --------
Total expenses ..... 3,192 10,776
-------- --------
Net investment income (loss) (2,440) (635)
-------- --------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ......... 9,123 67,686
Realized net loss from foreign
currency transactions . --- (45)
Realized net gain on forward
currency contracts .... --- ---
Realized net loss on put options --- ---
-------- --------
Realized net gain (loss)
on investments ...... 9,123 67,641
-------- --------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ 133,188 51,174
Unrealized appreciation on
.options during the period --- ---
-------- --------
Unrealized appreciation
(depreciation) ...... 133,188 51,174
-------- --------
Net gain (loss) on investments 142,311 118,815
-------- --------
Net increase (decrease) in net
assets resulting from
operations ....... $139,871 $118,180
======== ========
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Asset High
Strategy Growth Income
Fund Fund Fund
------------ ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ 99 $ (5,284) $ 1,833
Realized net gain (loss)
on investments ...... 8,765 236,897 (453)
Unrealized appreciation
(depreciation) ...... 5,690 112,584 (1,279)
------- -------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 14,554 344,197 101
------- -------- -------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class C ............. (151) --- (1,832)
Class Y ............. (4) --- (1)
Realized net gain on
investment transactions:
Class C ............. (981) (98,873) ---
Class Y ............. (9) (2,024) ---
------- -------- -------
(1,145) (100,897) (1,833)
------- -------- -------
Capital share transactions
(Note 5) .............. 8,527 141,492 (818)
------- -------- -------
Total increase (decrease) 21,936 384,792 (2,550)
Net Assets
Beginning of period .... 30,780 432,554 25,433
------- -------- -------
End of period .......... $52,716 $817,346 $22,883
======= ======== =======
Undistributed net
investment loss ....... $(1) $--- $---
=== ==== ====
*See "Financial Highlights" on pages - .
**Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
------------ ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ (2,221) $ 1,079 $ 1,487
Realized net gain (loss)
on investments ...... 44,418 (122) 48
Unrealized appreciation
(depreciation) ...... 66,004 (799) (4,314)
-------- ------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 108,201 158 (2,779)
-------- ------- -------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class C ............. --- (1,045) (1,487)
Class Y ............. --- (34) ---**
Realized net gain on
investment transactions:
Class C ............. (12,763) --- (58)
Class Y ............. (188) --- ---**
-------- ------- -------
(12,951) (1,079) (1,545)
-------- ------- -------
Capital share transactions
(Note 5) .............. 42,933 (458) (10,221)
-------- ------- -------
Total increase (decrease) 138,183 (1,379) (14,545)
Net Assets
Beginning of period .... 100,393 21,574 42,908
-------- ------- -------
End of period .......... $238,576 $20,195 $28,363
======== ======= =======
Undistributed net
investment loss ....... $(252) $--- $---
===== ==== ====
*See "Financial Highlights" on pages - .
**Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Science and Total
Technology Return
Fund Fund
------------ -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ (2,440) $ (635)
Realized net gain (loss)
on investments ...... 9,123 67,641
Unrealized appreciation
(depreciation) ...... 133,188 51,174
-------- --------
Net increase (decrease) in
net assets resulting from
operations ......... 139,871 118,180
-------- --------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class C ............. --- (1,151)
Class Y ............. --- (16)
Realized net gain on
investment transactions:
Class C ............. (1,295) (18,926)
Class Y ............. (9) (56)
-------- --------
(1,304) (20,149)
-------- --------
Capital share transactions
(Note 5) .............. 101,990 (20,177)
-------- --------
Total increase (decrease) 240,557 77,854
Net Assets
Beginning of period .... 44,424 509,591
-------- --------
End of period .......... $284,981 $587,445
======== ========
Undistributed net
investment loss ....... $--- $(27)
==== ====
*See "Financial Highlights" on pages - .
**Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) Asset High
Strategy Growth Income
Fund Fund Fund
------------ ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ 347 $ (3,141) $1,188
Realized net gain (loss)
on investments ...... (425) 68,630 (761)
Unrealized appreciation
(depreciation) ...... 555 7,999 (524)
------- -------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 477 73,488 (97)
------- -------- -------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class B ............. (358) --- (1,188)
Class Y ............. (7) --- ---
Realized net gain on
investment transactions:
Class B ............. (628) (54,879) (57)
Class Y ............. (6) (130) ---
------- -------- -------
(999) (55,009) (1,245)
------- -------- -------
Capital share transactions
(Note 5) .............. 11,662 83,928 14,963
------- -------- -------
Total increase ........ 11,140 102,407 13,621
Net Assets
Beginning of period .... 19,640 330,147 11,812
------- -------- -------
End of period .......... $30,780 $432,554 $25,433
======= ======== =======
Undistributed net
investment income ..... $7 $--- $---
== ==== ====
*See "Financial Highlights" on pages - .
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (474) $ 836 $1,491
Realized net gain (loss)
on investments ...... 10,347 2 872
Unrealized appreciation
(depreciation) ...... (381) 2 (539)
-------- ------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 9,492 840 1,824
-------- ------- -------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class B ............. --- (824) (1,491)
Class Y ............. --- (12) ---
Realized net gain on
investment transactions:
Class B ............. (5,284) --- (1,114)
Class Y ............. (31) --- ---
-------- ------- -------
(5,315) (836) (2,605)
-------- ------- -------
Capital share transactions
(Note 5) .............. 8,756 3,238 3,666
-------- ------- -------
Total increase ........ 12,933 3,242 2,885
Net Assets
Beginning of period .... 87,460 18,332 40,023
-------- ------- -------
End of period .......... $100,393 $21,574 $42,908
======== ======= =======
Undistributed net
investment income ..... $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages - .
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) Science and Total
Technology Return
Fund Fund
------------ -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (234) $ 1,435
Realized net gain (loss)
on investments ...... 148 58,725
Unrealized appreciation
(depreciation) ...... 10,801 (24,832)
------- --------
Net increase (decrease) in
net assets resulting from
operations ......... 10,715 35,328
------- --------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class B ............. --- (383)
Class Y ............. --- (8)
Realized net gain on
investment transactions:
Class B ............. --- (59,613)
Class Y ............. --- (148)
------- --------
--- (60,152)
------- --------
Capital share transactions
(Note 5) .............. 26,094 60,502
------- --------
Total increase ........ 36,809 35,678
Net Assets
Beginning of period .... 7,615 473,913
------- --------
End of period .......... $44,424 $509,591
======= ========
Undistributed net
investment income ..... $--- $1,039
==== ======
*See "Financial Highlights" on pages - .
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
period
For the fiscal from
year ended March 31, 4/20/95*
----------------------------------- to
2000 1999 1998 1997 3/31/96
-------------- -------------- -------
Net asset value,
beginning of period $11.20 $11.42 $9.73 $10.15 $10.00
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.03 0.15 0.21 0.23 0.16
Net realized and
unrealized gain (loss)
on investments .. 4.33 0.05 2.16 (0.30) 0.14
------ ------ ------ ------ ------
Total from investment
operations ....... 4.36 0.20 2.37 (0.07) 0.30
------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.05) (0.16) (0.22) (0.21) (0.15)
From capital gains (0.30) (0.26) (0.46) (0.14) (0.00)
------ ------ ------ ------ ------
Total distributions (0.35) (0.42) (0.68) (0.35) (0.15)
------ ------ ------ ------ ------
Net asset value,
end of period .... $15.21 $11.20 $11.42 $9.73 $10.15
====== ====== ====== ====== ======
Total return ....... 39.60% 1.79% 24.94% -0.86% 3.00%
Net assets, end of
period (000
omitted) ......... $52,208$30,473 $19,415$13,398 $13,221
Ratio of expenses
to average net
assets ........... 2.24% 2.32% 2.44% 2.52% 2.54%**
Ratio of net investment
income to average
net assets ....... 0.24% 1.38% 2.02% 2.21% 2.14%**
Portfolio turnover
rate ............. 204.12%168.17% 220.67%109.92% 75.02%
(A) See Note 5.
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, from
-----------------------------12/29/95*
2000 1999 1998 1997 to 3/31/96
-------------------------------------
Net asset value,
beginning of
period ........... $11.21 $11.43 $9.73 $10.16 $10.23
----- ----- ----- ------ ------
Income from investment
operations:
Net investment
income........... 0.15 0.26 0.31 0.27 0.07
Net realized and
unrealized gain (loss)
on investments .. 4.33 0.05 2.16 (0.26) (0.08)
----- ----- ----- ------ ------
Total from investment
operations ....... 4.48 0.31 2.47 0.01 (0.01)
----- ----- ----- ------ ------
Less distributions:
From net investment
income .......... (0.13) (0.27) (0.31) (0.30) (0.06)
From capital gains (0.30) (0.26) (0.46) (0.14) (0.00)
----- ----- ----- ------ ------
Total distributions (0.43) (0.53) (0.77) (0.44) (0.06)
----- ----- ----- ------ ------
Net asset value,
end of period .... $15.26 $11.21 $11.43 $9.73 $10.16
====== ====== ====== ====== ======
Total return ....... 40.85% 2.75% 26.06% 0.05% -0.25%
Net assets, end of
period (000
omitted) .......... $508 $307 $225 $116 $1
Ratio of expenses
to average net
assets ........... 1.33% 1.45% 1.58% 1.61% 1.95%**
Ratio of net investment
income to average
net assets ....... 1.14% 2.25% 2.90% 2.97% 2.34%**
Portfolio turnover
rate ............. 204.12%168.17% 220.67%109.92% 75.02%***
*Commencement of operations.
**Annualized.
***Portfolio turnover is for the period from April 20, 1995 to March 31, 1996.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $14.74 $14.29 $ 9.08 $10.50 $ 8.45
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
loss ............ (0.18) (0.11) (0.13) (0.03) (0.01)
Net realized and
unrealized gain (loss)
on investments .. 10.22 2.91 5.91 (1.09) 2.25
------ ------ ------ ------ ------
Total from investment
operations ....... 10.04 2.80 5.78 (1.12) 2.24
------ ------ ------ ------ ------
Less distribution
from capital gains (3.14) (2.35) (0.57) (0.30) (0.19)
------ ------ ------ ------ ------
Net asset value,
end of period .... $21.64 $14.74 $14.29 $ 9.08 $10.50
====== ====== ====== ====== ======
Total return ....... 73.38% 21.61% 65.37%-10.97% 26.57%
Net assets, end of
period (000
omitted) ......... $800,576$424,612$329,514$198,088$202,557
Ratio of expenses
to average net
assets ........... 2.11% 2.10% 2.13% 2.12% 2.14%
Ratio of net investment
loss to average
net assets ....... -0.90% -0.90% -1.12% -0.27% -0.25%
Portfolio turnover
rate .............. 82.24% 51.41% 33.46% 37.20% 31.84%
(A) See Note 5.
*Per-share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal For the
year ended March 31, period from
---------------------------------12/29/95**
2000 1999 1998 1997 to 3/31/96
------ ------ ------ --------------
Net asset value,
beginning of
period ........... $15.21 $14.55 $ 9.16 $10.52 $10.11
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.15) 0.00 (0.03) 0.01 0.02
Net realized and
unrealized gain (loss)
on investments .. 10.73 3.01 5.99 (1.07) 0.39
------ ------ ------ ------ ------
Total from investment
operations ....... 10.58 3.01 5.96 (1.06) 0.41
------ ------ ------ ------ ------
Less distribution
from capital gains (3.14) (2.35) (0.57) (0.30) (0.00)
------ ------ ------ ------ ------
Net asset value,
end of period .... $22.65 $15.21 $14.55 $ 9.16 $10.52
====== ====== ====== ====== ======
Total return ....... 74.71% 22.73% 66.78%-10.37% 4.11%
Net assets, end of
period (000
omitted) .......... $16,770 $7,942 $633 $264 $1
Ratio of expenses
to average net
assets ........... 1.30% 1.18% 1.30% 1.17% 1.17%***
Ratio of net investment
income (loss) to average
net assets ....... -0.09% 0.08% -0.30% 0.31% 0.78%***
Portfolio turnover
rate ............. 82.24% 51.41% 33.46% 37.20% 31.84%***
*Per-share amounts have been adjusted retroactively to reflect the 100%
stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
HIGH INCOME FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal For the
year ended period from
ended March 31, 7/31/97*
--------------- to
2000 1999 3/31/98
------ ------ ---------
Net asset value,
beginning of period $9.94 $10.79 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.69 0.63 0.37
Net realized and
unrealized gain (loss)
on investments .. (0.67) (0.82) 0.79
------ ------ ------
Total from investment
operations ....... 0.02 (0.19) 1.16
------ ------ ------
Less distributions:
Declared from net
investment income (0.69) (0.63) (0.37)
From capital gains (0.00) (0.03) (0.00)
------ ------ ------
Total distributions (0.69) (0.66) (0.37)
------ ------ ------
Net asset value,
end of period .... $9.27 $9.94 $10.79
====== ====== ======
Total return ....... 0.17% -1.72% 11.77%
Net assets, end of
period (000
omitted) ......... $22,877$25,427 $11,812
Ratio of expenses
to average net
assets ........... 2.17% 2.20% 2.52%**
Ratio of net investment
income to average net
assets ........... 7.16% 6.29% 5.98%**
Portfolio
turnover rate .... 71.31% 50.98% 67.82%
(A) See Note 5.
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
HIGH INCOME FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the period
fiscal from
year 12/30/98*
ended to
3/31/00 3/31/99
--------- ---------
Net asset value,
beginning of period $9.94 $9.97
----- -----
Income from investment
operations:
Net investment
income .......... 0.77 0.20
Net realized and
unrealized gain (loss)
on investments... (0.67) 0.00
----- -----
Total from investment
operations ........ 0.10 0.20
----- -----
Less distributions:
Declared from net
investment income (0.77) (0.20)
From capital gains (0.00) (0.03)
----- -----
Total distributions (0.77) (0.23)
----- -----
Net asset value,
end of period ..... $9.27 $9.94
===== =====
Total return ....... 0.94% 2.45%
Net assets, end of
period (000
omitted) ......... $6 $6
Ratio of expenses
to average net
assets ............ 1.40% 0.26%**
Ratio of net investment
income to average net
assets ............ 7.85% 8.55%**
Portfolio
turnover rate ..... 71.31% 50.98%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended March 31,
------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $15.58 $15.04 $12.40 $9.94 $9.36
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.34) (0.07) (0.10) (0.03) 0.08
Net realized and
unrealized gain
on investments .. 15.14 1.55 4.12 2.50 0.63
------ ------ ------ ------ ------
Total from investment
operations ....... 14.80 1.48 4.02 2.47 0.71
------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.00) (0.01) (0.11)
In excess of net
investment income (0.00) (0.00) (0.00) (0.00) (0.02)
From capital gains (1.80) (0.94) (1.38) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (1.80) (0.94) (1.38) (0.01) (0.13)
------ ------ ------ ------ ------
Net asset value,
end of period .... $28.58 $15.58 $15.04 $12.40 $9.94
====== ====== ====== ====== ======
Total return ....... 97.89% 10.36% 35.24% 24.85% 7.64%
Net assets, end of
period (000
omitted) ......... $233,280$99,764 $87,041$50,472 $20,874
Ratio of expenses
to average net
assets ........... 2.37% 2.35% 2.35% 2.46% 2.50%
Ratio of net investment
income (loss) to average
net assets ....... -1.48% -0.53% -0.82% -0.52% 0.63%
Portfolio turnover
rate ............. 125.71%116.25% 105.11% 94.76% 88.55%
(A) See Note 5.
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal For the
year ended March 31, period from
----------------------------12/29/95*
2000 1999 1998 1997 to 3/31/96
------ ------ ------ ------ -------
Net asset value,
beginning of
period ........... $16.08 $15.35 $12.52 $9.95 $9.70
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (1.41) 0.05 0.01 0.02 0.02
Net realized and
unrealized gain
on investments .. 16.99 1.62 4.20 2.56 0.23
------ ------ ------ ------ ------
Total from investment
operations ....... 15.58 1.67 4.21 2.58 0.25
------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.00) (0.01) (0.00)
From capital gains (1.80) (0.94) (1.38) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (1.80) (0.94) (1.38) (0.01) (0.00)
------ ------ ------ ------ ------
Net asset value,
end of period .... $29.86 $16.08 $15.35 $12.52 $9.95
====== ====== ====== ====== ======
Total return ....... 99.74% 11.41% 36.45% 25.93% 2.58%
Net assets, end of
period (000
omitted) .......... $5,296 $629 $419 $227 $7
Ratio of expenses
to average net
assets ........... 1.48% 1.44% 1.51% 1.59% 1.84%**
Ratio of net investment
income (loss) to average
net assets ....... -0.80% 0.36% 0.07% 0.05% 1.07%**
Portfolio turnover
rate ............. 125.71%116.25% 105.11% 94.76% 88.55%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.16 $10.14 $9.90 $10.00 $ 9.70
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.47 0.44 0.45 0.44 0.41
Net realized and
unrealized gain
(loss) on
investments ..... (0.40) 0.02 0.24 (0.09) 0.30
------ ------ ------ ------ ------
Total from investment
operations ....... 0.07 0.46 0.69 0.35 0.71
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.47) (0.44) (0.45) (0.44) (0.41)
From capital gains (0.00) (0.00) (0.00) (0.01) (0.00)
------ ------ ------ ------ ------
Total distributions (0.47) (0.44) (0.45) (0.45) (0.41)
------ ------ ------ ------ ------
Net asset value,
end of period .... $9.76 $10.16 $10.14 $9.90 $10.00
====== ====== ====== ====== ======
Total return ....... 0.73% 4.65% 7.15% 3.52% 7.41%
Net assets, end of
period (000
omitted) ......... $18,966$21,311 $18,148$17,770 $23,682
Ratio of expenses
to average net
assets ........... 1.81% 2.11% 2.12% 2.07% 2.10%
Ratio of net investment
income to average
net assets ........ 4.75% 4.34% 4.52% 4.40% 4.14%
Portfolio turnover
rate ............. 37.02% 32.11% 27.37% 23.05% 22.08%
(A) See Note 5.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, from
---------------------------------12/29/95*
2000 1999 1998 1997 to 3/31/96
------ ------ ------ ------ -------
Net asset value,
beginning of
period ........... $10.16 $10.14 $9.90 $10.00 $10.16
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.57 0.53 0.53 0.52 0.11
Net realized and
unrealized gain
(loss) on
investments ..... (0.40) 0.02 0.24 (0.09) (0.16)
------ ------ ------ ------ ------
Total from investment
operations ....... 0.17 0.55 0.77 0.43 (0.05)
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.57) (0.53) (0.53) (0.52) (0.11)
From capital gains (0.00) (0.00) (0.00) (0.01) (0.00)
------ ------ ------ ------ ------
Total distributions (0.57) (0.53) (0.53) (0.53) (0.11)
------ ------ ------ ------ ------
Net asset value,
end of period .... $9.76 $10.16 $10.14 $9.90 $10.00
====== ====== ====== ====== ======
Total return ....... 1.69% 5.60% 7.91% 4.33% -0.49%
Net assets, end of
period (000
omitted) ......... $1,229 $263 $184 $105 $1
Ratio of expenses
to average net
assets ........... 0.69% 1.20% 1.32% 1.04% 1.18%**
Ratio of net investment
income to average
net assets ....... 6.03% 5.25% 5.32% 5.62% 4.70%**
Portfolio turnover
rate ............. 37.02% 32.11% 27.37% 23.05% 22.08%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended March 31,
------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $11.24 $11.45 $10.74 $10.63 $10.30
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.42 0.42 0.44 0.45 0.43
Net realized and
unrealized gain
(loss) on
investments ..... (1.11) 0.10 0.71 0.11 0.33
------ ------ ------ ------ ------
Total from investment
operations ....... (0.69) 0.52 1.15 0.56 0.76
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.42) (0.42) (0.44) (0.45) (0.43)
From capital gains (0.02) (0.31) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (0.44) (0.73) (0.44) (0.45) (0.43)
------ ------ ------ ------ ------
Net asset value,
end of period .... $10.11 $11.24 $11.45 $10.74 $10.63
====== ====== ====== ====== ======
Total return ....... -6.21% 4.64% 10.89% 5.32% 7.48%
Net assets, end of
period (000
omitted) ......... $28,361$42,906 $40,023$36,618 $33,869
Ratio of expenses
to average net
assets ........... 1.98% 1.88% 1.89% 1.92% 1.93%
Ratio of net investment
income to average
net assets ....... 3.94% 3.68% 3.94% 4.18% 4.05%
Portfolio turnover
rate ............. 16.95% 41.53% 27.86% 34.72% 42.02%
(A) See Note 5.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For
For the the For For the
fiscal period the fiscal For the
year from period year period from
ended12/30/98*** ended ended 12/29/95*
3/31/00to 3/31/996/23/97** 3/31/97 to 3/31/96
--------------------------- -------- ------------
Net asset value,
beginning of period $11.24 $11.58 $10.74 $10.63 $10.94
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income........... 0.48 0.13 0.10 0.52 0.12
Net realized and
unrealized gain (loss)
on investments .. (1.11) (0.03) 0.29 0.11 (0.31)
------ ------ ------ ------ ------
Total from investment
operations ....... (0.63) 0.10 0.39 0.63 (0.19)
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.48) (0.13) (0.10) (0.52) (0.12)
From capital gains (0.02) (0.31) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (0.50) (0.44) (0.10) (0.52) (0.12)
------ ------ ------ ------ ------
Net asset value,
end of period .... $10.11 $11.24 $11.03 $10.74 $10.63
====== ====== ====== ====== ======
Total return ....... -5.69% 0.80% 3.22% 5.96% -1.80%
Net assets, end of
period (000
omitted) .......... $2 $2 $0 $1 $1
Ratio of expenses
to average net
assets ........... 1.40% 1.00%****4.95%****1.28% 1.18%****
Ratio of net investment
income to average
net assets ....... 4.52% 4.40%****4.12%****4.83% 4.33%****
Portfolio turnover
rate ............. 16.95% 41.53%****27.86%****34.72% 42.02%****
*Initial commencement of operations.
**All outstanding shares were redeemed on June 23, 1997 at the ending net
asset value shown in the table.
***Recommencement of operations.
****Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
SCIENCE AND TECHNOLOGY FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period from
ended March 31, 7/31/97*
--------------- to
2000 1999 3/31/98
------ ------ --------------
Net asset value,
beginning of period $17.45 $12.01 $10.00
------ ------ ------
Income from investment
operations:
Net investment
loss ............ (0.95) (0.09) (0.07)
Net realized and
unrealized gain
on investments .. 28.77 5.53 2.08
------ ------ ------
Total from investment
operations ....... 27.82 5.44 2.01
Less distributions from
capital gains .... (0.24) (0.00) (0.00)
------ ------ ------
Net asset value,
end of period .... $45.03 $17.45 $12.01
====== ====== ======
Total return ....... 159.75% 45.30% 20.10%
Net assets, end of
period (000
omitted) ......... $282,873$44,371 $7,615
Ratio of expenses
to average net
assets ........... 2.20% 2.57% 3.20%**
Ratio of net investment
loss to average net
assets ........... -1.68% -1.26% -1.66%**
Portfolio
turnover rate .... 44.19% 51.00% 26.64%
(A) See Note 5.
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
SCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal period from
year 6/9/98*
ended to
3/31/00 3/31/99
--------- -----------
Net asset value,
beginning of period $17.65 $12.20
------ ------
Income from investment
operations:
Net investment
income (loss) ... (6.09) 0.01
Net realized and
unrealized gain
on investments .. 34.04 5.44
------ ------
Total from investment
operations ....... 27.95 5.45
------ ------
Less distributions from
capital gains .... (0.24) (0.00)
------ ------
Net asset value,
end of period .... $45.36 $17.65
====== ======
Total return ....... 158.67% 44.67%
Net assets, end of
period (000
omitted) ......... $2,108 $53
Ratio of expenses
to average net
assets ........... 1.36% 0.62%**
Ratio of net investment
income (loss) to average net
assets ........... -0.96% 0.54%**
Portfolio
turnover rate .... 44.19% 51.00%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $11.52 $12.24 $ 9.09 $8.17 $6.37
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income (loss).... (0.01) 0.03 (0.02) (0.01) (0.01)
Net realized and
unrealized gain
on investments .. 2.71 0.82 3.56 0.98 1.84
----- ----- ----- ----- -----
Total from investment
operations ....... 2.70 0.85 3.54 0.97 1.83
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.03) (0.01) (0.00) (0.00) (0.00)
From capital gains (0.43) (1.56) (0.39) (0.05) (0.03)
----- ----- ----- ----- -----
Total distributions (0.46) (1.57) (0.39) (0.05) (0.03)
----- ----- ----- ----- -----
Net asset value,
end of period .... $13.76 $11.52 $12.24 $9.09 $8.17
====== ====== ====== ===== ======
Total return ....... 23.98% 7.47% 39.57% 11.93% 28.75%
Net assets, end of
period (000
omitted) ......... $585,293$508,210$472,970$317,453$208,233
Ratio of expenses
to average net
assets ........... 1.98% 1.93% 1.92% 1.95% 1.99%
Ratio of net investment
income (loss) to average
net assets ....... -0.12% 0.30% -0.23% -0.17% -0.11%
Portfolio turnover
rate ............. 75.64% 54.73% 36.94% 26.23% 16.78%
(A) See Note 5.
*Per-share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year For the
year ended March 31, period from
-------------------------------12/29/95**
2000 1999 1998 1997to 3/31/96
------ ------ ------ --------------
Net asset value,
beginning of
period ........... $11.78 $12.46 $ 9.18 $8.19 $7.66
------ ------ ------ ----- -----
Income from investment
operations:
Net investment
income........... 0.06 0.12 0.05 0.02 0.02
Net realized and
unrealized gain
on investments .. 2.80 0.84 3.62 1.02 0.51
------ ------ ------ ----- -----
Total from investment
operations ....... 2.86 0.96 3.67 1.04 0.53
------ ------ ------ ----- -----
Less distributions:
From net investment
income .......... (0.13) (0.08) (0.00) (0.00) (0.00)
From capital gains (0.43) (1.56) (0.39) (0.05) (0.00)
------ ------ ------ ----- -----
Total distributions (0.56) (1.64) (0.39) (0.05) (0.00)
------ ------ ------ ----- -----
Net asset value,
end of period .... $14.08 $11.78 $12.46 $9.18 $8.19
====== ====== ====== ===== =====
Total return ....... 24.96% 8.37% 40.63% 12.69% 6.92%
Net assets, end of
period (000
omitted) .......... $2,152 $1,381 $943 $504 $87
Ratio of expenses
to average net
assets ........... 1.16% 1.15% 1.20% 1.18% 0.96%***
Ratio of net investment
income to average
net assets ....... 0.67% 1.10% 0.50% 0.65% 1.04%***
Portfolio turnover
rate ............. 75.64% 54.73% 36.94% 26.23% 16.78%***
*Per-share amounts have been adjusted retroactively to reflect the 100%
stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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 accounting principles generally accepted in the United States of America.
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 except that certain dividends from
foreign securities are recorded as soon as the Fund is informed of the
ex-dividend date. Dividend income is net of foreign withholding taxes of
$1,271, $43,762, $544 and $73,867 for Asset Strategy Fund, International
Growth Fund, Science and Technology Fund and Total Return Fund,
respectively. Interest income is recorded on the accrual basis. See
Note 3 -- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities denominated
in foreign currencies are translated into U.S. dollars daily. Purchases
and sales of investment securities and accruals of income and expenses
are translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translation arise from changes in currency exchange rates. The
Corporation combines fluctuations from currency exchange rates and
fluctuations in market value when computing net realized and unrealized
gain or loss from investments.
D. Federal income taxes -- It is the Corporation's policy to distribute all
of its taxable income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code. In addition, the Corporation intends to pay
distributions as required to avoid imposition of excise tax.
Accordingly, provision has not been made for Federal income taxes. See
Note 4 -- 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 accounting principles generally accepted in the
United States of America. 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, 2000, the following amounts were
reclassified:
Increase Increase
(Decrease) (Decrease)
Accumulated Accumulated
Undistributed Undistributed
Net Investment Net Realized
Income Capital Gains
-------------- -------------
Asset Strategy Fund $ 49,571 $ (49,571)
Growth Fund 5,284,323 (5,284,323)
International Growth
Fund 2,335,534 (2,335,534)
Science and Technology
Fund 2,440,287 (2,440,287)
Total Return Fund 781,086 (781,086)
Net investment income, net realized gains and net assets were not
affected by these changes.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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 -- 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. The fee is payable by each Fund at the following annual rates:
Annual
Fund Net Assets Breakpoints Rate
-----------------------------------------------------------------
W&R Asset Strategy Fund Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
<PAGE>
W&R Growth Fund Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
W&R High Income Fund Up to $500 Million .625%
Over $500 Million up to $1 Billion .600%
Over $1 Billion up to $1.5 Billion .550%
Over $1.5 Billion .500%
W&R International Up to $1 Billion .850%
Growth Fund Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
W&R Limited-Term Up to $500 Million .500%
Bond Fund Over $500 Million up to $1 Billion .450%
Over $1 Billion up to $1.5 Billion .400%
Over $1.5 Billion .350%
W&R Municipal Bond Fund Up to $500 Million .525%
Over $500 Million up to $1 Billion .500%
Over $1 Billion up to $1.5 Billion .450%
Over $1.5 Billion .400%
W&R Science and Up to $1 Billion .850%
Technology Fund Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
W&R Total Return Fund Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
The fee is accrued and paid daily. However, Waddell & Reed Investment
Management Company ("WRIMCO"), the Corporation's investment manager, has
agreed to waive a Fund's management fee on any day that the Fund's net assets
are less than $25 million, subject to WRIMCO's right to change or modify this
waiver.
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.
<PAGE>
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class C 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 0.15 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 C and Class Y
shares. Under the Distribution and Service Plan for the Class C shares, W&R,
principal underwriter and sole distributor of the Corporation's shares, is
compensated in an amount calculated and payable daily up to 1% annually of
each of the Fund's Class C average daily net assets. This fee consists of two
elements: (i) up to 0.75% of the particular Fund's Class C 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 C 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, 2000, the Distributor received $3,838,573 in
distribution fees and $11,611,936 in service fees. During this same period
W&R paid sales commissions of $2,467,632.
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, 2000, the Distributor received $38,140 in 12b-1
payments on Class Y shares.
For Class C 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. A 1% deferred sales charge will be applied to shares that are sold
within twelve months of purchase. 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
<PAGE>
shares purchasedduring the deferred sales charge period. During the period
ended March 31,2000, the Distributor received $980,440 in deferred sales
charges.
The Corporation paid Directors' fees of $49,822, 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 3 -- Investment Securities Transactions
Investment securities transactions for the period ended March 31, 2000
are summarized as follows:
Asset High
Strategy Growth Income
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ............... $68,526,297 $ 388,188,616 $16,945,968
Purchases of bullion ....... 934,404 --- ---
Purchases of U.S. Government
securities ............... 10,985,391 --- ---
Purchases of short-term
securities ............... 86,729,688 3,688,404,136 36,696,255
Purchases of options ....... 586,676 --- ---
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 55,578,544 409,806,773 18,672,062
Proceeds from maturities
and sales of U.S.
Government securities .... 19,751,199 --- ---
Proceeds from maturities
and sales of short-term
securities ............... 83,611,818 3,634,448,278 36,666,000
Proceeds from options ...... 69,835 --- ---
<PAGE>
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ...............$192,218,024 $ 5,824,927 $ 6,130,162
Purchases of bullion ....... --- --- ---
Purchases of U.S. Government
securities ............... --- 2,186,035 ---
Purchases of short-term
securities ............... 354,082,969 15,227,911 32,414,982
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 180,898,770 5,822,324 17,703,501
Proceeds from maturities
and sales of U.S.
Government securities .... --- 2,136,880 ---
Proceeds from maturities
and sales of short-term
securities ............... 342,351,590 15,325,319 30,881,177
Science and Total
Technology Return
Fund Fund
----------- ----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ...............$161,290,476 $ 295,282,012
Purchases of bullion ....... --- ---
Purchases of U.S. Government
securities ............... --- 82,734,801
Purchases of short-term
securities ............... 380,415,262 1,463,419,572
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 58,215,503 245,561,638
Proceeds from maturities
and sales of U.S.
Government securities .... --- 155,766,670
Proceeds from maturities
and sales of short-term
securities ............... 385,191,149 1,476,587,696
For Federal income tax purposes, cost of investments owned at March 31,
2000 and the related unrealized appreciation (depreciation) were as follows:
<PAGE>
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Asset Strategy Fund $ 46,131,633 $ 9,064,833 $ 1,660,886 $ 7,403,947
Growth Fund 589,016,895 267,889,249 37,975,664 229,913,585
High Income Fund 23,305,324 705,949 2,003,177 (1,297,228)
International Growth
Fund 147,578,851 93,939,400 6,503,264 87,436,136
Limited-Term Bond Fund20,736,882 4,727 618,412 (613,685)
Municipal Bond Fund 30,580,278 89,625 2,381,447 (2,291,822)
Science and Technology
Fund 139,293,307 155,542,603 10,314,676 145,227,927
Total Return Fund 389,598,527 218,411,698 15,766,308 202,645,390
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, Asset Strategy Fund and Science and
Technology Fund realized capital gain net income of $8,669,418 and $6,575,181,
respectively, during the fiscal year ended March 31, 2000, which included the
effect of certain losses recognized from the prior year (see discussion
below). For Federal income tax purposes, Growth Fund, International Growth
Fund and Total Return Fund realized capital gain net income of $231,612,570,
$42,405,551 and $66,904,750, respectively, during the year ended March 31,
2000. For Federal income tax purposes, High Income Fund realized capital
losses of $472,930 during the year ended March 31, 2000, 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).
Capital loss carryovers aggregated $974,622 at March 31, 2000 and are
available to offset future realized capital gain net income for Federal income
tax purposes but will expire if not utilized as follows: $501,692 at March 31,
2007; and $472,930 at March 31, 2008. For Federal income tax purposes,
Limited-Term Bond Fund realized no net capital gains or losses for the year
ended March 31, 2000, because of the utilization of capital loss carryovers
and the effect of certain losses deferred into the next fiscal year as well as
the effect of losses recognized from the prior year (see discussion below).
Remaining capital loss carryovers aggregated $147,952 at March 31, 2000, and
are available to offset future realized capital gain net income for Federal
income tax purposes but will expire if not utilized as follows: $83,452 at
March 31, 2005; and $64,500 at March 31, 2006. For Federal income tax
purposes, Municipal Bond Fund realized capital gain net income of $41,809
during the year ended March 31, 2000, which included the effect of certain
losses deferred into the next fiscal year (see discussion below). A portion
of the capital gain net income of Asset Strategy Fund, Science and Technology
Fund, Growth Fund, International Growth Fund, Total Return Fund and Municipal
Bond Fund was paid to shareholders during the year ended March 31, 2000.
Remaining capital gain net income for Asset Strategy Fund, Science and
Technology Fund, Growth Fund, International Growth Fund and Total Return 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, 1999 through March 31, 2000, High Income Fund,
Limited-Term Bond Fund and Municipal Bond Fund incurred net capital losses of
$239,041, $127,534 and $79,105, respectively, which have been deferred to the
fiscal year ending March 31, 2001. In addition, during the year ended March
31, 2000, Asset Strategy Fund, Science and Technology Fund, High Income Fund
and Limited-Term Bond Fund recognized post-October losses of $477,952,
$108,105, $259,064 and $3,090, respectively, that had been deferred from the
year ended March 31, 1999.
<PAGE>
NOTE 5 -- Multiclass Operations
Each Fund within the Corporation is authorized to offer two classes of
shares, Class C and Class Y, each of which have equal rights as to assets and
voting privileges. Class Y shares are not subject to a deferred sales charge
and are subject to separate Rule 12b-1 Distribution and Service Plans and
transfer agency and dividend disbursement services fee structures. 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
their relative net assets as of the beginning of each day adjusted for the
prior day's capital share activity.
Class B shares were combined with Class C shares effective March 24, 2000
and were redesignated Class C shares.
Transactions in capital stock for the fiscal year ended March 31, 2000
are summarized below. Amounts are in thousands.
<PAGE>
Asset High
Strategy Growth Income
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 1,088 5,238 713
Class C ............ 3,465 37,161 2,520
Class Y ............ 7 865 ---*
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 90 5,558 165
Class C ............ 1 84 6
Class Y ............ 1 112 ---*
Shares redeemed:
Class B ............ (3,899) (39,601) (3,436)
Class C ............ (34) (241) (59)
Class Y ............ (2) (759) ---*
----- ------ -----
Increase (decrease) in
outstanding capital shares
717 8,417 (91)
===== ====== =====
Value issued from sale
of shares:
Class B ............ $13,016 $ 85,891 $ 6,880
Class C ............ 52,539 853,837 23,848
Class Y ............ 86 15,504 3
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 1,107 96,442 1,580
Class C ............ 17 1,449 55
Class Y ............ 13 2,024 ---*
Value redeemed:
Class B ............ (57,701) (895,114) (32,608)
Class C ............ (524) (5,366) (573)
Class Y ............ (26) (13,175) (3)
------- -------- -------
Increase (decrease)in
outstanding capital
$ 8,527 $141,492 $ (818)
======= ======== =======
*Not shown due to rounding.
<PAGE>
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 1,553 786 451
Class C ............ 8,221 1,991 2,850
Class Y ............ 218 105 ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 542 95 124
Class C ............ 12 3 3
Class Y ............ 8 3 ---*
Shares redeemed:
Class B ............ (8,498) (2,979) (4,391)
Class C ............ (71) (50) (48)
Class Y ............ (88) (8) ---
----- ----- -----
Increase (decrease) in
outstanding capital shares
1,897 (54) (1,011)
===== ===== =====
Value issued from sale
of shares:
Class B ............ $ 29,238 $ 7,845 $ 4,958
Class C ............ 246,818 19,380 28,818
Class Y ............ 5,494 1,033 ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 12,373 937 1,305
Class C ............ 280 25 26
Class Y ............ 188 32 ---*
Value redeemed:
Class B ............ (247,001) (29,147) (44,833)
Class C ............ (2,133) (486) (495)
Class Y ............ (2,324) (77) ---
-------- ------ --------
Increase (decrease)in
outstanding capital
$ 42,933 $ (458) $(10,221)
======== ====== ========
*Not shown due to rounding.
<PAGE>
Science and Total
Technology Return
Fund Fund
----------- ------------
Shares issued from sale
of shares:
Class B ............ 3,257 6,120
Class C ............ 6,359 42,965
Class Y ............ 148 58
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 33 1,649
Class C ............ 2 18
Class Y ............ ---* 6
Shares redeemed:
Class B ............ (5,834) (51,879)
Class C ............ (79) (435)
Class Y ............ (105) (28)
----- ------
Increase (decrease) in
outstanding capital shares
3,781 (1,526)
===== ======
Value issued from sale
of shares:
Class B ............ $ 77,915 $ 72,977
Class C ............ 317,906 593,357
Class Y ............ 4,519 719
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 1,221 19,693
Class C ............ 64 212
Class Y ............ 9 72
Value redeemed:
Class B ............ (292,678) (700,957)
Class C ............ (3,731) (5,907)
Class Y ............ (3,235) (343)
-------- --------
Increase (decrease) in
outstanding capital
$101,990 $(20,177)
======== ========
*Not shown due to rounding.
<PAGE>
Transactions in capital stock for the fiscal year ended March 31, 1999
are summarized below. Dollar amounts are in thousands.
Asset High
Strategy Growth Income
Fund Fund* Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 1,487,385 6,727,339 1,990,704
Class Y ............ 8,363 471,624 630
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............. 88,597 4,145,013 121,122
Class Y ............ 1,139 9,589 10
Shares redeemed:
Class B ............ (554,869) (5,132,051) (649,483)
Class Y ............ (1,755) (2,501) ---
--------- --------- ---------
Increase in outstanding
capital shares ..... 1,028,860 6,219,013 1,462,983
========= ========= =========
Value issued from sale
of shares:
Class B ............ $16,872 $95,835 $20,234
Class Y ............ 95 6,879 6
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 981 54,503 1,217
Class Y ............ 13 130 ---**
Value redeemed:
Class B ............ (6,279) (73,381) (6,494)
Class Y ............ (20) (38) ---
------- ------- -------
Increase in outstanding
capital ............ $11,662 $83,928 $14,963
======= ======= =======
*Share transactions prior to June 27, 1998 have been adjusted to effect the
100% stock dividend of June 26, 1998.
**Not shown due to rounding.
<PAGE>
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 2,459,922 1,154,374 1,111,959
Class Y ............ 11,890 8,190 172
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 366,149 79,341 212,992
Class Y ............ 2,124 1,036 7
Shares redeemed:
Class B ............ (2,210,705) (925,409) (1,003,930)
Class Y ............ (2,188) (1,468) ---
--------- --------- ---------
Increase in outstanding
capital shares ..... 627,192 316,064 321,200
========= ========= =========
Value issued from sale
of shares:
Class B ............ $38,406 $11,778 $12,733
Class Y ............ 192 83 2
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 5,261 808 2,420
Class Y ............ 31 11 ---**
Value redeemed:
Class B ............ (35,100) (9,427) (11,489)
Class Y ............ (34) (15) ---
------- ------- -------
Increase in outstanding
capital ............ $ 8,756 $ 3,238 $ 3,666
======= ======= =======
**Not shown due to rounding.
<PAGE>
Science and Total
Technology Return
Fund Fund*
----------- ------------
Shares issued from sale
of shares:
Class B ............ 2,150,217 10,022,490
Class Y ............ 2,993 32,620
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............. --- 5,395,830
Class Y ............ --- 13,872
Shares redeemed:
Class B ............ (240,714) (9,956,039)
Class Y ............ --- (4,907)
--------- ---------
Increase in outstanding
capital shares ..... 1,912,496 5,503,866
========= =========
Value issued from sale
of shares:
Class B ............ $29,323 $119,057
Class Y ............ 47 401
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ --- 59,624
Class Y ............ --- 156
Value redeemed:
Class B ............ (3,276) (118,675)
Class Y ............ --- (61)
------- --------
Increase in outstanding
capital ............ $26,094 $ 60,502
======= ========
*Share transactions prior to June 27, 1998 have been adjusted to effect the
100% stock dividend of June 26, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Funds, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedules of investments, of Asset Strategy Fund, Growth Fund,
High Income Fund, International Growth Fund, Limited-Term Bond Fund, Municipal
Bond Fund, Science and Technology Fund, and Total Return Fund (collectively
the "Funds") comprising Waddell & Reed Funds, Inc. as of March 31, 2000, and
the related statements of operations for the fiscal year then ended, the
statements of changes in net assets for each of the two fiscal years in the
period then ended, and the financial highlights for each of the five fiscal
years in the 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 auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of March 31, 2000 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, 2000, the results of their operations for the fiscal year then ended, the
changes in their net assets for each of the two fiscal years in the period
then ended, and the financial highlights for each of the five fiscal years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
--------------------------
Deloitte & Touche LLP
Kansas City, Missouri
May 5, 2000
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits: Waddell & Reed Funds, Inc.
(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*
Articles Supplementary (combination of Class B into Class C), filed
by EDGAR on April 17, 2000 as EX-99.B(a)wrartsup to Post-Effective
Amendment No. 14 to the Registration Statement on Form N-1A*
Articles Supplementary attached hereto as EX-99.B(a)wrartsup
(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, filed by EDGAR on April 17, 200 as EX-99.B(d)wrimafee to
Post-Effective Amendment No. 14 to the Registration Statement on
Form N-1A*
(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*
Custodian Agreement, as amended, filed by EDGAR on April 17, 2000 as
EX-99.B(g)wrca to Post-Effective Amendment No. 14 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 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
<PAGE>
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*
Fund NAV application, as amended, filed by EDGAR on April 17, 2000
as EX-99.B(h)wrnavapp to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A*
Fund Class Y application, as amended, filed by EDGAR on April 17,
2000 as EX-99.B(h)wrappcy to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A*
Compensation Table (Exhibit B) to the Shareholder Servicing
Agreement, as amended, filed by EDGAR on April 17, 2000 as EX-
99.B(h)wrssacom to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A*
Fidelity Bond Coverage (Exhibit C) to the Shareholder Servicing
Agreement, as amended, filed by EDGAR on April 17, 2000 as EX-
99.B(h)wrssafid to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A*
Compensation Table (Exhibit B) to the Shareholder Servicing
Agreement, as amended, attached hereto as EX-00.B(h)wrssacom
Fund application (Non-Retirement Plan), as amended, attached hereto
as EX-99.B(h)wrappnon
Fund application (Retirement Plan), as amended, attached hereto as
EX-99.B(h)wrappabc
Fund Application (Institutional) attached hereto as EX-
99.B(h)wrappnav
Fund Application (Legend Non-Retirement) attached hereto as EX-
99.B(h)wrapplegnon
Fund Application (Legend Retirement) attached hereto as EX-
99.B(h)wrapplegabc
(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*
<PAGE>
(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*
Distribution and Service Plan for Class A shares, attached hereto as
EX-99.B(m)wrdspca
Distribution and Service Plan for Class B shares, attached hereto as
EX-99.B(m)wrdspcB
(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*
Multiple Class Plan, filed by EDGAR on July 2, 1999 as EX-
99.B(o)wrmcp to Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A*
Multiple Class Plan, as amended, attached hereto as EX-99.B(o)wrmcp
(p) Code of Ethics filed by EDGAR on April 17, 2000 as Ex-99.B(p)wrcode
to Post-Effective Amendment No. 14 to the Registration Statement on
Form N-1A*
24. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
25. Indemnification
---------------
Reference is made to Article 10.2 of the Articles of Incorporation of
Registrant, 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*;
Article IX of the Bylaws, 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*; and Article V of the Underwriting Agreement filed by EDGAR
on 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.
Registrant undertakes to carry out all indemnification provisions of its
Articles of Incorporation, Bylaws, and the above-described contracts in
accordance with the Investment Company Act Release No. 11330 (September
4, 1980) and successor releases.
Insofar as indemnification for liability arising under the 1933 Act, as
amended, may be provided to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment of the Registrant of expenses incurred or paid by a director,
<PAGE>
officer of controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer,
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
26. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company ("WRIMCO") is the investment
manager of the Registrant. Under the terms of an Investment Management
Agreement between WRIMCO and the Registrant, WRIMCO is to provide
investment management services to the Registrant. WRIMCO is a
corporation which is not engaged in any business other than the provision
of investment management services to those registered investment
companies described in Part A and Part B of this Post-Effective Amendment
and to other investment advisory clients.
Each director and executive officer of WRIMCO 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 WRIMCO 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 ("SAI") of the Registrant The address of the
officers is 6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200.
As to each director and officer of WRIMCO, reference is made to Part A
and Part B of the Prospectus and SAI of this Registrant.
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:
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 Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
United Small Cap Fund, Inc.
United Tax-Managed Equity Fund, Inc.
Advantage I
Advantage II
Advantage Plus
Advantage Gold
(b) The information contained in the underwriter's application on Form
BD, as filed on June 16, 2000 SEC No. 8-27030 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.
<PAGE>
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
ASSET STRATEGY FUND, INC., UNITED CASH MANAGEMENT, INC., UNITED CONTINENTAL
INCOME FUND, INC., UNITED FUNDS, INC., UNITED GOVERNMENT SECURITIES FUND,
INC., UNITED HIGH INCOME FUND, INC., UNITED HIGH INCOME FUND II, INC.,
UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED NEW CONCEPTS FUND, INC.,
UNITED RETIREMENT SHARES, INC., UNITED SMALL CAP FUND, INC., UNITED TAX-
MANAGED EQUITY FUND, INC., UNITED VANGUARD 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, DANIEL C.
SCHULTE 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: February 9, 2000 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
/s/Keith A. Tucker Chairman of the Board February 9, 2000
------------------- -----------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal February 9, 2000
-------------------- Financial Officer and -----------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and February 9, 2000
-------------------- Director -----------------
Henry J. Herrmann
/s/Theodore W. Howard Vice President, Treasurer February 9, 2000
-------------------- and Principal Accounting -----------------
Theodore W. Howard Officer
<PAGE>
/s/James M. Concannon Director February 9, 2000
-------------------- -----------------
James M. Concannon
/s/John A. Dillingham Director February 9, 2000
-------------------- -----------------
John A. Dillingham
/s/David P. Gardner Director February 9, 2000
------------------- -----------------
David P. Gardner
/s/Linda K. Graves Director February 9, 2000
-------------------- -----------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director February 9, 2000
-------------------- -----------------
Joseph Harroz, Jr.
/s/John F. Hayes Director February 9, 2000
-------------------- -----------------
John F. Hayes
/s/Glendon E. Johnson Director February 9, 2000
-------------------- -----------------
Glendon E. Johnson
/s/William T. Morgan Director February 9, 2000
-------------------- -----------------
William T. Morgan
<PAGE>
/s/Ronald C. Reimer Director February 9, 2000
-------------------- -----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr. Director February 9, 2000
-------------------- -----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director February 9, 2000
-------------------- -----------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director February 9, 2000
-------------------- -----------------
Frederick Vogel III
Attest:
/s/Kristen A. Richards
--------------------------------
Kristen A. Richards
Secretary
<PAGE>
<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
30th day of June, 2000.
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.
Signatures Title
---------- -----
/s/Keith A. Tucker* Chairman of the Board June 30, 2000
---------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal June 30, 2000
---------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and June 30, 2000
---------------------- Director ----------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer June 30, 2000
---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director June 30, 2000
------------------ ----------------
James M. Concannon
/s/John A. Dillingham* Director June 30, 2000
------------------ ----------------
John A. Dillingham
<PAGE>
/s/David P. Gardner* Director June 30, 2000
------------------ ----------------
David P. Gardner
/s/Linda K. Graves* Director June 30, 2000
------------------ ----------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director June 30, 2000
------------------ ----------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director June 30, 2000
------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director June 30, 2000
------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director June 30, 2000
------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer* Director June 30, 2000
------------------ ----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director June 30, 2000
------------------ ----------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director June 30, 2000
------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director June 30, 2000
------------------- ----------------
Frederick Vogel III
*By /s/Kristen A. Richards
--------------------------
Kristen A. Richards
Attorney-in-Fact
ATTEST:
/s/Daniel C. Schulte
-------------------------
Daniel C. Schulte
Assistant Secretary
<PAGE>
