485APOS
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. 16
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 16
W&R 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__ 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.
[Book 3]
Broker
W&R Funds, Inc.
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
Funds' securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offense to state otherwise.
Prospectus
, 2000
Table of Contents
AN OVERVIEW OF THE FUNDS........................................X
ASSET STRATEGY FUND.............................................X
INTERNATIONAL GROWTH FUND.......................................X
LARGE CAP GROWTH FUND...........................................X
MID CAP GROWTH FUND.............................................X
SCIENCE AND TECHNOLOGY FUND.....................................X
SMALL CAP GROWTH FUND...........................................X
TAX-MANAGED EQUITY FUND.........................................X
TOTAL RETURN FUND...............................................X
THE INVESTMENT PRINCIPLES OF THE FUNDS..........................X
YOUR ACCOUNT....................................................X
THE MANAGEMENT OF THE FUNDS.....................................X
FINANCIAL HIGHLIGHTS............................................X
An Overview of the Fund
Asset Strategy 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.
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.
. 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%.
1The 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.
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 contingent deferred sales charge ("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.
2Since 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 Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ----- ------ ------ ------
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1 None2 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses3
(expenses that are deducted
from Fund assets)
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%
1The 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.
2A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3Management 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
1Reflects 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.
International Growth 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 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.
. 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%.
1The 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.
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. Accordingly, these returns
reflect no CDSC since it only applies to Class C shares held for twelve
months or less.
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
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 Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1 None2 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses3
(expenses that are deducted 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 0.52% 0.52% 0.52% 0.35%
Total Annual Fund
Operating Expenses 1.62% 2.37% 2.37% 1.45%
1The 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.
2A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3Management 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
1Reflects 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.
Large Cap Growth 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
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.
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. See "Prior Performance of
Related Fund" for information about the performance of a fund managed by
WRIMCO with a similar objective and strategy as Large Cap Growth Fund.
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 Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1 None2 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses3
(expenses that are deducted from Fund assets)
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%
1The 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.
2A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3The 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
Prior Performance of Related Fund
Large Cap Growth Fund is modeled after another fund managed by WRIMCO,
Waddell & Reed Advisors Vanguard Fund, Inc., formerly known as United
Vanguard Fund, Inc. (the "Related Fund"). The investment objective,
strategies and policies of Large Cap Growth Fund are substantially similar
to those of the Related Fund. There may, however, be differences between
Large Cap Growth Fund and the Related Fund, including asset sizes and cash
flows.
The chart below provides average annual returns of the Related Fund, not
Large Cap Growth Fund, for the period ended December 31, 1999. The
performance is net of management fees and other expenses incurred during
the 1999 calendar year. The performance of the Related Fund is historical
and does not guarantee future performance of Large Cap Growth Fund.
Waddell & Reed Advisors
Vanguard Fund, Inc. 1 Year 5 Years 10 Years Life of Class*
Class A 35.63% 23.38% 15.99%
Class B 21.68%
Class C 25.68%
Class Y 44.22% 22.26%
*Since October 4, 1999 for Class B, October 4, 1999 for Class C and Septemb
1995 for Class Y.
Mid Cap Growth 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, the Fund's
investment manager, 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 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. See "Prior Performance of
Related Fund" for information about the performance of a fund managed by
WRIMCO with a similar objective and strategy as Mid Cap Growth Fund.
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 Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1 None2 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses3
(expenses that are deducted
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%
1The 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.
2A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3The 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
Prior Performance of Related Fund
Mid Cap Growth Fund is modeled after another fund managed by WRIMCO,
Waddell & Reed Advisors New Concepts Fund, Inc., formerly known as United
New Concepts Fund, Inc. (the "Related Fund"). The investment objective,
strategies and policies of Mid Cap Growth Fund are substantially similar to
those of the Related Fund. There may, however, be differences between Mid
Cap Growth Fund and the Related Fund, including asset sizes and cash flows.
The chart below provides average annual returns of the Related Fund, not
Mid Cap Growth Fund, for the period ended December 31, 1999. The
performance is net of management fees and other expenses incurred during
the 1999 calendar year. The performance of the Related Fund is historical
and does not guarantee future performance of Mid Cap Growth Fund.
Waddell & Reed Advisors
New Concepts Fund, Inc. 1 Year 5 Years 10 Years Life of Class*
Class A 54.02% 28.42% 24.06%
Class B 39.07%
Class C 43.70%
Class Y 63.89% 27.36%
*Since October 4, 1999 for Class B, October 4, 1999 for Class C and September
1995 for Class Y.
Science and Technology 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;
. 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%.
1The 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.
2A 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 beneficial 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 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.
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. Accordingly, these returns
reflect no CDSC since it only applies to Class C shares held for twelve
months or less.
2Since July 31, 1997 for Class C shares (based on the prior Class B shares)
and June 9, 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 July 31, 1997 and June 30, 1998,
respectively.
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 Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1 None2 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses3
(expenses that are deducted from Fund assets)
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%
1The 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.
2A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3Management 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
1Reflects 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.
Small Cap Growth Fund
Goal
W&R Small Cap Growth Fund seeks growth of capital.
Principal Strategies
Small Cap Growth Fund (formerly, Growth Fund) seeks to achieve its goal by
investing primarily in common stocks of domestic 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. 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 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;
. 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 third quarter of 1998). The Class C return for the
year through March 31, 2000 was 10.41%.
1The 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 58.42% 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. The Manager 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.
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. Accordingly, these returns
reflect no CDSC since it only applies to Class C shares held for twelve
months or less.
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
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 Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1 None2 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses3
(expenses that are deducted 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% 0.26% 0.26% 0.26%
Total Annual Fund
Operating Expenses 1.36% 2.11% 2.11% 1.36%
1The 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.
2A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3Management 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
1Reflects 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.
Tax-Managed Equity 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. 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
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 Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)1 None2 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses3
(expenses that are deducted from Fund assets)
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%
1The 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.
2A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3The 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
Total Return 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
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%.
1The 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.
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. Accordingly, these returns
reflect no CDSC since it only applies to Class C shares held for twelve
months or less.
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 Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)1 None2 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses3
(expenses that are deducted from Fund assets)
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%
1The 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.
2A 1% CDSC may be imposed on purchases of $2 million or more of Class A
shares that are redeemed within twelve months of purchase.
3Management 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 $2,111(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
1Reflects 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
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 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
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. 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.
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 risk and
other 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 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 . No initial sales . No initial sales
charge charge charge
. No deferred sales . Deferred sales . A 1% deferred
charge1 charge on shares sales charge on
you sell within shares you sell
six years after within twelve
purchase months after
purchase
. Maximum . Maximum . Maximum
distribution and distribution and distribution and
service (12b-1) service (12b-1) service (12b-1)
fees of 0.25% fees of 1.00% fees of 1.00%
. For an investment . Converts to Class . Does not convert
of $2 million or A shares 8 years to Class A
more, only Class after the month shares, so annual
A shares are in which the expenses do not
available shares were decrease
purchased, 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
1A 1% CDSC may be imposed on purchases or $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. The ongoing expenses of this class are lower than those for
Class B or Class C shares.
Sales
Sales Charge Reallowance
Charge as to Dealers
as Approx. as
Percent Percent Percent
of of of
Size of Offering Amount Offering
Purchase 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%
1No 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 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 ("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. 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, 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
CDSC discussed below.
Contingent Deferred Sales As % of Amount Subject to Charge
Charge on Shares Sold within
Year
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.)
. 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.
. Simplified Employee Pension Plans (SEP-IRAs) provide small business
owners or those with self-employed income (and their eligible employees)
with many of the same advantages as a 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 or certain types of charitable organizations.
. 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation
on a tax-deferred basis.
-------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child free
of Federal transfer tax consequences. Depending on state laws, you can set
up a custodial account under the Uniform 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 your 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 the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
. Bonds are generally valued according to prices quoted by an independent
pricing service.
. Short-term debt securities are valued at amortized cost, which
approximates market value.
. Other investment assets for which market prices are unavailable are
valued at their fair value by or at the direction of the Board of
Directors.
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its 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 or for a corporation $10 million
(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
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 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
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Retirement The written instructions must
Account 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
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary 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 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 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.
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 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 Group, W&R Funds, Inc.
and Target/United Funds, Inc.; 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.
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 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
For the fiscal year from
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:
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%
1The 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.
2Commencement of operations.
2Annualized.
ASSET STRATEGY FUND
For a Class Y share outstanding throughout each period:
For the fiscal year For the
ended March 31, period from
-------------------- 12/29/951
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)
----- ----- ----- ------ ------
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
1Commencement of operations.
2Annualized.
3Portfolio turnover is for the period from April 20, 1995 to March 31,
1996.
INTERNATIONAL 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 ........... $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%
1The 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 fiscal year For the
ended March 31, period from
------------------------------December 29, 19951
2000 1999 1998 1997 to March 31, 1996
---- ---- ---- ---- -----------------
-
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)
----- ----- ------ ------ ------
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
1Commencement of operations.
2Annualized.
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%
1The 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.
2Commencement of operations.
3Annualized.
SCIENCE AND TECHNOLOGY FUND
For a Class Y share outstanding throughout the period:
For the For the
fiscal period from
year 6/9/981
ended 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 to average net
assets ........... -0.96% 0.54%2
Portfolio
turnover rate .... 44.19% 51.00%2
1Commencement of operations.
2Annualized.
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
------ ------ ------ ------ ------
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%
1The 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.
SMALL CAP GROWTH FUND (formerly, Growth Fund)
For a Class Y share outstanding throughout each period1:
For the fiscal year For the
ended March 31, period from
--------------------------------- 12/29/952
2000 1999 1998 1997 to 3/3196
----- ---- ---- ---- -----------
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
----- ----- ------ ------ ------
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 ....... -0.90% 0.08% -0.30% 0.31% 0.78%3
Portfolio turnover
rate ............. 82.24% 51.41% 33.46% 37.20% 31.84%3
1Per-share and share amounts have been adjusted retroactively to reflect
the 100% stock dividend effected June 26, 1998.
2Commencement of operations.
3Annualized.
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
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%
1The 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 and 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 fiscal year For the
ended March 31, period from
------------------- 12/29/952
2000 1999 1998 1997 to 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%
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
1Per-share and share amounts have been adjusted retroactively to reflect
the 100% stock dividend effected June 26, 1998.
2Commencement of operations.
3Annualized.
W&R FUNDS
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
928 Grand Boulevard 6300 Lamar Avenue
Kansas City, Missouri 64141 P. O. Box 29217
Shawnee Mission, Kansas
Legal Counsel 66201-9217
Kirkpatrick & Lockhart LLP 913-236-2000
1800 Massachusetts Avenue, N.W. 888-WADDELL
Washington, D. C. 20036
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Boulevard Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment 913-236-2000
Management Company 888-WADDELL
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
913-236-2000 6300 Lamar Avenue
888-WADDELL 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)
W&R FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
, 2000
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with the prospectuses
("Prospectuses") for the W&R Funds, Inc. (formerly Waddell & Reed Funds, Inc.)
(the "Corporation") dated June 30, 2000 and , 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 .............................
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 PeriodFive-Year PeriodPeriod 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 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 PeriodPeriod 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 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 C 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 Prospectuses 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 Stategy Fund
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 remaining 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 rated BB or below by Standard & Poor's
("S&P") or Ba or below by Moody's Investors Service, Inc. ("MIS") or, if
unrated, judged by WRIMCO to be of equivalent quality (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 more complete description of bond ratings.
Money Market Fund
Money Market Fund may only invest in the money market obligations and
instruments listed. 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 Rule 2a-7.
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 debt 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 S&P and C by
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. 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 Prospectuses 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."
Borrowing
From time to time Mid Cap Growth Fund may increase its ownership of
securities by borrowing on an unsecured basis at fixed rates of interest and
investing the borrowed funds. Any such borrowing will be made only from banks
and only to the extent that the value of Mid Cap Growth Fund's assets, less
its liabilities other than borrowings, is equal to at least 300% of all
borrowings including the proposed borrowing. This 300% limit is contained in
the 1940 Act. If the value of the Fund's assets so computed should fail to
meet the 300% asset coverage requirement, it is required within three days to
reduce its bank debt to the extent necessary to meet that requirement and may
have to sell a portion of its investments at a time when independent
investment judgment would not dictate such sale.
Interest on money borrowed is an expense Mid Cap Growth Fund would not
otherwise incur, so that it may have little or no net investment income during
periods of substantial borrowings. Borrowing for investment increases both
investment opportunity and risk. Since substantially all of this Fund's
assets may fluctuate in value, but borrowing obligations are fixed, the net
asset value per share correspondingly will tend to increase and decrease more
when the portfolio assets increase or decrease in value than would otherwise
be the case. This factor is known as "leverage."
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'
Prospectuses or SAI will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectuses.
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. Each Fund
(other than Limited-Term Bond Fund, Money Market Fund or Municipal
Bond 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. As an operating
policy, 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) No Fund may 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
and as consistent with its goal and its other investment policies
and restrictions;
(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 the total assets
of each Fund (except Money Market Fund) 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 Money Market Fund) from purchasing and selling
foreign currency (other than Limited-Term Bond Fund or Municipal
Bond Fund), 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. Each Fund may, however, issue
additional series and classes of shares in accordance with its
Articles of Incorporation;
Each Fund (other than Asset Strategy Fund and Mid Cap Growth 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 (10% of the total assets of Money Market
Fund).
Asset Strategy 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.
Money Market Fund may only pledge or mortgage its assets up to the
lesser of amounts borrowed or 5% of the value of this Fund's total
assets;
(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 (vii) 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) During 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) Each Fund (other than Asset Strategy Fund, High Income Fund and
Money Market Fund) does not currently intend to invest in non-
investment grade debt securities and unrated securities judged by
WRIMCO to be of equivalent quality 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. High Income Fund may
invest all of its assets in non-investment grade debt securities.
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). At least 80% of Municipal Bond Fund's net assets will consist
of municipal bonds of investment grade. Money Market Fund may not
invest in non-investment grade debt securities.
(ix) 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;
(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. High Income Fund may invest an unlimited
amount of its total assets in foreign securities.
(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.
(xvii) Mid Cap Growth Fund may borrow only from banks and only to the
extent that the value of its assets, less its liabilities other than
borrowings, is equal to at least 300% of all borrowings including
the proposed borrowing.
(xviii) Asset Strategy Fund does not currently intend to invest
in money market instruments rated below the highest
rating category by S&P or MIS, or if unrated, judged by
WRIMCO to be of equivalent quality; provided, however,
that the Fund may invest in a money market instrument
rated below the highest rating category by S&P or MIS
if such instrument is subject to a letter of credit or
similar unconditional credit enhancement that is rated
A-1 by S&P or P-1 by MIS, or if unrated, judged by
WRIMCO to be of equivalent quality.
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%
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 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 Prospectuses. 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(1)
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(1)
Small Cap Growth Fund 66,667 54,167 49,167
Total Return Fund 64,167 60,000 59,167
(1)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 and through other
broker-dealers, banks and other appropriate intermediaries (collectively, the
"sales force"). In distributing shares, the Distributor will pay commissions
and incentives to the sales force at or about the time of sale and will incur
other expenses including costs for prospectuses, sales literature,
advertisements, sales office maintenance, processing of orders and general
overhead with respect to its efforts to distribute the Corporation's shares.
The 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. In addition to the dealer reallowance that may be applicable
to Class A share purchases, as described in the Prospectuses, Waddell & Reed,
Inc. may pay other broker-dealers a portion of the fees it receives under the
respective Plans as well as other compensation in connection with the
distribution of Fund shares. 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 Prospectuses. 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 Prospectuses. 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 (other than automatic investment
purchases) 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.
Money Market Fund is designed so that the value of each share of each class of
the Fund (the NAV per share) will remain fixed at $1.00 per share except under
extraordinary circumstances, although this may not always be possible.
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.
Money Market Fund operates under Rule 2a-7 which permits it to value its
portfolio on the basis of amortized cost. The amortized cost method of
valuation is accomplished by valuing a security at its cost and thereafter
assuming a constant amortization rate to maturity of any discount or premium,
and does not reflect the impact of fluctuating interest rates on the market
value of the security. This method does not take into account unrealized
gains or losses.
While the amortized cost method provides some degree of certainty in
valuation, there may be periods during which value, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
the Fund's shares may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its portfolio instruments and
changing its dividends based on these changing prices. Thus, if the use of
amortized cost by the Fund resulted in a lower aggregate portfolio value on a
particular day, a prospective investor in the Fund's shares would be able to
obtain a somewhat higher yield than would result from investment in such a
fund, and existing investors in the Fund's shares would receive less
investment income. The converse would apply in a period of rising interest
rates.
Under Rule 2a-7, the Corporation's Board of Directors must establish
procedures designed to stabilize, to the extent reasonably possible, the
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures must include review of the Fund's portfolio holdings
by the Board at such intervals as it may deem appropriate and at such
intervals as are reasonable in light of current market conditions to determine
whether the Fund's NAV calculated by using available market quotations (see
below) deviates from the per share value based on amortized cost.
For the purpose of determining whether there is any deviation between the
value of the Fund's portfolio based on amortized cost and that determined on
the basis of available market quotations, if there are readily available
market quotations, investments are valued at the mean between the bid and
asked prices. If such market quotations are not available, the investments
will be valued at their fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Fund's Board of Directors, including being valued at prices based on
market quotations for investments of similar type, yield and duration.
Under Rule 2a-7, if the extent of any deviation between the NAV per share
based upon available market quotations (see above) and the NAV per share based
on amortized cost exceeds one-half of 1%, the Board must promptly consider
what action, if any, will be initiated. When the Board believes that the
extent of any deviation may result in material dilution or other unfair
results to investors or existing shareholders, it is required to take such
action as it deems appropriate to eliminate or reduce to the extent reasonably
practicable such dilution or unfair results. Such actions could include the
sale of portfolio securities prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends or
payment of distributions from capital or capital gains, redemptions of shares
in kind, or establishing a NAV per share using available market quotations.
The procedures which the Corporation's Board of Directors has adopted
include changes in the dividends payable by the Fund under specified
conditions, as further described under "Taxes" and "Payments to Shareholders."
The purpose of this portion of the procedures is to provide for the automatic
taking of one of the actions which the Board of Directors might take should it
otherwise be required to consider taking appropriate action.
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 Prospectuses. 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 (for clients
of Waddell & Reed, Inc. and Legend Equities Corporation "Legend"). 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 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 Prospectuses, 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 Prospectuses. 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, for
clients of Waddell & Reed, Inc. or Legend, 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
clients of Waddell & Reed, Inc. or 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
clients 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 clients 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 Class A shares of Money Market Fund, for clients of Waddell &
Reed, Inc. or Legend, for Class Y shares of a fund within the Waddell & Reed
Advisors Funds.
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 & 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 Prospectuses give 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 45
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 at the NAV next calculated after
you have returned the amount. Your written request to do this must be
received within 45 days after your redemption request was received. You can
do this only once as to Class B, 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 or,
for Money Market Fund, less than $250. 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. 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.
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
Bryan J. Bailey is 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
Prospectuses; 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 Prospectuses, 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. Bank of America Corporation and Citigroup Inc. are
regular brokers of the Fund.
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.
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.
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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 .
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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%
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.
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
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 --- ---
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:
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.
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.
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.
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.
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.
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.
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.
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.
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
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits: W&R 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, filed by EDGAR on June 30, 2000 as EX-
99.B(a)wrartsup to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A*
(b) Bylaws, as amended, filed by EDGAR on June 27, 1996 as EX-99.B2-
wrbylaw to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A*
Amendment to Bylaws filed by EDGAR on April 30, 1999 as EX-
99.B(b)-wrbylaw2 to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement with amended fee schedule to
reflect the addition of Science and Technology Fund and High
Income Fund, filed by EDGAR on May 16, 1997 as EX-99.B5-wrima to
Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A*
Fee Schedule (Exhibit A) to the Investment Management Agreement,
as amended, 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 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 hereto 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, filed by EDGAR on June 30, 2000 as EX-
99.B(h)wrssacomp to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A*
Fund application (Non-Retirement Plan), as amended, filed by
EDGAR on June 30, 2000 as EX-99.B(h)wrappnon to Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A*
Fund application (Retirement Plan), as amended, filed by EDGAR on
June 30, 2000 as EX-99.B(h)wrappabc to Post-Effective Amendment
No. 15 to the Registration Statement on Form N-1A*
Fund Application (Institutional), filed by EDGAR on June 30, 2000
as EX-99.B(h)wrappnav to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A*
Fund Application (Legend Non-Retirement), filed by EDGAR on June
30, 2000 as EX-99.B(h)wrapplegnon to Post-Effective Amendment No.
15 to the Registration Statement on Form N-1A*
Fund Application (Legend Retirement), filed by EDGAR on June 30,
2000 as EX-99.B(h)wrapplegabc to Post-Effective Amendment No. 15
to the Registration Statement on Form N-1A*
(i) Opinion and Consent of Counsel, attached hereto as EX-
99.B(i)wrlegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B(j)wrconsnt
(k) Not applicable
(l) Agreement with initial shareholder, Waddell & Reed, Inc. filed by
EDGAR on June 2, 1992 as Exhibit (b)(13) to Pre-Effective
Amendment No. 1 to the initial Registration Statement on Form N-
1A*.
Agreement with Initial Shareholder of Waddell & Reed Funds, Inc.
Asset Strategy Fund, filed by EDGAR on June 27, 1995 as EX-
99.B13-wragree to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A*
(m) Distribution and Service Plan for Class B shares, filed by EDGAR
on October 3, 1995 as EX-99.B15-wrdspcb to Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A*
Distribution and Service Plan for Class Y shares, filed by EDGAR
on October 3, 1995 as EX-99.B15-wrdspcy to Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A*
Distribution and Service Plan for Class A shares, filed by EDGAR
on June 30, 2000 as EX-99.B(m)wrdspca to Post-Effective Amendment
No. 15 to the Registration Statement on Form N-1A*
Distribution and Service Plan for Class B shares, filed by EDGAR
on June 30, 2000 as EX-99.B(m)wrdspcB to Post-Effective Amendment
No. 15 to the Registration Statement on Form N-1A*
(n) Not applicable
(o) Multiple Class Plan, filed by EDGAR on June 27, 1996 as EX-
99.B18-wrmcp to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A*
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, filed by EDGAR on June 30, 2000
as EX-99.B(o)wrmcp to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A*
(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, 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:
Waddell & Reed Advisors Funds, Inc.
Waddell & Reed Advisors International Growth Fund, Inc.
Waddell & Reed Advisors Continental Income Fund, Inc.
Waddell & Reed Advisors Vanguard Fund, Inc.
Waddell & Reed Advisors Retirement Shares, Inc.
Waddell & Reed Advisors Municipal Bond Fund, Inc.
Waddell & Reed Advisors High Income Fund, Inc.
Waddell & Reed Advisors Cash Management, Inc.
Waddell & Reed Advisors Government Securities Fund, Inc.
Waddell & Reed Advisors New Concepts Fund, Inc.
Waddell & Reed Advisors Municipal High Income Fund, Inc.
Waddell & Reed Advisors High Income Fund II, Inc.
Waddell & Reed Advisors Asset Strategy Fund, Inc.
Waddell & Reed Advisors Small Cap Fund, Inc.
Waddell & Reed Advisors 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.
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
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, WADDELL &
REED ADVISORS ASSET STRATEGY FUND, INC., WADDELL & REED ADVISORS CASH
MANAGEMENT, INC., WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.,
WADDELL & REED ADVISORS FUNDS, INC., WADDELL & REED ADVISORS GOVERNMENT
SECURITIES FUND, INC., WADDELL & REED ADVISORS HIGH INCOME FUND, INC., WADDELL
& REED ADVISORS HIGH INCOME FUND II, INC., WADDELL & REED ADVISORS
INTERNATIONAL GROWTH FUND, INC., WADDELL & REED ADVISORS MUNICIPAL BOND FUND,
INC., WADDELL & REED ADVISORS MUNICIPAL HIGH INCOME FUND, INC., WADDELL & REED
ADVISORS NEW CONCEPTS FUND, INC., WADDELL & REED ADVISORS RETIREMENT SHARES,
INC., WADDELL & REED ADVISORS SMALL CAP FUND, INC., WADDELL & REED ADVISORS
TAX-MANAGED EQUITY FUND, INC., WADDELL & REED ADVISORS VANGUARD FUND, INC.,
TARGET/UNITED FUNDS, INC. AND W&R 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: May 17, 2000 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
/s/Keith A. Tucker Chairman of the Board May 17, 2000
------------------- -----------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal May 17, 2000
-------------------- Financial Officer and -----------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and May 17, 2000
-------------------- Director -----------------
Henry J. Herrmann
/s/Theodore W. Howard Vice President, Treasurer May 17, 2000
-------------------- and Principal Accounting -----------------
Theodore W. Howard Officer
/s/James M. Concannon Director May 17, 2000
-------------------- -----------------
James M. Concannon
/s/John A. Dillingham Director May 17, 2000
-------------------- -----------------
John A. Dillingham
/s/David P. Gardner Director May 17, 2000
------------------- -----------------
David P. Gardner
/s/Linda K. Graves Director May 17, 2000
-------------------- -----------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director May 17, 2000
-------------------- -----------------
Joseph Harroz, Jr.
/s/John F. Hayes Director May 17, 2000
-------------------- -----------------
John F. Hayes
/s/Glendon E. Johnson Director May 17, 2000
-------------------- -----------------
Glendon E. Johnson
/s/William T. Morgan Director May 17, 2000
-------------------- -----------------
William T. Morgan
/s/Ronald C. Reimer Director May 17, 2000
-------------------- -----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr. Director May 17, 2000
-------------------- -----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director May 17, 2000
-------------------- -----------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director May 17, 2000
-------------------- -----------------
Frederick Vogel III
Attest:
/s/Kristen A. Richards
--------------------------------
Kristen A. Richards
Secretary
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(a) 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
25th day of July, 2000.
W&R 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 July 25, 2000
---------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal July 25, 2000
---------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and July 25, 2000
---------------------- Director ----------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer July 25, 2000
---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director July 25, 2000
------------------ ----------------
James M. Concannon
/s/John A. Dillingham* Director July 25, 2000
------------------ ----------------
John A. Dillingham
/s/David P. Gardner* Director July 25, 2000
------------------ ----------------
David P. Gardner
/s/Linda K. Graves* Director July 25, 2000
------------------ ----------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director July 25, 2000
------------------ ----------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director July 25, 2000
------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director July 25, 2000
------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director July 25, 2000
------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer* Director July 25, 2000
------------------ ----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director July 25, 2000
------------------ ----------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director July 25, 2000
------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director July 25, 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
