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. 14
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 14
WADDELL & REED FUNDS, INC.
- --------------------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
- --------------------------------------------------------------------------------
Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
__X__ 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 will be filed on or about June 26, 2000.
<PAGE>
TBD 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
This prospectus offers shares in the equity funds of TBD Funds, Inc. (formerly
known as Waddell & Reed Funds, Inc.).
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
June 30, 2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS.....................................................4
ASSET STRATEGY FUND..........................................................4
INTERNATIONAL GROWTH FUND...................................................11
LARGE CAP GROWTH FUND.......................................................17
MID CAP GROWTH FUND.........................................................21
SCIENCE AND TECHNOLOGY FUND.................................................25
SMALL CAP GROWTH FUND.......................................................31
TAX-MANAGED EQUITY FUND.....................................................37
TOTAL RETURN FUND...........................................................41
THE INVESTMENT PRINCIPLES OF THE FUNDS......................................47
Investment Goals, Principal Strategies and Other Investments..............47
All Funds.................................................................53
Risk Considerations of Principal Strategies and Other Investments.........53
YOUR ACCOUNT................................................................56
Choosing a Share Class....................................................56
Sales Charge Reduction and Waivers........................................59
Waivers for Certain Investors.............................................60
Ways to Set Up Your Account...............................................64
Buying Shares.............................................................66
Minimum Investments.......................................................68
Adding to Your Account....................................................69
Selling Shares............................................................69
Telephone Transactions....................................................73
Shareholder Services......................................................73
Personal Service........................................................73
Reports.................................................................74
Exchanges...............................................................74
Automatic Transactions..................................................74
Distributions and Taxes...................................................75
Distributions...........................................................75
Taxes...................................................................76
2
<PAGE>
THE MANAGEMENT OF THE FUNDS.................................................79
Portfolio Management......................................................79
Management Fee............................................................81
FINANCIAL HIGHLIGHTS........................................................84
3
<PAGE>
An Overview of the Funds
Asset Strategy Fund
Goal
Asset Strategy Fund seeks high total return over the long term.
Principal Strategies
Asset Strategy Fund seeks to achieve its goal by allocating its assets among
stocks, bonds and short-term instruments.
o 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.
o 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.
o 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.
o 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.
4
<PAGE>
Mix
- ---
_ Stocks 70%
(can range
from
0-100%)
_ Bonds 25%
(can range
from
0-100%)
_ Short-term 5%
(can range from
0-100%)
Principal Risks of Investing in the Fund
Because Asset Strategy Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
o the skill of WRIMCO in allocating the Fund's assets among different types
of investments;
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
o an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to
decline;
o prepayment of higher-yielding bonds held by the Fund;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds; and
o 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.
5
<PAGE>
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.
6
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Asset Strategy Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
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 %.
7
<PAGE>
* The returns shown are based on the performance of the Fund's prior
Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on, _____,
1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year Life of Class**
Class C Shares of Asset
Strategy Fund* 18.22% 10.05%
S&P 500 Index 21.09% 27.53%
Salomon Brothers Broad
Investment Grade Debt Index -0.83% 6.86%
Salomon Brothers Short-Term
Index for 1 Month Certificates
of Deposit 5.32% 5.62%
Lipper All 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 Debt Index -0.83% 5.20%
Salomon Brothers Short-Term
Index for 1 Month Certificates
of Deposit 5.32% 5.55%
Lipper All Flexible Portfolio
Funds Universe Average 12.50% 14.44%
The indexes shown are broad-based, securities market indexes that are unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the goal
of the Fund.
* The returns shown for Class C are based on the performance of the Fund's prior
Class B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on ____, 1999. The prior Class B's
performance has been adjusted to reflect the current contingent deferred sales
charge ("CDSC") structure applicable to Class C.
** Since April 20, 1995, for Class C shares (based on the prior Class B shares)
and December 27, 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.
8
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Asset Strategy 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) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and
Service (12b-1) Fees(3) 0.25% 1.00% 1.00% 0.25%
Other Expenses % 0.% 0.% 0.%
Total Annual Fund
Operating Expenses 2.21% 2.10% 1.34%
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.
- --------
(1) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(2) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
9
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
10
<PAGE>
<PAGE>
International Growth Fund
Goals
International Growth Fund seeks, as a primary goal, long-term appreciation of
capital. As a secondary goal, the Fund seeks current income.
Principal Strategies
International Growth Fund seeks to achieve its goals by investing primarily in
common stocks of foreign companies that WRIMCO believes have the potential for
long-term growth represented by economic expansion 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:
o growth potential;
o earnings potential;
o management;
o industry position; and
o 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:
o changes in foreign exchange rates, which may affect the value of the
securities the Fund holds;
11
<PAGE>
o 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;
o the earnings performance, credit quality and other conditions of the
issuers whose securities the Fund holds; and
o 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.
12
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in International Growth Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual total
returns for the periods shown compare with those of a broad measure of market
performance and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
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).
13
<PAGE>
The Class C return for the year through March 31, 2000, was %.
* The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on October 4, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 Years Life of Class**
Class C Shares of
International Growth Fund* 85.66% 30.25% 19.91%
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 13.55%
Lipper International
Fund 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% 13.55
Lipper International
Fund Universe Average 40.80% 15.05% 14.91
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goals of
the Fund.
* The 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.
** Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 27, 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.
14
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of International Growth 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)(4) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(5)
(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.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
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:
- ----------
(4) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(5) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
15
<PAGE>
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
16
<PAGE>
Large Cap Growth Fund
Goal
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 U.S. companies with market
capitalizations of $4 to $10 billion or greater at the time of purchase that
WRIMCO believes have appreciation possibilities. WRIMCO typically emphasizes
growth stocks, but also includes value stocks, in the Fund's portfolio to
provide a blend of value and growth potential. 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 companies of any size.
WRIMCO attempts to select securities with appreciation possibilities by looking
at many factors. These include:
o changes in economic and political conditions;
o the short-term and long-term outlook for the industry being analyzed;
o the management capability of the company being considered; and
o the company's market position, product line, technological position and
prospects for increased earnings.
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.
17
<PAGE>
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:
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
o 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
o the skill of WRIMCO in evaluating and selecting securities for the Fund.
As well, the Fund may invest a portion of its assets in foreign securities.
Foreign securities present additional risks such as currency fluctuations and
political or economic conditions affecting the foreign countries.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
The Fund is designed for investors seeking long-term investment growth. You
should consider whether the Fund fits your particular investment objectives.
18
<PAGE>
Performance
Since Large Cap Growth Fund has not been in operation for a full calendar year,
it does not have performance information of at least one calendar year to
include a bar chart or performance table.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Large Cap Growth Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load) (6) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(7)
(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.% 0.% 0.% 0.%
Total Annual Fund
Operating Expenses 0.% % % %
</TABLE>
- ----------
(6) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(7) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to voluntarily 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.
19
<PAGE>
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 $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years
Class A Shares $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
20
<PAGE>
Mid Cap Growth Fund
Goal
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. companies whose market capitalizations are within the range of
capitalizations of companies comprising the Standard & Poor's MidCap 400 Index
("S&P MidCap 400") 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:
o new or innovative products or services,
o adaptive or creative management,
o strong financial and operational capabilities to sustain growth,
o market potential, and
o 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:
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o 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;
21
<PAGE>
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy; and
o 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
The 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.
22
<PAGE>
<PAGE>
Performance
Since Mid Cap Growth Fund has not been in operation for a full calendar year, it
does not have performance information of at least one calendar year to include a
bar chart or performance table.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Mid Cap Growth Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load) (8) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(9)
(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.% 0.% 0.% 0.%
Total Annual Fund
Operating Expenses 0.% 0.% 0.% 0.%
</TABLE>
- ----------
(8) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(9) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to voluntarily 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.
23
<PAGE>
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 $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years
Class A Shares $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
24
<PAGE>
Science and Technology Fund
Goal
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 science and technology equity securities of U.S.
companies. Science and technology companies are companies whose products,
processes or services, in WRIMCO's opinion, are being or are expected to be
significantly benefited by the use or commercial application of scientific or
technological developments or discoveries. The Fund may invest in companies of
any size. The Fund emphasizes growth potential in selecting stocks; that is,
WRIMCO seeks companies in which earnings are likely to grow faster than the
economy.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include the issuer's:
o growth potential;
o earnings potential;
o management;
o industry position; and
o 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:
o 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;
25
<PAGE>
o rapid obsolescence of products or processes of companies in which the Fund
invests;
o government regulation in the science and technology industry;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o 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
o 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 science and
technology securities. This Fund is not suitable for all investors. You should
consider whether the Fund fits your investment objectives.
26
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Science and Technology 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.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
1998 44.03%
1999 177.01%
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 %.
* The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined
27
<PAGE>
with and redesignated as Class C, which had commenced operations on,
_____, 1999.
Average Annual Total Returns
as of December 31, 1999 (%)
1 Year Life of Class**
Class C Shares of Science
and Technology Fund* 174.01% 78.42%
Goldman Sachs Technology
Industry Composite Index 88.86% 53.80%
S&P 400 Index % % %
Lipper Science and Technology
Fund 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 Index % % %
Lipper Science and Technology
Fund Universe Average 134.77% 99.09%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
* The 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 ____, 1999. The prior Class B's
performance has been adjusted to reflect the current CDSC structure applicable
to Class C.
** Since 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.
28
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Science and Technology Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(10) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(11)
(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.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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.
- ----------
(10) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(11) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
29
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
30
<PAGE>
Small Cap Growth Fund
Goal
Small Cap Growth Fund seeks growth of capital.
Principal Strategies
Small Cap Growth Fund, formerly known as Growth Fund, seeks to achieve its goal
by investing primarily in a diversified portfolio of 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 an 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:
o aggressive or creative management;
o technological or specialized expertise;
o new or unique products or services; and
o entry into new or emerging industries.
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 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 investments, a variety of
factors can affect its investment performance, such as:
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
31
<PAGE>
o the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries;
o 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
o the skill of WRIMCO 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:
o products offered may fail to sell as anticipated;
o a period of unprofitability may be experienced before a company develops
the expertise and clientele to succeed in an industry;
o the company may never achieve profitability; and
o 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 investors
who desire assured income and conservation of capital. You should consider
whether the Fund fits your particular investment objectives.
32
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Small Cap Growth 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.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
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).
33
<PAGE>
The Class C return for the year through March 31, 2000, was %.
* 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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 Years Life of Class**
Class C Shares of Small Cap
Growth Fund* 58.42% 30.75% 28.84%
Russell 2000 Growth Index 43.08% 18.95% 16.94%
Lipper Small-Cap Funds
Universe Average 33.35% 19.46% 18.12%
Class Y Shares of Small Cap
Growth Fund 62.79% 31.67%
Russell 2000 Growth Index 43.08% % 16.12%
Lipper Small-Cap Funds
Universe Average 33.35% % 17.53%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
* The 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 ____, 1999. The prior Class B's
performance has been adjusted to reflect the current CDSC structure applicable
to Class C.
** Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 27, 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.
34
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Small Cap Growth Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(12) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(13)
(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 % % % %
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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:
- ----------
(12) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(13) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on other Fund-level expenses for the fiscal year ended
March 31, 2000, and for Class A and Class B, the expenses attributable to those
classes that are anticipated for the current year. Actual expenses may be
greater or less than those shown.
35
<PAGE>
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
36
<PAGE>
Tax-Managed Equity Fund
Goal
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:
o the skill of WRIMCO in evaluating and selecting securities for the Fund;
37
<PAGE>
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o 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;
o 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
o 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.
38
<PAGE>
Performance
Tax-Managed Equity 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
This table describes the fees and expenses that you may pay if you buy and hold
shares of Tax-Managed Equity Fund.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(14) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(15)
(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.% 0.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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
- ----------
(14) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(15) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to voluntarily 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.
39
<PAGE>
$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 class 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 $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years
Class A Shares $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
40
<PAGE>
Total Return Fund
Goal
Total Return Fund seeks to provide current income while seeking capital growth.
Principal Strategies
Total Return Fund seeks to achieve its goal by investing primarily in common
stocks of U.S. companies with dominant market positions in their industries 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. At other times, such as when the economy no longer
presents a favorable environment for the common stocks of large U.S. companies,
the Fund may seek to achieve its goal by investing in investment grade debt
securities. The Fund may make such investments when WRIMCO believes the return
on these securities is attractive relative to the return on common stocks. The
Fund may invest in debt securities of any maturity and may invest in companies
of any size.
WRIMCO attempts to select securities with income and growth possibilities by
looking at many factors including the company's:
o dividend payment history;
o profitability record;
o history of improving sales and profits;
o management;
o leadership position in its industry; and
o stock price value.
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
41
<PAGE>
Because Total Return Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
o 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;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o 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
o 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 dividend income with the
potential for capital growth. You should consider whether the Fund fits your
investment objectives.
42
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Total Return Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
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
43
<PAGE>
quarterly return was -7.12% (the third quarter of 1998). The Class C
return for the year through March 31, 2000, was %.
* 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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 Years Life of Class**
Class C Shares of Total
Return Fund* 9.15% 20.91% 16.66%
S&P 500 Index 21.09% 28.59% 21.55%
Lipper Growth and Income
Fund 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
Fund 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.
* The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on ____, 1999. The
prior Class B's performance has been adjusted to reflect the current CDSC
structure applicable to Class C.
** Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 27, 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.
44
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Total Return Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(16) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(17)
(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.% 0.% 0.%
Total Annual Fund
Operating Expenses .% % % %
</TABLE>
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.
- ----------
(16) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(17) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
45
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
46
<PAGE>
The Investment Principles of the Funds
Investment Goals, Principal Strategies and Other Investments
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
47
<PAGE>
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:
o 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
o 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.
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 (rated BBB and higher by S&P or Baa and higher by MIS).
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
48
<PAGE>
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.
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 U.S. companies that WRIMCO believes have appreciation
possibilities. There is no guarantee that the Fund will achieve its goal.
The Fund invests primarily in common stock but may also own, to a limited
extent, preferred stock and debt securities, typically of investment grade
(rated BBB or higher by S&P or Baa or higher by MIS) 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.
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. companies whose market capitalizations are within the
range of capitalizations of companies comprising the S&P MidCap 400 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 S&P MidCap 400. Companies
whose capitalization falls outside the range of the S&P MidCap 400 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.
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 (rated BBB or higher by S&P or Baa or higher by MIS). The Fund may also
invest up to 25% of its total assets in foreign securities.
49
<PAGE>
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.
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:
o aerospace and defense electronics;
o biotechnology;
o business machines;
o cable and broadband access;
o communications and electronic equipment;
o computer software and services;
o computer systems;
o electronics;
o electronic media;
o internet and internet-related services;
o medical devices and drugs;
50
<PAGE>
o medical and hospital supplies and services; and
o 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. WRIMCO
typically emphasizes growth potential in selecting stocks. A stock has growth
potential if, in WRIMCO's opinion, the earnings of the company are likely to
grow faster than the economy.
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.
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 (rated BBB and higher by Standard
& Poor's or Baa and higher by Moody's Investors Service, Inc., or, if unrated,
deemed by WRIMCO to be of comparable quality). 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
51
<PAGE>
temporary defensive position, the Fund may not achieve its investment objective.
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:
o a long-term, low turnover approach to investing;
o an emphasis on lower-yielding securities to require distribution of
little, if any, taxable income;
o an attempt to avoid net realized short-term gains;
o in the sale of portfolio securities, selection of the most tax-favored
lots; and
o 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 (rated
BBB and higher by S&P or Baa and higher by MIS). The Fund may also buy foreign
securities; however, it may not invest more than 25% of its total assets in
foreign securities.
52
<PAGE>
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.
Total Return Fund
The goal of Total Return Fund is to provide current income while seeking capital
growth. The Fund seeks to achieve its goal by investing primarily in a
diversified portfolio of common stocks, or securities convertible into common
stocks, of U.S. companies that have a record of paying regular dividends 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:
o hold cash, commercial paper, certificates of deposit or other short-term
investments;
o invest in debt securities (including commercial paper or short-term U.S.
Government securities); or
o 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
53
<PAGE>
and Other Investments
Risks exist in any investment. Each Fund is subject to equity risk and other
market risk and financial risk.
o 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.
o 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.
54
<PAGE>
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.
55
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers four classes of shares for each Fund: 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 calendar years)
or Class C shares (if investing for less than seven calendar 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
<TABLE>
<CAPTION>
Class A Class B Class C
- ------- ------- -------
<S> <C> <C>
o Initial sales charge o No initial sales charge o No initial sales charge
o No deferred sales charge o Deferred sales charge on o A 1% deferred sales
shares you sell within charge on shares you
six calendar years after sell within twelve
purchase months after purchase
o Maximum distribution and o Maximum distribution and o Maximum distribution and
service (12b-1) fees of service (12b-1) fees of service (12b-1) fees of
0.25% 1.00% 1.00%
o For an investment of o Converts to Class A o Does not convert to
$2 million or more, only shares at the end of the Class A shares, so
Class annual
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
A shares are available seventh calendar year expenses do not decrease
following the year of
purchase, thus reducing
future annual expenses
o For an investment of
$300,000 or more, Waddell &
Reed financial advisors
typically will recommend
purchase of Class A shares
due to a reduced sales
charge and lower annual
expenses
</TABLE>
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.
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<PAGE>
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 and higher than those for Class Y shares.
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Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- -------- -------- -------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
Sales Charge Reductions and Waivers
Lower sales charges are available by:
o Combining additional purchases of Class A shares of any of the Funds in
the TBD 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 net asset
value ("NAV") of Class A shares of the funds in the TBD Group and of the
funds within the
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United Group of Mutual Funds, except Class A shares of Money Market Fund
or United Cash Management, Inc. 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");
o Grouping all purchases of Class A shares of TBD Group (the "Corporation"),
except shares of Money Market Fund made during a thirteen-month period
("Letter of Intent"); and
o Grouping purchases by certain related persons.
Additional information and applicable forms are available from Waddell & Reed
financial advisors.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
o The Directors and officers of the Corporation or of any affiliated entity
of Waddell & Reed, Inc., employees of Waddell & Reed, Inc., employees of
its affiliates, financial advisors of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each;
o Certain retirement plans and certain trusts for these persons; and
o Clients of Legend Equities, Corp. ("Legend") as of _____, that redeem
assets from an unaffiliated mutual fund if such client has already paid an
initial sales charge or a deferred sales charge. Such investment must
occur within 30 days of the redemption.
You will find more information in the SAI about sales charge reductions and
waivers.
Contingent Deferred Sales Charge. A CDSC may be assessed against your redemption
amount of your Class B or Class C 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 Funds' Class B and
Class C shares. The CDSC will not be imposed on Class B or Class C 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 Class B or Class C shares
purchased during the CDSC period. The CDSC is applied to the lesser of amount
invested or redemption value.
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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 Class B or Class C shares 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 calendar
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 bought Class A shares.
A Fund's Class B shares will automatically convert to Class A shares of the Fund
at the end of the seventh calendar year following the year of purchase. 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
stated below.
Deferred
Date of Sales
Redemption Charge
- ---------- ------
anytime within 1st calendar year 5%
anytime within 2nd calendar year 4%
anytime within 3rd calendar year 3%
anytime within 4th calendar year 3%
anytime within 5th calendar year 2%
anytime within 6th calendar year 1%
after 6th calendar year 0%
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<PAGE>
All Class B investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the CDSC. For
Class B, the date of redemption is measured, in calendar years, from the first
calendar year of purchase. For example, if a shareholder opens an account on
July 1, 2000, then redeems all Class B shares on March 1, 2001, the shareholder
will pay a CDSC of 4%, the rate applicable to redemptions made within the second
calendar year of purchase. Please note that the CDSC is not based on the length
of time that shares are held. Instead, the CDSC is based on the calendar year of
purchase and the calendar year of redemption.
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:
o redemptions of Class B or Class C 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.
o redemptions of Class B or Class C 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.
o redemptions of Class B or Class C shares purchased by current or retired
Directors of the Corporation, Directors of affiliated companies, current
or retired officers or employees of the
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<PAGE>
Corporation, WRIMCO, the Distributor or their affiliated companies,
financial advisors of Waddell & Reed, Inc., and by the members of
immediate families of such persons.
o redemptions of Class B or Class C 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.)
o redemptions of which the proceeds are reinvested in Class B or Class C
shares (must be reinvested in the same class as that which was redeemed)
of the Fund within forty-five days after such redemption.
o the exercise of certain exchange privileges.
o redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B or Class C shares if the aggregate NAV of those
shares is less than $500.
o redemptions effected by another registered investment company by virtue of
a merger or other reorganization with a Fund or by a former shareholder of
such investment company of Class B or Class C shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
shares, which requires certain 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:
o 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;
o 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
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<PAGE>
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;
o government entities or authorities and corporations whose investment is
$10 million or more and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support
services; and
o certain retirement plans and trusts for employees and financial advisors
of Waddell & Reed, Inc. and its affiliates.
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax-deductible.
o Individual Retirement Accounts (IRAs) allow an individual under 70 1/2,
with earned income, to invest up to $2,000 per tax year. The maximum
annual contribution for an investor and his or her spouse is $4,000
($2,000 per spouse) or, if less, the couple's combined earned income for
the taxable year.
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
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<PAGE>
o 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
couples 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.
o Education IRAs are established for the benefit of a minor, with
nondeductible contributions, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
o Simplified Employee Pension Plans (SEP-IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with
many of the same advantages as a Keogh Plan, but with fewer administrative
requirements.
o Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to their employees'
retirement accounts and generally involve fewer administrative
requirements than 401(k) or other qualified plans.
o 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.
o Pension and Profit-Sharing Plans, including 401(k) Programs, 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.
o 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
o 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
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<PAGE>
year per child free of Federal transfer tax consequences. Depending on state
laws, you can set up a custodial account under the Uniform Gifts to Minors Act
("UGMA") or the Uniform Transfers to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and its
financial advisors or through advisors of Legend. To open your account you must
complete and sign an application. Your Waddell & Reed or Legend financial
advisor can help you with any questions you might have.
To purchase any class of shares by check, make your check payable to Waddell &
Reed, Inc. Mail the check, along with your completed application, to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
To purchase Class Y shares by wire, you must first obtain an account number by
calling 800-366-2520, then mail a completed application to Waddell & Reed, Inc.,
at the 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.
You may also buy Class Y shares of the Funds indirectly through certain
broker-dealers, banks and other third parties, some of which may charge you a
fee. These firms may have additional requirements regarding the purchase of
Class Y shares.
The price to buy a share of a Fund, called the offering price, is calculated
every business day.
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<PAGE>
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:
o The securities in a Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
o Bonds are generally valued according to prices quoted by an independent
pricing service.
o Short-term debt securities are valued at amortized cost, which
approximates market value.
o 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:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
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<PAGE>
o All of your purchases must be made in U.S. dollars.
o 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.
o If you purchase shares of a Fund from Legend advisors, certain
broker-dealers, banks or other authorized third parties, the Fund will be
deemed to have received your purchase order when Legend advisors or that
third party (or its designee) has received your order. Your order will
receive the offering price next calculated after the order has been
received in proper form by the authorized third party (or its designee).
You should consult Legend advisors or that firm to determine the time by
which it must receive your order for you to purchase shares of the Fund at
that day's price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts, and accounts opened through payroll deductions,
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account Any amount
For Automatic Investment Service $25 (per Fund)
For Class Y:
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<PAGE>
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 by check, make your check payable to Waddell & Reed, Inc.
Mail the check to Waddell & Reed, Inc., along with:
o the detachable form that accompanies the confirmation of a prior purchase
or your year-to-date statement; or
o a letter stating your account number, the account registration, the Fund,
and the class of shares that you wish to purchase.
To add to your Class Y account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, for the account of Waddell & Reed Number 9800007978,
Special Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
If you purchase shares of the Funds from Legend advisors, certain
broker-dealers, banks or other authorized third parties, additional purchases
may be made through those firms.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to Class
B or Class C shares.
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<PAGE>
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
o the name on the account registration;
o the Fund's name;
o the Fund account number;
o the dollar amount or number, and the class, of shares to be redeemed; and
o any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed financial advisor, or
mail it to:
Waddell & Reed 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:
o If more than one person owns the shares, each owner must sign the written
request.
o If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Corporation telephone or
written assurance, satisfactory to the Corporation, that the check has
cleared and been honored. If you do not, payment of the redemption
proceeds on these
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<PAGE>
shares will be delayed until the earlier of 10 days or the date the
Corporation is able to verify that your purchase check has cleared and
been honored.
o 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.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities when the Corporation'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.
o If you purchased shares of a Fund from Legend advisors, certain
broker-dealers, banks or other authorized third parties, you may sell
those shares through those firms, some of which may charge you a fee and
may have additional requirements to sell Fund shares. The Fund will be
deemed to have received your order to sell shares when that firm (or its
designee) has received your order. Your order will receive the NAV next
calculated after the order has been received in proper form by the
authorized firm (or its designee). You should consult that firm to
determine the time by which it must receive your order for you to sell
shares at that day's price.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must be signed by
Joint Tenant all persons required to sign for
transactions, exactly as their names appear
on the account.
Sole Proprietorship The written instructions must be
signed by the individual owner of the business.
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
Retirement The written instructions must be signed by a
Account properly authorized person.
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<PAGE>
Trust The trustee must sign the written
instructions indicating capacity as
trustee. If the trustee's name is not in
the account registration, provide a
currently certified copy of the trust
document.
Business or At least one person authorized by
Organization corporate resolution to act on the account
must sign the written instructions.
Conservator, The written instructions must be signed by
Guardian or the person properly authorized by court
Other Fiduciary order to act in the particular fiduciary
capacity.
The Corporation may require a signature guarantee in certain situations such as:
o a redemption request made by a corporation, partnership or fiduciary;
o a redemption request made by someone other than the owner of record; or
o the check is made payable to someone other than the owner of record.
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but not
from a notary public.
The Corporation reserves the right to redeem at NAV all shares of a Fund owned
by you having an aggregate NAV of less than $500. The Corporation will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares of that Fund to $500. For Class B or Class C shares, these
redemptions are not subject to the deferred sales charge. The Corporation will
not apply its redemption right to individual retirement plan accounts,
retirement accounts or accounts which have an aggregate NAV of less than $500
due to market forces.
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
Corporation within forty-five days after the date of your redemption.
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<PAGE>
The CDSC will not apply to the proceeds of Class B or Class C shares which are
redeemed and then reinvested in Class B or Class C shares, 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 of a Fund and once as to Class C 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 Corporation and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The
Corporation will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Corporation fails to do so, the
Corporation may be liable for losses due to unauthorized or fraudulent
instructions. Current procedures relating to instructions communicated by
telephone include tape recording instructions, requiring personal identification
and providing written confirmations of transactions effected pursuant to such
instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed financial advisor is available to provide personal
service. Additionally, 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 or update your account records. At almost any time of the day or
night, you may access your account information from a touch-tone phone, or from
our web site, www.waddell.com, to:
o obtain information about your accounts;
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<PAGE>
o obtain price information about other funds in TBD Funds, Inc. or Waddell &
Reed Group of Funds; or
o request duplicate statements.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Funds. Call the telephone number listed for Client Services if you need
additional copies of annual or semiannual reports or account information.
Exchanges
You may sell your shares and buy shares of the same class of any of the funds
within the TBD Group or of any of the funds within the Waddell & Reed Group of
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.
For Class B and Class C shares, 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.
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 Corporation 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.
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<PAGE>
Regular Investment Plans allow you to transfer money into your Fund account, or
between Fund accounts, automatically. While Regular Investment Plans do not
guarantee a profit and will not protect you against loss in a declining market,
they can be an excellent way to invest for retirement, a home, educational
expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account with Funds,
Inc.
Minimum Amount Minimum Frequency
$25 (per Fund) Monthly
Funds Plus Service
To move money from Money Market Fund to another Fund in Funds, Inc., whether in
the same or a different Fund account
Minimum Amount Minimum Frequency
$100 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 and Science and Technology Fund, annually in
December; Large Cap Growth Fund, semiannually in June and 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 three options:
75
<PAGE>
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. Income-Earned Option. Your capital gains and other non-dividend
distributions with respect to a class will be automatically paid in
additional shares of the same class of the distributing Fund, but you will
be sent a check for each dividend distribution. However, if the dividend
distribution is less than five dollars, the distribution will be
automatically paid in additional shares of the same class of the
distributing Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains
and other distributions if the total distribution is 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.
76
<PAGE>
A portion of the dividends paid by a Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by a Fund from U.S. corporations. However, dividends received
by a corporate shareholder and deducted by it pursuant to the dividends received
deduction are subject indirectly to the Federal alternative minimum tax.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the TBD Group or in the Waddell & Reed Group of 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 TBD Group 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
77
<PAGE>
may be other Federal, state or local tax considerations applicable to a
particular investor. You are urged to consult your own tax adviser.
78
<PAGE>
The Management of the Funds
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Corporation's
Board of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO and/or its predecessors have served
as investment manager to each of the registered investment companies in the
Waddell & Reed Group of Mutual Funds, TBD Funds, Inc. and Target/United Funds,
Inc. since the inception of each investment company. WRIMCO is located at 6300
Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Michael L. Avery is primarily responsible for the management of the equity
portion of the portfolio of Asset Strategy Fund. Mr. Avery has held his Fund
responsibilities since January 1997. He is Senior Vice President of WRIMCO, Vice
President of the Corporation and Vice President of other investment companies
for which WRIMCO serves as investment manager. From March 1995 to March 1998,
Mr. Avery was Vice President of, and Director of Research for, Waddell & Reed
Asset Management 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 portfolio of Asset Strategy Fund. Mr. Vrabac has held his Fund
responsibilities since January 1997. He is Vice President of the Corporation and
Vice President of other investment companies for which WRIMCO serves as
investment manager. From May 1994 to March 1998, Mr. Vrabac was Vice President
of, and a portfolio manager for, Waddell & Reed Asset Management Company. Mr.
Vrabac has served as an investment analyst with WRIMCO since May 1994 and has
been an employee of such since May 1994. Mr. Vrabac was a Vice President of
Kansas City Life Insurance Company from May 1983 to May 1994.
Mark G. Seferovich and Grant P. Sarris are primarily responsible for the
management of the portfolio of 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 Corporation and Vice President of other investment
companies for which WRIMCO serves as investment manager. Mr. Seferovich has
served as the portfolio manager of investment companies managed by WRIMCO since
February 1989 and has been an employee of such since February 1989. From March
1996 to March 1998, Mr. Seferovich was
79
<PAGE>
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company, a former affiliate of WRIMCO.
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 portfolio of
International Growth Fund. Mr. Mengel has held his Fund responsibilities since
joining WRIMCO on May 1, 1996. Mr. Mengel is Vice President of WRIMCO, Vice
President of the Corporation and Vice President of other investment companies
for which WRIMCO serves as investment manager. From 1993 to 1996, Mr. Mengel was
the President of Sal. Oppenheim jr. & Cie. Securities, Inc.
Daniel P. Becker is primarily responsible for the management of the portfolio of
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
Corporation 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 portfolio
of 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
Corporation 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 portfolio
of Science and Technology Fund. Mr. Herrmann has held his Fund responsibilities
since April 17, 2000. He is Vice President of the Fund and Vice President of
each investment company managed by WRIMCO. He is 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.; and 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.
80
<PAGE>
Cynthia P. Prince-Fox is primarily responsible for the management of the
portfolio of 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 Corporation 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.
Ms. Prince-Fox 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 and its predecessors.
James D. Wineland is primarily responsible for the management of the portfolio
of Total Return Fund. Mr. Wineland has held his Fund responsibilities since July
1, 1997. He is Vice President of WRIMCO, Vice President of the Corporation and
Vice President of other investment companies for which WRIMCO serves as
investment manager. From March 1995 to March 1998 Mr. Wineland was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. 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;
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
81
<PAGE>
net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3
billion;
for International Growth Fund, 0.85% of net assets up to $1 billion, 0.83% of
net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2
billion and up to $3 billion, and 0.76% of net assets over $3 billion;
for 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;
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.
For each of Large Cap Growth Fund, Mid Cap Growth Fund, and Tax-Managed Equity
Fund, WRIMCO has voluntarily agreed to waive its 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.
Prior to June 30, 1999, the management fee was computed on each Fund's (except
Large Cap Growth Fund, Mid Cap Growth Fund and Tax-Managed Equity Fund) NAV as
of the close of business each day at an annual rate as follows:
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<PAGE>
Annual
Fund Rate
- ---- ------
Asset Strategy
Fund 0.81%
Growth Fund 0.81%
International
Growth Fund 0.81%
Science and Technology
Fund 0.71%
Total Return
Fund 0.71%
For the fiscal year ended March 31, 2000, management fees for each Fund then in
existence as a percentage of such Fund's net assets were as follows:
Management
Fund Fee
- ---- ---
Asset Strategy
Fund 0.81%
Growth Fund 0.%
International
Growth Fund 0.%
Science and
Technology Fund 0.%
Total Return
Fund 0.71%
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<PAGE>
Financial Highlights
The following information is to help you understand the financial performance of
the 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 period*:
<TABLE>
<CAPTION>
For the
period
For the fiscal year from
ended March 31, 4/20/95**
---------------------------- to
2000 1999 1998 1997 3/31/96
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Class C Per-Share Data
Net asset value,
beginning of period .......... $ $11.42 $9.73 $10.15 $10.00
------ ------- ------- ------- -------
Income from investment
operations:
Net investment
income ..................... 0.15 0.21 0.23 0.16
Net realized and
unrealized gain (loss)
on investments ............. 0.05 2.16 (0.30) 0.14
------ ------- ------- ------- -------
Total from investment
operations ................... 0.20 2.37 (0.07) 0.30
------ ------- ------- ------- -------
Less distributions:
From net investment
income ..................... (0.16) (0.22) (0.21) (0.15)
From capital gains ........... (0.26) (0.46) (0.14) (0.00)
------ ------- ------- ------- -------
Total distributions ............ (0.42) (0.68) (0.35) (0.15)
------ ------- ------- ------- -------
Net asset value,
end of period ................ $ $11.20 $11.42 $9.73 $10.15
====== ======= ======= ======= =======
Class C Ratios/Supplemental Data
Total return ................... % 1.79% 24.94% -0.86% 3.00%
Net assets, end of
period (000
omitted) ..................... $ $30,473 $19,415 $13,398 $13,221
Ratio of expenses
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
to average net
assets ....................... % 2.32% 2.44% 2.52% 2.54%***
Ratio of net investment
income to average net
assets ....................... % 1.38% 2.02% 2.21% 2.14%***
Portfolio
turnover rate ................ % 168.17% 220.67% 109.92% 75.02%
</TABLE>
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
** Commencement of operations.
*** Annualized.
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<PAGE>
ASSET STRATEGY FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
------------------------------- 12/29/95*
2000 1999 1998 1997 to 3/31/96
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $11.43 $9.73 $10.16 $10.23
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ..................... 0.26 0.31 0.27 0.07
Net realized and
unrealized gain (loss)
on investments ............. 0.05 2.16 (0.26) (0.08)
------ ------ ------ ------ ------
Total from investment
operations ................... 0.31 2.47 0.01 (0.01)
------ ------ ------ ------ ------
Less distributions:
From net investment
income ..................... (0.27) (0.31) (0.30) (0.06)
From capital gains ........... (0.26) (0.46) (0.14) (0.00)
------ ------ ------ ------ ------
Total distributions ............ (0.53) (0.77) (0.44) (0.06)
------ ------ ------ ------ ------
Net asset value,
end of period ................ $ $11.21 $11.43 $9.73 $10.16
====== ====== ====== ====== ======
Class Y Ratios/Supplemental Data
Total return ................... % 2.75% 26.06% 0.05% -0.25%
Net assets, end of
period (000
omitted) ..................... $ $307 $225 $116 $1
Ratio of expenses
to average net
assets ....................... % 1.45% 1.58% 1.61% 1.95%**
Ratio of net investment
income to average
net assets ................... % 2.25% 2.90% 2.97% 2.34%**
Portfolio turnover
rate ......................... % 168.17% 220.67% 109.92% 75.02%***
</TABLE>
* Commencement of operations.
** Annualized.
*** Portfolio turnover is for the period from April 20, 1995 to March 31,
1996.
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<PAGE>
INTERNATIONAL GROWTH FUND
For a Class C share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class C Per-Share Data
Net asset value,
beginning of
period ....................... $ $15.04 $12.40 $9.94 $9.36
------ ------- ------- ------- -------
Income from investment
operations:
Net investment
income (loss) .............. 0. (0.07) (0.10) (0.03) 0.08
Net realized and
unrealized gain (loss)
on investments ............. 0. 1.55 4.12 2.50 0.63
------ ------- ------- ------- -------
Total from investment
operations ................... 0. 1.48 4.02 2.47 0.71
------ ------- ------- ------- -------
Less distributions:
From net
investment income .......... 0. (0.00) (0.00) (0.01) (0.11)
From capital gains ........... 0. (0.94) (1.38) (0.00) (0.00)
In excess of net
investment income .......... 0. (0.00) (0.00) (0.00) (0.02)
------ ------- ------- ------- -------
Total distributions .......... 0. (0.94) (1.38) (0.01) (0.13)
------ ------- ------- ------- -------
Net asset value,
end of period ................ $ $15.58 $15.04 $12.40 $9.94
====== ======= ======= ======= =======
Class C Ratios/Supplemental Data
Total return ................... 0.% 10.36% 35.24% 24.85% 7.64%
Net assets, end of
period (000
omitted) ..................... $ $99,764 $87,041 $50,472 $20,874
Ratio of expenses
to average net
assets ....................... 0.% 2.35% 2.35% 2.46% 2.50%
Ratio of net investment
income (loss) to average
net assets ................... 0.% -0.53% -0.82% -0.52% 0.63%
Portfolio turnover
rate ......................... 0.% 116.25% 105.11% 94.76% 88.55%
</TABLE>
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
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<PAGE>
INTERNATIONAL GROWTH FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
------------------------------------ December 29, 1995*
2000 1999 1998 1997 to March 31, 1996
---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $15.35 $12.52 $9.95 $9.70
------ ------ ------ ------ -----
Income from investment
operations:
Net investment income ........ 0. 0.05 0.01 0.02 0.02
Net realized and
unrealized gain
on investments ............. 0. 1.62 4.20 2.56 0.23
------ ------ ------ ------ -----
Total from investment
operations ................... 0. 1.67 4.21 2.58 0.25
------ ------ ------ ------ -----
Less distributions:
From net investment
income ..................... 0. (0.00) (0.00) (0.01) (0.00)
From capital gains ........... 0. (0.94) (1.38) (0.00) (0.00)
------ ------ ------ ------ -----
Total distributions ............ 0. (0.94) (1.38) (0.01) (0.00)
------ ------ ------ ------ -----
Net asset value,
end of period ................ $ $16.08 $15.35 $12.52 $9.95
====== ====== ====== ====== =====
Class Y Ratios/Supplemental Data
Total return ................... 0.% 11.41% 36.45% 25.93% 2.58%
Net assets, end of
period (000
omitted) ..................... $ $629 $419 $227 $7
Ratio of expenses
to average net
assets ....................... 0.% 1.44% 1.51% 1.59% 1.84%**
Ratio of net investment
income to average
net assets ................... 0.% 0.36% 0.07% 0.05% 1.07%**
Portfolio turnover
rate ......................... 0.% 116.25% 105.11% 94.76% 88.55%**
</TABLE>
* Commencement of operations.
** Annualized.
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<PAGE>
SCIENCE AND TECHNOLOGY FUND
For a Class C share outstanding throughout each period*:
For the
For the fiscal year period from
ended March 31, 7/31/97**
------------------- to
2000 1999 3/31/98
---- ---- -------
Class C Per-Share Data
Net asset value,
beginning of period .................. $ $12.01 $10.00
---- ------- ------
Income from investment
operations:
Net investment
loss ............................... 0. (0.09) (0.07)
Net realized and
unrealized gain
on investments ..................... 0. 5.53 2.08
---- ------- ------
Total from investment
operations ........................... 0. 5.44 2.01
---- ------- ------
Net asset value,
end of period ........................ $0. $17.45 $12.01
==== ======= ======
Class C Ratios/Supplemental Data
Total return ........................... 0.% 45.30% 20.10%
Net assets, end of
period (000
omitted) ............................. $0. $44,371 $7,615
Ratio of expenses
to average net
assets ............................... 0.% 2.57% 3.20%***
Ratio of net investment
loss to average net
assets ............................... 0.% -1.26% -1.66%***
Portfolio
turnover rate ........................ 0.% 51.00% 26.64%
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999.
** Commencement of operations.
*** Annualized.
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<PAGE>
SCIENCE AND TECHNOLOGY FUND
For a Class Y share outstanding throughout the period:
For the For the
fiscal period from
year 6/9/98*
ended to
3/31/00 3/31/99
------- -------
Class Y Per-Share Data
Net asset value,
beginning of period .......................... $0. $12.20
------
Income from investment
operations:
Net investment
income ..................................... 0. 0.01
Net realized and
unrealized gain
on investments ............................. 0. 5.44
----- ------
Total from investment
operations ................................... 0. 5.45
----- ------
Net asset value,
end of period ................................ $0. $17.65
===== ======
Class Y Ratios/Supplemental Data
Total return ................................... 0.% 44.67%
Net assets, end of
period (000
omitted) ..................................... $0. $53
Ratio of expenses
to average net
assets ....................................... 0.% 0.62%**
Ratio of net investment
income to average net
assets ....................................... 0.% 0.54%**
Portfolio
turnover rate ................................ 0.% 51.00%**
* Commencement of operations.
** Annualized.
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<PAGE>
<PAGE>
SMALL CAP GROWTH FUND
For a Class C share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class C Per-Share Data
Net asset value,
beginning of
period ....................... $0. $14.29 $9.08 $10.50 $8.45
---- -------- -------- -------- --------
Income from investment
operations:
Net investment
income (loss) .............. 0. (0.11) (0.13) (0.03) (0.01)
Net realized and
unrealized gain (loss)
on investments ............. 0. 2.91 5.91 (1.09) 2.25
---- -------- -------- -------- --------
Total from investment
operations ................... 0. 2.80 5.78 (1.12) 2.24
---- -------- -------- -------- --------
Less distribution
from capital gains ........... 0. (2.35) (0.57) (0.30) (0.19)
---- -------- -------- -------- --------
Net asset value,
end of period ................ $ $14.74 $14.29 $9.08 $10.50
==== ======== ======== ======== ========
Class C Ratios/Supplemental Data
Total return ................... 0.% 21.61% 65.37% -10.97% 26.57%
Net assets, end of period
(000 omitted) ............... $0. $424,612 $329,514 $198,088 $202,557
Ratio of expenses
to average net
assets ....................... 0.% 2.10% 2.13% 2.12% 2.14%
Ratio of net investment
income (loss) to average
net assets ................... 0.% -0.90% -1.12% -0.27% -0.25%
Portfolio turnover
rate ......................... 0.% 51.41% 33.46% 37.20% 31.84%
</TABLE>
* The financial data shown for a Class C share are based on the financial
data for a shares of the Fund's prior Class B. On March 24, 2000 that
Class B was combined with and redesignated as Class C, which had commenced
operations on _____, 1999.
91
<PAGE>
SMALL CAP GROWTH FUND
For a Class Y share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
------------------------------------- 12/29/95**
2000 1999 1998 1997 to 3/3196
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $14.55 $9.16 $10.52 $10.11
---- ------ ------ ------- ------
Income from investment
operations:
Net investment
income (loss) .............. 0. 0.00 (0.03) 0.01 0.02
Net realized and
unrealized gain (loss)
on investments ............. 0. 3.01 5.99 (1.07) 0.39
---- ------ ------ ------- ------
Total from investment
operations ................... 0. 3.01 5.96 (1.06) 0.41
---- ------ ------ ------- ------
Less distribution
from capital gains ........... 0. (2.35) (0.57) (0.30) (0.00)
---- ------ ------ ------- ------
Net asset value,
end of period ................ $ $15.21 $14.55 $9.16 $10.52
==== ====== ====== ======= ======
Class Y Ratios/Supplemental Data
Total return ................... 0.% 22.73% 66.78% -10.37% 4.11%
Net assets, end of
period (000
omitted) ..................... $0. $7,942 $633 $264 $1
Ratio of expenses
to average net
assets ....................... 0.% 1.18% 1.30% 1.17% 1.17%***
Ratio of net investment
income (loss) to average
net assets ................... 0.% 0.08% -0.30% 0.31% 0.78%***
Portfolio turnover
rate ......................... 0.% 51.41% 33.46% 37.20% 31.84%***
</TABLE>
* Per-share and share amounts have been adjusted retroactively to reflect
the 100% stock dividend effected June 26, 1998.
** Commencement of operations.
*** Annualized.
92
<PAGE>
TOTAL RETURN FUND
For a Class C share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class C Per-Share Data
Net asset value,
beginning of
period ....................... $ $12.24 $9.09 $8.17 $6.37
--- -------- -------- -------- --------
Income from investment
operations:
Net investment income
(loss) ..................... 0. 0.03 (0.02) (0.01) (0.01)
Net realized and
unrealized gain
on investments ............. 0. 0.82 3.56 0.98 1.84
--- -------- -------- -------- --------
Total from investment
operations ................... 0. 0.85 3.54 0.97 1.83
--- -------- -------- -------- --------
Less distributions:
From net investment
income ..................... 0. (0.01) (0.00) (0.00) (0.00)
From capital gains ........... 0. (1.56) (0.39) (0.05) (0.03)
--- -------- -------- -------- --------
Total distributions ............ (1.57) (0.39) (0.05) (0.03)
--- -------- -------- -------- --------
Net asset value,
end of period ................ $ $11.52 $12.24 $9.09 $8.17
=== ======== ======== ======== ========
Class C Ratios/Supplemental Data
Total return ................... % 7.47% 39.57% 11.93% 28.75%
Net assets, end of
period (000
omitted) ..................... $ $508,210 $472,970 $317,453 $208,233
Ratio of expenses
to average net
assets ....................... % 1.93% 1.92% 1.95% 1.99%
Ratio of net investment
income (loss) to average
net assets ................... % 0.30% -0.23% -0.17% -0.11%
Portfolio turnover
rate ......................... % 54.73% 36.94% 26.23% 16.78%
</TABLE>
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 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.
93
<PAGE>
TOTAL RETURN FUND
For a Class Y share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
------------------------------------- 12/29/95**
2000 1999 1998 1997 to 3/31/96
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $12.46 $9.18 $8.19 $7.66
---- ------ ------ ----- -----
Income from investment
operations:
Net investment
income ..................... 0.12 0.05 0.02 0.02
Net realized and
unrealized gain
on investments ............. 0.84 3.62 1.02 0.51
---- ------ ------ ----- -----
Total from investment
operations ................... 0.96 3.67 1.04 0.53
---- ------ ------ ----- -----
Less distributions:
From net investment
income ..................... (0.08) (0.00) (0.00) (0.00)
From capital gains ........... (1.56) (0.39) (0.05) (0.00)
---- ------ ------ ----- -----
Total distributions ............ (1.64) (0.39) (0.05) (0.00)
---- ------ ------ ----- -----
Net asset value,
end of period ................ $ $11.78 $12.46 $9.18 $8.19
==== ====== ====== ===== =====
Class Y Ratios/Supplemental Data
Total return ................... % 8.37% 40.63% 12.69% 6.92%
Net assets, end of
period (000
omitted) ..................... $ $1,381 $943 $504 $87
Ratio of expenses
to average net
assets ....................... % 1.15% 1.20% 1.18% 0.96%***
Ratio of net investment
income to average
net assets ................... % 1.10% 0.50% 0.65% 1.04%***
Portfolio turnover
rate ......................... % 54.73% 36.94% 26.23% 16.78%***
</TABLE>
* Per-share and share amounts have been adjusted retroactively to reflect
the 100% stock dividend effected June 26, 1998.
** Commencement of operations.
*** Annualized.
94
<PAGE>
Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
928 Grand Boulevard 6300 Lamar Avenue
Kansas City, Missouri 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
95
<PAGE>
Funds, Inc.
You can get more information about the Funds in--
o The Statement of Additional Information (SAI), which contains
detailed information about each Fund, particularly its investment
policies and practices. You may not be aware of important
information about each 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).
o The Annual and Semiannual Reports to Shareholders, which detail each
Fund's actual investments and include financial statements as of the
close of the particular annual or semiannual period. The annual
report also contains a discussion of the market conditions and
investment strategies that significantly affected each Fund's
performance during the year covered by the report.
To request a copy of the current SAI or copies of a Fund's 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
WRP3000(6-00)
96
<PAGE>
TBD Funds, Inc.
High Income Fund
Limited-Term Bond Fund
Money Market Fund
Municipal Bond Fund
This prospectus offers shares in the fixed-income funds of TBD Funds, Inc.
(formerly known as Waddell & Reed Funds, Inc.).
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
June 30, 2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS.....................................................4
HIGH INCOME FUND.............................................................4
LIMITED-TERM BOND FUND......................................................11
MONEY MARKET FUND.............................................................
MUNICIPAL BOND FUND.........................................................20
THE INVESTMENT PRINCIPLES OF THE FUNDS......................................26
Investment Goals, Principal Strategies and Other Investments..............26
All Funds.................................................................30
Risk Considerations of Principal Strategies and Other Investments.........30
YOUR ACCOUNT................................................................32
Choosing a Share Class......................................................
Sales Charge Reductions and Waivers.........................................
Waivers for Certain Investors...............................................
Ways to Set Up Your Account...............................................40
Buying Shares.............................................................42
Minimum Investments.......................................................44
Adding to Your Account....................................................45
Selling Shares............................................................45
Telephone Transactions....................................................49
Shareholder Services......................................................49
Personal Service........................................................49
Reports.................................................................49
Exchanges...............................................................50
Automatic Transactions..................................................50
Distributions and Taxes...................................................51
Distributions...........................................................51
Taxes...................................................................52
THE MANAGEMENT OF THE FUNDS.................................................55
Portfolio Management......................................................55
Management Fee............................................................56
Financial Highlights........................................................58
2
<PAGE>
An Overview of the Funds
High Income Fund
Goals
High Income Fund seeks, as a primary goal, high current income. As a secondary
goal, the Fund seeks capital growth when consistent with its primary goal.
Principal Strategies
High Income Fund seeks to achieve its goals by investing primarily in
high-yield, high-risk, fixed-income securities of U.S. issuers, the risks of
which are, in the judgment of Waddell & Reed Investment Management Company
("WRIMCO"), the Fund's investment manager, consistent with the Fund's goals. The
Fund may invest in companies of any size. The Fund invests primarily in lower
quality bonds, commonly called "junk bonds," which are bonds rated BB and below
by Standard & Poor's ("S&P") and Ba and below by Moody's Investors Service
("MIS"). The Fund may invest an unlimited amount of its total assets in junk
bonds. As well, the Fund may invest in bonds of any maturity.
The Fund may invest up to 20% of its total assets in common stock in order to
seek capital growth. The Fund will emphasize a blend of value and growth in its
selection of common stock. Value stocks are those whose earnings WRIMCO believes
are currently selling below their true worth. Growth stocks are those whose
earnings WRIMCO believes are likely to grow faster than the economy.
WRIMCO may look at a number of factors in selecting securities for the Fund.
These include an issuer's past, current and estimated future:
o financial strength;
o cash flow;
o management;
o borrowing requirements; and
o responsiveness to changes in interest rates and business conditions.
3
<PAGE>
WRIMCO typically selects securities of companies in which the value of the
company is not reflected in the security.
Generally, in determining whether to sell a debt security, WRIMCO uses the same
type of analysis that it uses in buying debt securities. For example, WRIMCO may
sell a holding if the issuer's financial strength declines, or is anticipated to
decline, to an unacceptable level, or if management of the company weakens. As
well, WRIMCO may choose to sell an equity security if the issuer's growth
potential has diminished. WRIMCO may sell a security if the competitive
conditions of a particular industry have increased and WRIMCO believes the Fund
should, therefore, reduce its exposure to such industry. WRIMCO may also sell a
security if, in its opinion, the price of the security has risen to fully
reflect the company's improved creditworthiness and other investments with
greater potential exist. WRIMCO may also sell a security to take advantage of
more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because High Income Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
o the credit quality, earnings performance and other conditions of the
companies whose securities the Fund holds;
o the susceptibility of junk bonds to the risk of non-payment or default,
price volatility and lack of liquidity compared to higher-rated bonds;
o an increase in interest rates, which may cause the value of bonds held by
the Fund, especially bonds with longer maturities, to decline;
o the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries;
o changes in the maturities of bonds owned by the Fund;
o adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's
holdings to fall as part of a broad market decline; and
o the skill of WRIMCO in evaluating and managing the interest rate and
credit risks of the Fund's portfolio.
4
<PAGE>
Market risk for small or medium sized companies may be greater than that for
large companies. For example, smaller companies may have limited financial
resources, limited product lines or inexperienced management.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
High Income Fund is designed for investors who primarily seek a level of current
income that is higher than is normally available with securities in the higher
rated categories and, secondarily, seek capital growth where consistent with
this income goal, through a diversified portfolio. The Fund is not suitable for
all investors. You should consider whether the Fund fits your particular
investment objectives.
5
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in High Income 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.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the return would be less than that
shown.
o The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for a full calendar year.
o 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 (%)*
1998 3.64%
1999 4.83%
In the period shown in the chart, the highest quarterly return was 6.82%
(the first quarter of 1998) and the lowest quarterly return was -6.62%
(the third quarter of 1998). The Class C return for the year through March
31, 2000, was %.
*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, _____, 1999.
6
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year Life of Class**
Class C Shares of High
Income Fund* 1.89% 4.69%
Salomon Brothers High
Yield Market Index 1.73% 4.05%
Lipper High Current Yield
Fund Universe Average 4.53% 2.73%
Class Y Shares of High
Income Fund 5.64$ 6.63%
Salomon Brothers High
Yield Market Index 1.73% 1.73%
Lipper High Current Yield
Fund Universe Average 4.53% 4.53%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goals of
the Fund.
*The 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 ____, 1999. The
prior Class B's performance has been adjusted to reflect the current
contingent deferred sales charge ("CDSC") structure applicable to Class C.
**Since July 31, 1997, for Class C shares (based on the prior Class B shares)
and December 31, 1998, for Class Y shares. Because Class Y commenced
operations on a date other than at the end of a month, and partial month
calculations of the performance of the above indexes are not available,
index performance is calculated from December 31, 1998.
7
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of High Income 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) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
Management Fees 0.63% 0.63% 0.63% 0.63%
Distribution and
Service (12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses % 0.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
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.
- ----------
(1) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(2) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
8
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
*Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
9
<PAGE>
Limited-Term Bond Fund
Goal
Limited-Term Bond Fund seeks to provide a high level of current income
consistent with preservation of capital.
Principal Strategies
Limited-Term Bond Fund seeks to achieve its goal by investing primarily in
investment-grade debt securities of U.S. issuers, including corporate bonds,
mortgage-backed securities and U.S. Government securities. The Fund maintains a
dollar-weighted average maturity of not less than two years and not more than
five years. The Fund may invest in companies of any size.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
o the security's current coupon;
o the maturity of the security;
o the relative value of the security;
o the creditworthiness of the particular issuer (if not backed by the full
faith and credit of the U.S. Treasury); and
o the structure of the security, such as whether it has a put or a call
feature.
Generally, in determining whether to sell a security, WRIMCO uses the same type
of analysis that it uses in buying securities. WRIMCO may also sell a security
to take advantage of more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because Limited-Term Bond Fund primarily owns different types of debt
securities, a variety of factors can affect its investment performance, such as:
o an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to
decline;
o the credit quality, earnings performance and other conditions of the
issuers whose securities the Fund holds;
10
<PAGE>
o prepayment of higher-yielding bonds and mortgage-backed securities held by
the Fund;
o adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's
holdings to fall as part of a broad market decline; and
o WRIMCO's skill in evaluating and managing the interest rate and credit
risks of the Fund.
Market risk for small or medium sized companies may be greater than that for
large companies. For example, smaller companies are more likely to have limited
financial resources, limited product lines or inexperienced management.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
Limited-Term Bond Fund is designed for investors seeking a high level of current
income consistent with preservation of capital. You should consider whether the
Fund fits your investment objectives.
11
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Limited-Term Bond Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual total
returns for the periods shown compare with those of a broad measure of market
performance and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
1993 7.32%
1994 -3.04%
1995 12.39%
1996 3.04%
1997 5.64%
1998 5.36%
1999 0.43%
In the period shown in the chart, the highest quarterly return was 4.52%
(the second quarter of 1995) and the lowest
12
<PAGE>
quarterly return was -1.99% (the first quarter of 1994). The Class C
return for the year through March 31, 2000, was 0.%.
*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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 YearsLife of Class**
Class C Shares of Limited-
Term Bond Fund* -2.45% 5.30% 3.99%
Salomon Brothers 1-5 Years
Treasury/Government Sponsored/
Corporate Index 2.15% 6.84% 5.54%
Lipper Short-Intermediate
Investment Grade Debt
Fund Universe Average 0.89% 6.23% 5.17%
Class Y Shares of Limited-
Term Bond Fund 1.36% 4.46%
Salomon Brothers 1-5 Years
Treasury/Government Sponsored/
Corporate Index 2.15% 6.84% 5.38%
Lipper Short-Intermediate
Investment Grade Debt
Fund Universe Average 0.89% 6.23% 4.41%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on ____, 1999. The
prior Class B's performance has been adjusted to reflect the current CDSC
structure applicable to Class C.
**Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 27, 1995, for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and partial
month calculations of the performance of the above indexes are not
available, index performance is calculated from September 30, 1992, and
December 31, 1995, respectively.
13
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Limited-Term Bond Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(3) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses (4)
(expenses that are deducted from Fund assets)
Management Fees 0.50% 0.50% 0.50% 0.50%
Distribution and
Service (12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses % 0.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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.
- ----------
(3) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(4) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on other Fund-level expenses for the fiscal year ended
March 31, 2000, and for Class A and Class B, the expenses attributable to those
classes that are anticipated for the current year. Actual expenses may be
greater or less than those shown.
14
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
*Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
15
<PAGE>
Money Market Fund
Goal
Money Market Fund seeks maximum current income consistent with stability of
principal.
Principal Strategies
Money Market Fund seeks to achieve its goal by investing in U.S.
dollar-denominated, high-quality money market obligations and instruments. High
quality indicates that the securities will be rated A-1 or A-2 by S&P or Prime-1
or Prime-2 by MIS, or if unrated, will be of comparable quality as determined by
WRIMCO. The Fund seeks, as well, to maintain a net asset value ("NAV") of $1.00
per share. The Fund maintains a dollar-weighted average maturity of 90 days or
less, and the Fund invests only in securities with a remaining maturity of not
more than 397 calendar days.
Principal Risks of Investing in the Fund
Because Money Market Fund owns different types of money market obligations and
instruments, a variety of factors can affect its investment performance, such
as:
o an increase in interest rates, which can cause the value of the Fund's
holdings, especially securities with longer maturities, to decline;
o the credit quality and other conditions of the issuers whose securities
the Fund holds;
o adverse bond market conditions, sometimes in response to general economic
or industry news, that may cause the prices of the Fund's holdings to fall
as part of a broad market decline; and
o the skill of WRIMCO in evaluating and managing the interest rate and
credit risks of the Fund.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
Who May Want to Invest
The Fund is designed for investors who are risk-averse and seek to preserve
principal while earning current income and saving for short-term needs. You
should consider whether the Fund fits your particular investment objectives.
16
<PAGE>
17
<PAGE>
Performance
Since Money Market Fund has not been in operation for a full calendar year, no
performance information is included in this prospectus.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Money Market Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) None None None None
Maximum Deferred
Sales Charge (Load) (5) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(6)
(expenses that are deducted from Fund assets)
Management Fees 0.40% 0.40% 0.40% 0.40%
Distribution and
Service (12b-1) Fees None 1.00% 1.00% 0.25%
Other Expenses 0.% 0.% 0.% 0.%
Total Annual Fund
Operating Expenses 0.% 0.% 0.% 0.%
</TABLE>
- ----------
(5) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(6) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to voluntarily waive its investment
management fee 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.
18
<PAGE>
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 $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years
Class A Shares $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
19
<PAGE>
Municipal Bond Fund
Goal
Municipal Bond Fund seeks to provide income not subject to Federal income tax.
Principal Strategy
Municipal Bond Fund seeks to achieve its goal by investing primarily in
tax-exempt municipal bonds, mainly of investment grade (rated BBB or higher by
S&P or Baa or higher by MIS). The Fund may invest in bonds of any maturity.
"Municipal bonds" mean obligations the interest on which is not includable in
gross income for Federal income tax purposes. However, a significant portion of
the Fund's municipal bond interest may be subject to the Federal alternative
minimum tax ("AMT").
The Fund diversifies its holdings among two main types of municipal bonds:
o general obligation bonds, which are backed by the full faith, credit and
taxing power of the governmental authority, and
o revenue bonds, which are payable only from specific sources, such as the
revenue from a particular facility or a special tax. Revenue bonds include
certain private activity bonds ("PABs") and industrial development bonds
("IDBs"), which finance privately operated facilities.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
o the security's current coupon;
o the maturity of the security;
o the relative value of the security;
o the creditworthiness of the particular issuer (if not backed by the full
faith and credit of the U.S. Treasury); and
o the structure of the security, including whether it has a put or a call
feature.
Generally, in determining whether to sell a security, WRIMCO uses the same type
of analysis that is used in buying securities in order to determine whether the
security continues to be a desired investment for the Fund. WRIMCO may also sell
a security to take
20
<PAGE>
advantage of more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because Municipal Bond Fund primarily owns fixed income securities issued by
municipal authorities, a variety of factors can affect its investment
performance, such as:
o an increase in interest rates which may cause the value of the Fund's
securities, especially bonds with longer maturities, to decline;
o prepayment of higher-yielding bonds held by the Fund ("prepayment risk");
o changes in the maturities of bonds owned by the Fund;
o the credit quality of the issuers whose securities the Fund owns or of the
private companies involved in IDB-financed projects;
o the local economic, political or regulatory environment affecting bonds
owned by the Fund;
o failure of a bond's interest to qualify as tax-exempt;
o legislation affecting the tax status of municipal bond interest;
o adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's
holdings to fall as part of a broad market decline; and
o the skill of WRIMCO in evaluating and managing the interest rate and
credit risks of the Fund's portfolio.
A significant portion of the Fund's municipal bond interest may subject
investors to the AMT; this would have the effect of reducing the Fund's return
to any such investor.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
21
<PAGE>
Municipal Bond Fund is designed for investors seeking current income that is
primarily free from Federal income tax, through a diversified portfolio. You
should consider whether the Fund fits your particular investment objectives.
22
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Municipal Bond Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
1993 13.73%
1994 -8.83%
1995 19.14%
1996 3.53%
1997 9.17%
1998 5.12%
1999 -7.04%
In the period shown in the chart, the highest quarterly return was 8.36%
(the first quarter of 1995) and the lowest
23
<PAGE>
quarterly return was -7.14% (the first quarter of 1994). The Class C
return for the year through March 31, 2000, was %.
*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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 Years Life of Class**
Class C Shares of Municipal
Bond Fund* -9.72% 5.64% 4.70%
Lehman Brothers Municipal
Debt Index -2.07% 6.92% 5.89%
Lipper General Municipal
Debt Fund Universe Average -4.63% 5.76% 5.06%%
Class Y Shares of Municipal
Bond Fund -6.56% -6.15%
Lehman Brothers Municipal
Debt Index -2.07% 6.92% -4.63%
Lipper General Municipal Bond
Debt Fund Universe Average -4.63% 5.76% -2.07%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*The 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 ____, 1999. The
prior Class B's performance has been adjusted to reflect the current CDSC
structure applicable to Class C.
**Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 30, 1998, for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and partial
month calculations of the performance of the above indexes are not
available, index performance is calculated from September 30, 1992, and
December 31, 1998, respectively.
24
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Municipal Bond Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(7) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(8)
(expenses that are deducted from Fund assets)
Management Fees 0.53% 0.53% 0.53% 0.53%
Distribution and
Service (12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses % 0.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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.
- ----------
(7) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(8) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
25
<PAGE>
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 % % % %
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
*Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
26
<PAGE>
The Investment Principles of the Funds
Investment Goals, Principal Strategies and Other Investments
High Income Fund
The primary goal of High Income Fund is to earn a high level of current income.
As a secondary goal, the Fund seeks capital growth when consistent with its
primary goal. The Fund seeks to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk, fixed-income securities, the
risks of which are, in the judgment of WRIMCO, consistent with the Fund's goals.
There is no guarantee that the Fund will achieve its goals.
The Fund primarily owns debt securities; however, it may also own, to a lesser
degree, preferred stock, common stock and convertible securities. In general,
the high income that the Fund seeks is paid by debt securities rated in the
lower rating categories of the established rating services or unrated securities
that are determined by WRIMCO to be of comparable quality; these are securities
rated BBB or lower by S&P, or Baa or lower by MIS and unrated securities.
Lower-quality debt securities, which include junk bonds, are considered to be
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-quality securities and may decline significantly in
periods of general economic difficulty.
The Fund will normally invest at least 65% of its total assets to seek a high
level of current income. The Fund limits its acquisition of common stock so that
no more than 20% of its total assets will consist of common stock and no more
than 10% of its total assets will consist of non-dividend-paying common stock.
The Fund may invest an unlimited amount of assets in foreign securities. At this
time, however, the Fund intends to invest in foreign securities to a limited
extent.
When WRIMCO believes that a temporary defensive position is desirable, it may
take any one or more of the following steps with respect to the assets in the
Fund:
o shorten the average maturity of the Fund's debt holdings;
o hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit); and/or
27
<PAGE>
o emphasize high-grade debt securities.
By taking a temporary defensive position the Fund may not achieve its investment
objectives. As an alternative to taking a temporary defensive position, or in
order to more quickly participate in anticipated market changes or market
conditions, the Fund may also invest in options and futures contracts.
Limited-Term Bond Fund
The goal of Limited-Term Bond Fund is to provide a high level of current income
consistent with preservation of capital. The Fund seeks to achieve its goal by
investing primarily in a diversified portfolio of investment-grade, limited-term
debt securities (securities with a dollar-weighted average maturity of 2-5
years) of U.S. issuers, including U.S. Government securities, (securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities),
collateralized mortgage obligations and other asset-backed securities. The Fund
will invest at least 65% of its total assets in bonds. There is no guarantee
that the Fund will achieve its goal.
The maturity of an asset-backed security is the estimated average life of the
security based on certain prescribed models or formulas used by WRIMCO. The
maturity of other types of debt securities is the earlier of the call date or
the maturity date, as appropriate. The Fund may also own, to a lesser extent,
common stocks and convertible securities, including convertible preferred stock
in certain circumstances.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to the Fund's assets, including any one or more
of the following:
o shorten the average maturity of the Fund's portfolio;
o hold short-term investments, cash or cash equivalents;
o emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
o invest in convertible preferred stock.
By taking a temporary defensive position the Fund may not achieve its investment
objective.
Money Market Fund
28
<PAGE>
The goal of Money Market Fund is maximum current income consistent with
stability of principal. The Fund seeks to achieve its goal by investing in a
diversified portfolio of high-quality money market instruments in accordance
with the requirements of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act"). There is no guarantee that the Fund will achieve its
goal.
The Fund invests only in the following U.S. dollar-denominated money market
obligations and instruments:
o U.S. government obligations (including obligations of U.S. government
agencies and instrumentalities);
o bank obligations and instruments secured by bank obligations, such as
letters of credit;
o commercial paper;
o corporate debt obligations, including variable amount master demand notes;
o Canadian government obligations; and
o certain other obligations (including municipal obligations) guaranteed as
to principal and interest by a bank in whose obligations the Fund may
invest or a by corporation in whose commercial paper the Fund may invest.
The Fund only invests in bank obligations if they are obligations of a bank
subject to regulation by the U.S. Government (including foreign branches of
these banks) or obligations of a foreign bank having total assets of at least
$500 million, and instruments secured by any such obligations.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
o the credit quality of the particular issuer or guarantor of the security;
o the maturity of the security; and
o the relative value of the security.
Generally, in determining whether to sell a security, WRIMCO will use the same
analysis that it uses in buying securities to determine if the security no
longer offers adequate return or does
29
<PAGE>
not comply with Rule 2a-7. WRIMCO may also sell a security to take advantage of
more attractive investment opportunities or to raise cash.
Municipal Bond Fund
The goal of Municipal Bond Fund is to provide income that is not subject to
Federal income tax. The Fund seeks to achieve this goal by investing primarily
in a diversified portfolio of municipal bonds. There is no guarantee that the
Fund will achieve its goal.
As used in this Prospectus, "municipal bonds" mean obligations the interest on
which is not includable in gross income for Federal income tax purposes. The
Fund anticipates that not more than 40% of the dividends it will pay to
shareholders will be treated as a tax preference item for AMT purposes. The Fund
and WRIMCO rely on the opinion of bond counsel for the issuer in determining
whether obligations are municipal bonds.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main types of municipal
bonds are general obligation bonds and revenue bonds. For general obligation
bonds, the issuer has pledged its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or a special tax or other revenue source. IDBs and PABs are revenue
bonds issued by or on behalf of public authorities to obtain funds to finance
privately operated facilities.
Other municipal obligations include lease obligations of municipal authorities
or entities and participations in these obligations.
At least 80% of the Fund's net assets will be invested, during normal market
conditions, in municipal bonds of investment grade, which means that the bonds
are either:
o rated at least BBB by S&P, or Baa by MIS; or
o if unrated, are determined by WRIMCO to be of comparable quality.
The Fund may invest up to 10% of its total assets in taxable debt securities
other than municipal bonds. These must be either:
o U.S. Government securities;
30
<PAGE>
<PAGE>
o obligations of domestic banks and certain savings and loan associations;
o commercial paper rated at least A by S&P or MIS; and/or
o any of the foregoing obligations subject to repurchase agreements.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to the Fund's assets, including any one or more
of the following:
o shorten the average maturity of the Fund's portfolio;
o hold taxable obligations, subject to the limitations stated above;
o emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
o hedge exposure to interest rate risk by investing in futures contracts and
options on futures contracts.
By taking a defensive position, the Fund may not achieve its investment
objective.
All Funds
Each Fund may also invest in and use certain other types of instruments in
seeking to achieve its goal(s). For example, each Fund (other than Money Market
Fund) is permitted to invest in options, futures contracts, asset-backed
securities and other derivative instruments if it is permitted to invest in the
type of asset by which the return on, or value of, the derivative is measured.
At this time, each Fund has limited exposure to derivative investments.
You will find more information about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in the Statement of
Additional Information ("SAI").
Risk Considerations of Principal Strategies
and Other Investments
Risks exist in any investment. Each Fund is subject to market risk, financial
risk, and, in some cases, prepayment risk.
31
<PAGE>
o Market risk is the possibility of a change in the price of the security
because of market factors including changes in interest rates. Bonds with
longer maturities are more interest-rate sensitive. For example, if
interest rates increase, the value of a bond with a longer maturity is
more likely to decrease. Because of market risk, the share price of each
Fund (other than Money Market Fund) will likely change as well.
o Financial risk is based on the financial situation of the issuer of the
security. To the extent a Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the underlying securities
in which it invests. For an equity investment, a Fund's financial risk may
depend, for example, on the earnings performance of the company issuing
the stock.
o Prepayment risk is the possibility that, during periods of falling
interest rates, a debt security with a high stated interest rate will be
prepaid before its expected maturity date.
Certain types of a Fund's authorized investments and strategies, such as foreign
securities, junk bonds and derivative instruments, involve special risks.
Depending on how much a Fund invests or uses these strategies, these special
risks may become significant. For example, foreign investments may subject a
Fund to restrictions on receiving the investment proceeds from a foreign
country, foreign taxes, and potential difficulties in enforcing contractual
obligations, as well as fluctuations in foreign currency values and other
developments that may adversely affect a foreign country. Junk bonds pose a
greater risk of nonpayment of interest or principal than higher-rated bonds.
Derivative instruments may expose a Fund to greater volatility than an
investment in a more traditional stock, bond or other security.
For PABs and IDBs in which Municipal Bond Fund may invest, credit quality is
generally dependent on the credit standing of the company involved. To the
extent that this Fund invests in municipal bonds the payment of principal and
interest which is derived from revenue of similar projects, or in municipal
bonds of issuers located in the same geographic area, the Fund may be more
susceptible to the risks associated with economic, political or regulatory
occurrences that might adversely affect particular projects or areas. You will
find more information in the SAI about the types of projects in which Municipal
Bond Fund may invest from time to time and a discussion of the risks associated
with such projects.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value
32
<PAGE>
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.
33
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers four classes of shares for each Fund: 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 calendar years)
or Class C shares (if investing for less than seven calendar 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
(For each Fund other than Money Market Fund)
<TABLE>
<CAPTION>
Class A Class B Class C
- ------- ------- -------
<S> <C> <C>
o Initial sales charge o No initial sales charge o No initial sales charge
o No deferred sales charge o Deferred sales charge on shares o A 1% deferred sales charge on
you sell within six calendar shares you sell within twelve
years after purchase months after purchase
o Maximum distribution and service o Maximum distribution and o Maximum distribution and
(12b-1) fees of 0.25% service (12b-1) fees of 1.00% service (12b-1) fees of 1.00%
o For an investment of $2 o Converts to Class A shares at o Does not convert to Class A
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
million or more, only Class A the end of the seventh shares, so annual expenses do
shares are available calendar year following the not decrease
year of purchase, thus
reducing future annual
expenses
o For an investment of
$300,000 or more,
Waddell & Reed
financial advisors
typically will
recommend purchase
of Class A shares
due to a reduced
sales charge and
lower annual
expenses
</TABLE>
General Comparison of Class A, Class B and Class C Shares -Money Market Fund
<TABLE>
<CAPTION>
Class A Class B Class C
- ------- ------- -------
<S> <C> <C>
o No initial sales charge o No initial sales o No initial sales charge
charge
o Funds Plus o Funds Plus Service o Funds Plus Service
Service optional required for direct required for direct
investment investment
o No deferred sales charge o Deferred sales charge o A 1% deferred sales
on shares you sell charge on shares you
within six calendar sell within 12 months
years
o No distribution and o Maximum distribution o Maximum distribution
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
service (12b-1) fees and service (12b-1) and service (12b-1)
fees of 1.00% fees of 1.00%
o For an investment o Converts to Class A o Does not convert to
of $2,000,000 or more shares at the end Class A shares, so
only Class A shares of the seventh annual expenses do
are available calendar year not decrease
following the year
of purchase, thus
reducing future
annual expenses
</TABLE>
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant to Rule
12b-1 under the 1940 Act, ("Rule 12b-1") for each of its Class B, Class C and
Class Y shares and, except for Money Market Fund, for each of its Class A
shares. Under the Class A Plan, each Fund (other than Money Market Fund) may pay
Waddell & Reed, Inc. (the "Distributor") a fee of up to 0.25%, on an annual
basis, of the average daily net assets of the Class A shares. This fee is to
compensate the Distributor for the amounts it spends for, either directly or
through third parties, distributing the Fund's Class A shares, providing
personal service to Class A shareholders and/or maintaining Class A shareholder
accounts. Under the Class B Plan and the Class C Plan, each Fund may pay Waddell
& Reed, Inc. a fee of up to 0.75%, on an annual basis, of the average daily net
assets of the shares of the class to compensate the Distributor for, either
directly or through third parties, distributing the shares of that class and a
fee of up to 0.25%, on an annual basis, of the average daily net assets of the
shares of that class to compensate the Distributor for, either directly or
through third parties, providing personal service to shareholders of that class
and/or maintaining shareholder accounts for that class. No payment of the
distribution fee will be made, and no deferred sales charge will be paid, to the
Distributor by any Fund if, and to the extent that, the aggregate of the
distribution fees paid by the Fund and the deferred sales charges received by
the Distributor with respect to the Fund's Class B or Class C shares would
exceed the maximum amount of such charges that the Distributor is permitted to
receive under NASD rules as then in effect.
36
<PAGE>
Under the Class Y Plan, each Fund may pay the Distributor a fee of up to 0.25%,
on an annual basis, of the average daily net assets of the Fund's Class Y shares
to compensate the Distributor for, either directly or through third parties,
distributing the Class Y shares of that Fund, providing personal service to
Class Y shareholders and/or maintaining Class Y shareholder accounts.
Because the Plan fees are paid out of the assets of the applicable class on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Class A shares (except Class A shares of Money Market Fund) are subject to an
initial sales charge when you buy them, based on the amount of your investment,
according to the table below. Class A shares pay an annual 12b-1 fee of up to
0.25% of average Class A net assets. The ongoing expenses of this class are
lower than those for Class B or Class C shares and higher than those for Class Y
shares.
High Income Limited-Term Bond
Municipal Bond
37
<PAGE>
Sales Sales
Sales Charge Sales Charge
Charge as Charge as
as Approx. as Approx.
Percent Percent Percent Percent
of of of of
Size of Offering Amount Size of Offering Amount
Purchase Price Invested Purchase Price Invested
- -------- -------- -------- -------- -------- --------
Under Under
$100,000 5.75% 6.10% $100,000 4.25% 4.44%
$100,000 $100,000
to less to less
than than
$200,000 4.75 4.99 $300,000 3.25 3.36
$200,000
to less
than
$300,000 3.50 3.63
$300,000 $300,000
to less to less
than than
$500,000 2.50 2.56 $500,000 2.50 2.56
$500,000 $500,000
to less to less
than than
$1,000,000 1.50 1.52 $1,000,000 1.50 1.52
$1,000,000 $1,000,000
to less to less
than than
$2,000,000 1.00 1.01 $2,000,000 1.00 1.01
$2,000,000 $2,000,000
and over 0.00 0.00 and over 0.00 0.00
Sales Charge Reductions and Waivers
Lower sales charges are available by:
o Combining additional purchases of Class A shares of any of the funds in
the TBD 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 of the funds in the TBD Group and with the NAV of Class A shares of
the funds within the Waddell & Reed Group
38
<PAGE>
of Funds (formerly the United Group of Funds), except Class A shares of
Money Market Fund or Class A shares of Waddell & Reed Cash Management,
Inc. 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");
o Grouping all purchases of Class A shares of TBD Group (the "Corporation"),
except shares of Money Market Fund and Waddell & Reed Cash Management,
Inc., made during a thirteen-month period ("Letter of Intent"); and
o Grouping purchases by certain related persons.
Additional information and applicable forms are available from your financial
advisor.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
The Directors and officers of the Corporation or of any affiliated entity of
Waddell & Reed, Inc., employees of Waddell & Reed, Inc., employees of its
affiliates, financial advisors of Waddell & Reed, Inc. and the spouse, children,
parents, children's spouses and spouse's parents of each;
o Certain retirement plans and certain trusts for these persons; and
o Clients of Legend Equities, Corp. ("Legend") as of _____, that redeem
assets from an unaffiliated mutual fund if such client has already paid an
initial sales charge or a deferred sales charge. Such investment must
occur within 30 days of the redemption.
You will find more information in the SAI about sales charge reductions and
waivers.
Contingent Deferred Sales Charge. A CDSC may be assessed against your redemption
amount of your Class B or Class C 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 and
Class C shares. The CDSC will not be imposed on Class B or Class C 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 Class B or Class C shares
purchased during the
39
<PAGE>
CDSC period. 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 Class B or Class C shares 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 calendar
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. A Fund's Class B shares will automatically convert to Class A shares of
the Fund at the end of the seventh calendar year following the year of purchase.
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
stated below.
Deferred
Date of Sales
Redemption Charge
- ---------- ------
anytime within 1st calendar year 5%
anytime within 2nd calendar year 4%
anytime within 3rd calendar year 3%
anytime within 4th calendar year 3%
anytime within 5th calendar year 2%
anytime within 6th calendar year 1%
after 6th calendar year 0%
40
<PAGE>
<PAGE>
All Class B investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the CDSC. For
Class B, the date of redemption is measured, in calendar years, from the first
calendar year of purchase. For example, if a shareholder opens an account on
July 1, 2000, then redeems all Class B shares on March 1, 2001, the shareholder
will pay a CDSC of 4%, the rate applicable to redemptions made within the second
calendar year of purchase. Please note that the CDSC is not based on the length
of time that shares are held. Instead, the CDSC is based on the calendar year of
purchase and the calendar year of redemption.
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:
o redemptions of Class B or Class C 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.
o redemptions of Class B or Class C 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.
o redemptions of Class B or Class C shares purchased by current or retired
Directors of the Corporation, Directors of affiliated
41
<PAGE>
companies, current or retired officers or employees of the Corporation,
WRIMCO, the Distributor or their affiliated companies, financial advisors
of Waddell & Reed, Inc., and by the members of immediate families of such
persons.
o redemptions of Class B or Class C shares made pursuant to a shareholder's
participation in Funds Plus Service or other systematic withdrawal service
adopted for a Fund. (The service and this exclusion from the CDSC do not
apply to a one-time withdrawal.)
o redemptions of which the proceeds are reinvested in Class B or Class C
shares (must be reinvested in the same class as that which was redeemed)
of the Fund within forty-five days after such redemption.
o the exercise of certain exchange privileges.
o redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B or Class C shares if the aggregate NAV of those
shares is less than $500.
o redemptions effected by another registered investment company by virtue of
a merger or other reorganization with a Fund or by a former shareholder of
such investment company of Class B or Class C shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
account, which requires certain notice.
Class Y shares are not subject to a sales charge. Class Y shares pay an annual
12b-1 distribution and/or service fee of up to 0.25% of average net assets.
Class Y shares are only available for purchase by:
o 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;
42
<PAGE>
o 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;
o government entities or authorities and corporations whose investment is
$10 million or more and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support
services; and
o certain retirement plans and trusts for employees and financial advisors
of Waddell & Reed, Inc. and its affiliates.
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax-deductible.
o Individual Retirement Accounts (IRAs) allow an individual under 70 1/2,
with earned income, to invest up to $2,000 per tax year. The maximum
annual contribution for an investor and his or her spouse is $4,000
($2,000 per spouse) or, if less, the couple's combined earned income for
the taxable year.
43
<PAGE>
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
o 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
couples 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.
o Education IRAs are established for the benefit of a minor, with
nondeductible contributions, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
o Simplified Employee Pension Plans (SEP-IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with
many of the same advantages as a Keogh Plan, but with fewer administrative
requirements.
o Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to their employees'
retirement accounts and generally involve fewer administrative
requirements than 401(k) or other qualified plans.
o 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.
o Pension and Profit-Sharing Plans, including 401(k) Programs, 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.
o 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
o 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
44
<PAGE>
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and its
financial advisors or through advisors of Legend.. To open your account you must
complete and sign an application. If you purchase Class B or Class C shares of
Money Market Fund directly rather than by exchange, you must establish a Funds
Plus Service Plan. Your Waddell & Reed or Legend financial advisor can help you
with any questions you might have.
To purchase any class of shares by check, make your check, money order, Federal
Reserve draft or other negotiable bank draft 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 888-WADDELL, 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.
You may also buy Class Y shares of the Funds indirectly through certain
broker-dealers, banks and other third parties, some of
45
<PAGE>
which may charge you a fee. These firms may have additional requirements
regarding the purchase of Class Y shares.
The price to buy a share of a Fund, called the offering price, is calculated
every business day.
The offering price of a share (the price to buy one share of a particular class)
is the next NAV calculated per share of that class plus, for Class A shares, the
sales charge shown in the table.
For Money Market Fund the NAV of each class will normally remain fixed at $1.00
per share.
In the calculation of a Fund's NAV:
o The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
o Bonds are generally valued according to prices quoted by an independent
pricing service.
o Short-term debt securities are valued at amortized cost, which
approximates market value.
o 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 may be valued at their fair
46
<PAGE>
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:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
o All of your purchases must be made in U.S. dollars.
o Dividends for Money Market Fund do not accrue until the Fund has federal
funds available to it; federal funds are monies of a member bank of the
Federal Reserve System held in deposit at a Federal Reserve Bank.
o 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.
o If you purchase shares of a Fund from Legend advisors, certain
broker-dealers, banks or other authorized third parties, the Fund will be
deemed to have received your purchase order when Legend advisors or that
third party (or its designee) has received your order. Your order will
receive the Class Y offering price next calculated after the order has
been received in proper form by the Legend advisors or authorized third
party (or its designee). You should consult that firm to determine the
time by which it must receive your order for you to purchase shares of the
Fund at that day's price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
47
<PAGE>
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts, and accounts opened through payroll deductions,
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account Any amount
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 by check, make your check payable to Waddell & Reed, Inc.
Mail the check to Waddell & Reed, Inc., along with:
o the detachable form that accompanies the confirmation of a prior purchase
or your year-to-date statement; or
o a letter stating your account number, the account registration, the Fund,
and the class of shares that you wish to purchase.
48
<PAGE>
To add to your Class Y account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, for the account of Waddell & Reed Number 9800007978,
Special Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
If you purchase shares of the Funds from Legend advisors, certain
broker-dealers, banks or other authorized third parties, additional purchases
may be made through those firms.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund, subject to any CDSC applicable to Class B or
Class C shares.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
o the name on the account registration;
o the Fund's name;
o the Fund account number;
o the dollar amount or number, and the class, of shares to be redeemed; and
o any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed financial advisor, or
mail it to:
Waddell & Reed 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,
49
<PAGE>
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.
To sell Class A shares of Money Market Fund by check: If you have elected this
method in your application or by subsequent authorization, the Corporation will
provide you with forms of checks drawn on UMB Bank, n.a. (the "Bank"). You may
make these checks payable to the order of any payee in any amount of $250 or
more.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated, subject to any applicable CDSC, after receipt of a written request
for redemption in good order by Waddell & Reed Services Company at the address
listed above. Note the following:
o If more than one person owns the shares, each owner must sign the written
request.
o If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Corporation telephone or
written assurance, satisfactory to the Corporation, that the check has
cleared and been honored. If you do not, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Corporation is able to verify that your purchase check has
cleared and been honored.
o 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.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities when the Corporation'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.
o If you purchased shares of a Fund from Legend advisors, certain
broker-dealers, banks or other authorized third parties, you may sell
those shares through those firms, some of which may charge you a fee and
may have additional requirements to sell Fund shares. The Fund will be
deemed to have received your order to
50
<PAGE>
sell shares when that firm (or its designee) has received your order. Your
order will receive the NAV next calculated after the order has been
received in proper form by the authorized firm (or its designee). You
should consult that firm to determine the time by which it must receive
your order for you to sell shares at that day's price.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or Joint The written instructions must be
Tenant signed by all persons required to
sign for transactions, exactly as
their names appear on the account.
Sole Proprietorship The written instructions must be
signed by the individual owner of the business.
UGMA, UTMA The custodian must sign the written
instructions indicating capacity as custodian.
Retirement Account The written instructions must be signed by
a properly authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's
name is not in the account registration, provide a
currently certified copy of the trust document.
Business or At least one person authorized by
Organization corporate resolution to act on the
account must sign the written
instructions.
Conservator, The written instructions must be
Guardian or Other signed by the person properly
Fiduciary authorized by court order to act in
the particular fiduciary capacity.
The Corporation may require a signature guarantee in certain situations such as:
o a redemption request made by a corporation, partnership or fiduciary;
o a redemption request made by someone other than the owner of record; or
51
<PAGE>
o the check is made payable to someone other than the owner of record.
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but not
from a notary public.
The Corporation reserves the right to redeem at NAV all shares of a Fund owned
by you having an aggregate NAV of less than $500. The Corporation will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares of that Fund to $500. For Class B or Class C shares, these
redemptions are not subject to the deferred sales charge. The Corporation will
not apply its redemption right to individual retirement plan accounts,
retirement accounts or accounts which have an aggregate NAV of less than $500
due to market forces.
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 a Fund
within forty-five days after the date of your redemption.
The CDSC will not apply to the proceeds of Class B or Class C shares which are
redeemed and then reinvested in Class B or Class C shares, 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 of a Fund and once as to Class C 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 Corporation and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The
Corporation will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Corporation fails to do so, the
Corporation
52
<PAGE>
may be liable for losses due to unauthorized or fraudulent instructions. Current
procedures relating to instructions communicated by telephone include tape
recording instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your financial advisor is available to provide personal service. Additionally, 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 or update your
account records. At almost any time of the day or night, you may access your
account information from a touch-tone phone, or from our web site,
www.waddell.com, to:
o obtain information about your accounts;
o obtain price information about other funds in TBD Funds, Inc. of Waddell &
Reed Group of Funds; or
o request duplicate statements.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Funds. Call the telephone number listed for Client Services if you need
additional copies of annual or semiannual reports or account information.
53
<PAGE>
Exchanges
Except as provided below, you may sell your shares and buy shares of the same
class of any of the funds within the TBD Group or of any of the funds within the
Waddell & Reed Group of 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. For Class B and Class C shares, 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.
You may exchange any Class A shares of the Limited-Term Bond and Municipal Bond
Funds that you have held for at least six months and any Class A shares of the
Fund acquired as payment of a dividend or distribution for Class A shares of any
other fund in the TBD Group. You may exchange any Class A shares of the
Limited-Term Bond and Municipal Bond Funds that you have held for less than six
months only for Class A shares of Limited-Term Bond, Municipal Bond and Money
Market Funds.
Exchanges may only be made into funds which are legally permitted for sale in
the state of residence of the investor. Note that exchanges out of the Funds may
have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Corporation 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 TBD.
54
<PAGE>
Minimum Amount Minimum Frequency
$25 (per Fund) Monthly
Funds Plus Service
To move money from Money Market Fund to another Fund in TBD, whether in the same
or a different Fund account in the same class
Minimum Amount Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year.
Usually, High Income Fund, Limited-Term Bond Fund, Money Market Fund and
Municipal Bond Fund distribute net investment income at the following times:
declared daily and paid monthly. Dividends declared for a particular day are
paid to shareholders of record on the prior business day. However, dividends
declared for Saturday and Sunday are paid to shareholders of record on the
preceding Thursday. Net capital gains (and any net gains from foreign currency
transactions) ordinarily are distributed by each Fund in December.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. Each Fund offers three 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. Income-Earned Option. Your capital gains and other non-dividend
distributions with respect to a class will be automatically paid in
additional shares of the same class of the distributing Fund, but you will
be sent a check for each dividend distribution. However, if the dividend
distribution is less than five dollars, the distribution will be
automatically paid in additional shares of the same class of the
distributing Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains
and other distributions if the total distribution is five dollars or
greater. If the distribution total is less than five dollars, the total
distribution will be automatically
55
<PAGE>
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 by Municipal Bond Fund that are designated by it as
exempt-interest dividends generally may be excluded by you from your gross
income. Distributions of a Fund's net capital gains, when designated as such,
are taxable to you as long-term capital gains, whether received in cash or paid
in additional Fund shares and regardless of the length of time you have owned
your shares. For Federal income tax purposes, your long-term capital gains
generally are taxed at a maximum rate of 20%.
Each Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that year.
Exempt-interest dividends paid by Municipal Bond Fund may be subject to income
taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that must
be treated by you as a "tax preference item" for purposes of calculating your
liability, if any, for the AMT; the Fund anticipates such portion will be not
more than 40% of the dividends it will pay to its shareholders. Municipal Bond
Fund will provide you with information concerning the amount of distributions
subject to the AMT after the end of each calendar year. Shareholders who may be
subject to the AMT should consult with their tax advisers concerning investment
in the Fund.
Entities or other persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by private activity bonds ("PABs")
or IDBs should consult their tax advisers before purchasing Municipal Bond Fund
shares because, for users of certain of these facilities, the interest on those
bonds is not exempt from Federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt
56
<PAGE>
person" who regularly uses, in trade or business, a part of a facility financed
from the proceeds of PABs or IDBs. A portion of the dividends paid by a Fund,
whether received in cash or paid in additional Fund shares, may be eligible for
the dividends received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by a Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends received deduction are subject
indirectly to the Federal alternative minimum tax. No part of the dividends paid
by Limited-Term Bond Fund and Municipal Bond Fund is expected to be eligible for
this deduction.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the TBD Group or in the Waddell & Reed Group of 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 TBD Group without paying a sales charge due to the
forty-five day reinvestment privilege or exchange privilege. See "Your Account."
In these cases, any gain on the disposition of the original Class A Fund shares
will be increased, or loss decreased, by the amount of the sales charge you paid
when those shares were acquired, and that amount will increase the adjusted
basis of the shares subsequently acquired. In addition, if you purchase shares
of a Fund within thirty days before or after redeeming other shares of that Fund
(regardless of class) at a loss, part or all of that loss will not be deductible
and will increase the basis of the newly purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares of
Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds. If
such a proposal were enacted, the availability of municipal bonds for investment
by that Fund and the value of its portfolio would be affected. In that event,
that Fund may decide to reevaluate its investment goal and policies.
Withholding. Each Fund must withhold 31% of all taxable dividends, capital gains
and other distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer
57
<PAGE>
identification number. Withholding at that rate from taxable dividends, capital
gains and other distributions also is required for shareholders subject to
backup withholding.
State and local income taxes. The portion of the dividends paid by Limited-Term
Bond Fund and Money Market Fund (and, to a lesser extent, the other Funds)
attributable to interest earned on U.S. Government securities generally is not
subject to state and local income taxes, although distributions by any Fund to
its shareholders of net realized gains on the sale of those securities are fully
subject to those taxes. You should consult your tax adviser to determine the
taxability of dividends and other distributions by the Funds in your state and
locality.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Funds and their shareholders; you will
find more information in the SAI. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
58
<PAGE>
The Management of the Funds
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Corporation's
Board of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO and/or its predecessors have served
as investment manager to each of the registered investment companies in the
Waddell & Reed Group of Mutual Funds, TBD Funds, Inc. and Target/United Funds,
Inc. since the inception of each investment company. WRIMCO is located at 6300
Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Louise D. Rieke is primarily responsible for the management of the portfolio of
High Income Fund. Ms. Rieke has held her Fund responsibilities since July 31,
1997. She is Vice President of WRIMCO, Vice President of the Corporation and
Vice President of other investment companies for which WRIMCO serves as
investment manager. From November 1985 to March 1998, Ms. Rieke was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company, a former affiliate of WRIMCO. Ms. Rieke has served as the portfolio
manager for investment companies managed by WRIMCO and its predecessors since
July 1986 and has been an employee of such since May 1971.
W. Patrick Sterner is primarily responsible for the management of the portfolio
of Limited-Term Bond Fund. Mr. Sterner has held his Fund responsibilities since
September 1992. He is Vice President of WRIMCO, Vice President of the
Corporation and Vice President of another investment company for which WRIMCO
serves as investment manager. From August 1992 to March 1998, Mr. Sterner was
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. He has been an employee of WRIMCO since August 1992.
Mira Stevovich is primarily responsible for the management of the portfolio of
Money Market Fund. Ms. Stevovich has held her Fund responsibilities since the
inception of the Fund. She is Vice President of WRIMCO, Vice President and
Assistant Treasurer of the Corporation and Vice President and Assistant
Treasurer of other investment companies for which WRIMCO serves as investment
manager. Ms. Stevovich has served as the Portfolio Manager for investment
companies managed by WRIMCO and its predecessors since May 1998 and has been an
employee of such since March 1987.
is primarily responsible for the management of the portfolio of Municipal Bond
Fund. Mr. has held his Fund responsibilities since June 30, 2000. He is
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<PAGE>
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
Management Fee
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in the share price or
dividends of that Fund; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained in the SAI.
The management fee is payable by a Fund at the annual rates of:
for High Income Fund, 0.625% of net assets up to $500 million, 0.60% of net
assets over $500 million and up to $1 billion, 0.55% of net assets over $1
billion and up to $1.5 billion, and 0.50% of net assets over $1.5 billion;
for Limited-Term Bond Fund, 0.50% of net assets up to $500 million, 0.45% of net
assets over $500 million and up to $1 billion, 0.40% of net assets over $1
billion and up to $1.5 billion, and 0.35% of net assets over $1.5 billion;
for Money Market Fund, 0.40% of annual net assets; and
for Municipal Bond Fund, 0.525% of net assets up to $500 million, 0.50% of net
assets over $500 million and up to $1 billion, 0.45% of net assets over $1
billion and up to $1.5 billion, and 0.40% of net assets over $1.5 billion.
However, WRIMCO has voluntarily agreed to waive its management fee for a Fund 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.
Prior to June 30, 1999, the management fee was computed on each Fund's (except
Money Market Fund) NAV as of the close of business each day at an annual rate as
follows:
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<PAGE>
Annual
Fund Rate
- ---- ------
High Income
Fund 0.66%
Limited-Term
Bond Fund 0.56%
Municipal Bond
Fund 0.56%
For the fiscal year ended March 31, 2000, management fees for each Fund then in
existence as a percentage of such Fund's net assets were as follows:
Management
Fund Fee
- ---- ---
High Income
Fund 0.%
Limited-Term
Bond Fund 0.%
Municipal
Bond Fund 0.%
61
<PAGE>
Financial Highlights
The following information is to help you understand the financial performance of
each Fund's Class C and Class Y shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with each Fund's financial statements for the fiscal
year ended March 31, 2000, is included in the SAI, which is available upon
request.
62
<PAGE>
High Income Fund
For a Class C share outstanding throughout each period*:
For the
For the fiscal year period from
ended March 31, 7/31/97**
------------------- to
2000 1999 3/31/98
---- ---- -----------
Class C Per-Share Data
Net asset value,
beginning of period ......... $0. $10.79 $10.00
------ ---------- ----------
Income from investment
operations:
Net investment
income .................... 0. 0.63 0.37
Net realized and
unrealized gain (loss)
on investments ............. 0. (0.82) 0.79
------ ---------- ----------
Total from investment
operations ................... 0. (0.19) 1.16
------ ---------- ----------
Less distributions:
Declared from net
investment income ......... 0. (0.63) (0.37)
From capital gains .......... 0. (0.03) (0.00)
------ ---------- ----------
Total distributions ........... 0. (0.66) (0.37)
------ ---------- ----------
Net asset value,
end of period ................ $0. $9.94 $10.79
====== ========== ==========
Class C Ratios/Supplemental Data
Total return ................... 0.% -1.72% 11.77%
Net assets, end of
period (000
omitted) ..................... $0. $25,427 $11,812
Ratio of expenses
to average net
assets ....................... 0.% 2.20% 2.52%***
Ratio of net investment
income to average net
assets ....................... 0.% 6.29% 5.98%***
Portfolio
turnover rate ................ 0.% 50.98% 67.82%
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999.
** Commencement of operations.
*** Annualized.
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<PAGE>
<PAGE>
HIGH INCOME FUND
For a Class Y share outstanding throughout the period:
For the
For the period
fiscal year from
ended March 31, 12/30/98*
---------------- to
2000 3/31/99
---- ---------
Class Y Per-Share Data
Net asset value,
beginning of period .......... $0. $9.97
------ ------
Income from investment
operations:
Net investment
income ..................... 0. 0.20
Net realized and
unrealized gain
on investments ............. 0. 0.00
------ ------
Total from investment
operations ................... 0. 0.20
------ ------
Less distributions:
Declared from net
investment income .......... 0. (0.20)
From capital gains ........... 0. (0.03)
------ ------
Total distributions ............ 0. (0.23)
------ ------
Net asset value,
end of period ................ $0. $9.94
====== ======
Class Y Ratios/Supplemental Data
Total return ................... 0.% 2.45%
Net assets, end of
period (000
omitted) ..................... $0. $6
Ratio of expenses
to average net
assets ....................... 0.% 0.26%**
Ratio of net investment
income to average net
assets ....................... 0.% 8.55%**
Portfolio
turnover rate ................ 0.% 50.98%**
* Commencement of operations.
** Annualized.
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<PAGE>
Limited-Term Bond Fund
For a Class C share outstanding throughout each period*:
For the fiscal year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Class C Per-Share Data
Net asset value,
beginning of
period ............... $ $10.14 $9.90 $10.00 $ 9.70
------ ------ ------ ----- ------
Income from investment
operations:
Net investment
income ............. 0. 0.44 0.45 0.44 0.41
Net realized and
unrealized gain
(loss) on
investments ........ 0. 0.02 0.24 (0.09) 0.30
------ ------ ------ ----- ------
Total from investment
operations ........... 0. 0.46 0.69 0.35 0.71
------ ------ ------ ----- ------
Less distributions:
Declared from net
investment income .. 0. (0.44) (0.45) (0.44) (0.41)
From capital gains ... 0. (0.00) (0.00) (0.01) (0.00)
------ ------ ------ ----- ------
Total distributions .. 0. (0.00) (0.45) (0.45) (0.41)
------ ------ ------ ----- ------
Net asset value,
end of period ........ $ $10.16 $10.14 $9.90 $10.00
====== ====== ====== ===== ======
Class C Ratios/Supplemental Data
Total return ........... 0.% 4.65% 7.15% 3.52% 7.41%
Net assets, end of
period (000
omitted) ............. $ $21,311 $18,148 $17,770 $23,682
Ratio of expenses
to average net
assets ............... 0.% 2.11% 2.12% 2.07% 2.10%
Ratio of net investment
income to average
net assets............ 0.% 4.34% 4.52% 4.40% 4.14%
Portfolio turnover
rate ................. 0.% 32.11% 27.37% 23.05% 22.08%
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
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<PAGE>
LIMITED-TERM BOND FUND
For a Class Y share outstanding throughout each period:
For the fiscal year For the
ended March 31, period from
------------------- December 29, 1995*
2000 1999 1998 1997 to March 31, 1996
---- ---- ---- ---- ------------------
Class Y Per-Share Data
Net asset value,
beginning of
period ............... $0. $10.14 $9.90 $10.00 $10.16
----- ------ ------ ------ ------
Income from investment
operations:
Net investment
income.............. 0. 0.53 0.53 0.52 0.11
Net realized and
unrealized gain (loss)
on investments ..... 0. 0.02 0.24 (0.09) (0.16)
----- ----- ------ ------ ------
Total from investment
operations ........... 0. 0.55 0.77 0.43 (0.05)
----- ----- ------ ------ ------
Less distributions:
Declared from net
investment income .. 0. (0.53) (0.53) (0.52) (0.11)
From capital gains ... 0. (0.00) (0.00) (0.01) (0.00)
----- ----- ------ ------ ------
Total distributions .... 0. (0.53) (0.53) (0.53) (0.11)
----- ----- ------ ------ ------
Net asset value,
end of period ........ $ $10.16 $10.14 $9.90 $10.00
===== ===== ====== ====== ======
Class Y Ratios/Supplemental Data
Total return ........... 0.% 5.60% 7.91% 4.33% -0.49%
Net assets, end of
period (000
omitted).............. $0. $263 $184 $105 $1
Ratio of expenses
to average net
assets ............... 0.% 1.20% 1.32% 1.04% 1.18%**
Ratio of net investment
income to average
net assets ........... 0.% 5.25% 5.32% 5.62% 4.70%**
Portfolio turnover
rate ................. 0.% 32.11% 27.37% 23.05% 22.08%**
* Commencement of operations.
** Annualized.
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<PAGE>
Municipal Bond Fund
For a Class C share outstanding throughout each period*:
For the fiscal year ended March 31,
------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Class C Per-Share Data
Net asset value,
beginning of
period ............... $ $11.45 $10.74 $10.63 $10.30
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ............. 0. 0.42 0.44 0.45 0.43
Net realized and
unrealized gain
(loss) on
investments ........ 0. 0.10 0.71 0.11 0.33
------ ------ ------ ------ ------
Total from investment
operations ........... 0. 0.52 1.15 0.56 0.76
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income .. 0. (0.42) (0.44) (0.45) (0.43)
From capital gains ... 0. (0.31) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions 0. (0.73) (0.44) (0.45) (0.43)
------ ------ ------ ------ ------
Net asset value,
end of period ........ $ $11.24 $11.45 $10.74 $10.63
====== ====== ====== ====== ======
Class C Ratios/Supplemental Data
Total return ........... 0.% 4.64% 10.89% 5.32% 7.48%
Net assets, end of
period (000
omitted) ............. $0. $42,906 $40,023 $36,618 $33,869
Ratio of expenses
to average net
assets ............... 0.% 1.88% 1.89% 1.92% 1.93%
Ratio of net investment
income to average
net assets ........... 0.% 3.68% 3.94% 4.18% 4.05%
Portfolio turnover
rate ................. 0.% 41.53% 27.86% 34.72% 42.02%
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
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<PAGE>
MUNICIPAL BOND FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the or the
fiscal For the For the fiscal For the
year period from period year period from
ended 12/30/98*** ended ended 12/29/95*
3/31/00 to 3/31/99 6/23/97** 3/31/97 to 3/31/96
------ ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $11.58 $10.74 $10.63 $10.94
---- ------ ------ ------ ------
Income from investment
operations:
Net investment
income ..................... 0. 0.13 0.10 0.52 0.12
Net realized and
unrealized gain
(loss) on
investments ................ 0. (0.03) 0.29 0.11 (0.31)
---- ------ ------ ------ ------
Total from investment
operations ................... 0. 0.10 0.39 0.63 (0.19)
---- ------ ------ ------ ------
Less distributions:
Declared from net
investment income .......... 0. (0.13) (0.10) (0.52) (0.12)
From capital gains ........... 0. (0.31) (0.00) (0.00) (0.00)
---- ------ ------ ------ ------
Total distributions ............ 0. (0.44) (0.10) (0.52) (0.12)
---- ------ ------ ------ ------
Net asset value,
end of period ................ $0. $11.24 $11.03 $10.74 $10.63
==== ====== ====== ====== ======
Class Y Ratios/Supplemental Data
Total return ................... 0. 0.80% 3.22% 5.96% -1.80%
Net assets, end of
period (000
omitted) ..................... $0. $2 $0 $1 $1
Ratio of expenses
to average net
assets ....................... 0.% 1.00%**** 4.95%**** 1.28% 1.18%****
Ratio of net investment
income to average
net assets ................... 0.% 4.40%**** 4.12%**** 4.83% 4.33%****
Portfolio turnover
rate ......................... 0.% 41.53%**** 27.86% 34.72% 42.02%****
</TABLE>
* Initial commencement of operations.
** All outstanding shares were redeemed on June 23, 1997, at the ending net
asset value shown in the table.
*** Recommencement of operations.
**** Annualized.
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<PAGE>
Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
928 Grand Boulevard 6300 Lamar Avenue
Kansas City, Missouri 64106 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
69
<PAGE>
Funds, Inc.
You can get more information about the Funds in--
o The Statement of Additional Information (SAI), which contains
detailed information about each Fund, particularly the investment
policies and practices. You may not be aware of important
information about each 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).
o The Annual and Semiannual Reports to Shareholders, which detail each
Fund's actual investments and include financial statements as of the
close of the particular annual or semiannual period. The annual
report also contains a discussion of the market conditions and
investment strategies that significantly affected each Fund's
performance during the year covered by the report.
To request a copy of the current SAI or copies of a Fund's 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
70
<PAGE>
TBD 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
This prospectus offers shares in the equity funds of TBD Funds, Inc. (formerly
known as Waddell & Reed Funds, Inc.).
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
June 30, 2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS.....................................................4
ASSET STRATEGY FUND..........................................................4
INTERNATIONAL GROWTH FUND...................................................11
LARGE CAP GROWTH FUND.......................................................17
MID CAP GROWTH FUND.........................................................21
SCIENCE AND TECHNOLOGY FUND.................................................25
SMALL CAP GROWTH FUND.......................................................31
TAX-MANAGED EQUITY FUND.....................................................37
TOTAL RETURN FUND...........................................................41
THE INVESTMENT PRINCIPLES OF THE FUNDS......................................47
Investment Goals, Principal Strategies and Other Investments..............47
All Funds.................................................................53
Risk Considerations of Principal Strategies and Other Investments.........53
YOUR ACCOUNT................................................................56
Choosing a Share Class....................................................56
Sales Charge Reductions...................................................59
Ways to Set Up Your Account...............................................64
Buying Shares.............................................................66
Minimum Investments.......................................................68
Adding to Your Account....................................................69
Selling Shares............................................................69
Telephone Transactions....................................................73
Shareholder Services......................................................73
Personal Service........................................................73
Reports.................................................................74
Exchanges...............................................................74
Automatic Transactions..................................................74
Distributions and Taxes...................................................75
Distributions...........................................................75
Taxes...................................................................76
2
<PAGE>
THE MANAGEMENT OF THE FUNDS.................................................79
Portfolio Management......................................................79
Management Fee............................................................81
FINANCIAL HIGHLIGHTS........................................................84
3
<PAGE>
An Overview of the Funds
Asset Strategy Fund
Goal
Asset Strategy Fund seeks high total return over the long term.
Principal Strategies
Asset Strategy Fund seeks to achieve its goal by allocating its assets among
stocks, bonds and short-term instruments.
o 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.
o 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.
o 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.
o 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.
4
<PAGE>
Mix
- ---
_ Stocks 70%
(can range
from
0-100%)
_ Bonds 25%
(can range
from
0-100%)
_ Short-term 5%
(can range from
0-100%)
Principal Risks of Investing in the Fund
Because Asset Strategy Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
o the skill of WRIMCO in allocating the Fund's assets among different types
of investments;
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
o an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to
decline;
o prepayment of higher-yielding bonds held by the Fund;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds; and
o 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.
5
<PAGE>
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.
6
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Asset Strategy Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
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 %.
7
<PAGE>
* The returns shown are based on the performance of the Fund's prior
Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on, _____,
1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year Life of Class**
Class C Shares of Asset
Strategy Fund* 18.22% 10.05%
S&P 500 Index 21.09% 27.53%
Salomon Brothers Broad
Investment Grade Debt Index -0.83% 6.86%
Salomon Brothers Short-Term
Index for 1 Month Certificates
of Deposit 5.32% 5.62%
Lipper All 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 Debt Index -0.83% 5.20%
Salomon Brothers Short-Term
Index for 1 Month Certificates
of Deposit 5.32% 5.55%
Lipper All Flexible Portfolio
Funds Universe Average 12.50% 14.44%
The indexes shown are broad-based, securities market indexes that are unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the goal
of the Fund.
* The returns shown for Class C are based on the performance of the Fund's prior
Class B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on ____, 1999. The prior Class B's
performance has been adjusted to reflect the current contingent deferred sales
charge ("CDSC") structure applicable to Class C.
** Since April 20, 1995, for Class C shares (based on the prior Class B shares)
and December 27, 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.
8
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Asset Strategy 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) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and
Service (12b-1) Fees(3) 0.25% 1.00% 1.00% 0.25%
Other Expenses % 0.% 0.% 0.%
Total Annual Fund
Operating Expenses 2.21% 2.10% 1.34%
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.
- --------
(1) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(2) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
9
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
10
<PAGE>
International Growth Fund
Goals
International Growth Fund seeks, as a primary goal, long-term appreciation of
capital. As a secondary goal, the Fund seeks current income.
Principal Strategies
International Growth Fund seeks to achieve its goals by investing primarily in
common stocks of foreign companies that WRIMCO believes have the potential for
long-term growth represented by economic expansion 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:
o growth potential;
o earnings potential;
o management;
o industry position; and
o 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:
o changes in foreign exchange rates, which may affect the value of the
securities the Fund holds;
11
<PAGE>
o 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;
o the earnings performance, credit quality and other conditions of the
issuers whose securities the Fund holds; and
o WRIMCO's skill in evaluating and selecting securities for the Fund.
Investing in foreign securities presents additional risks, such as currency
fluctuations and political or economic conditions affecting the foreign country.
Accounting and disclosure standards also differ from country to country, which
makes obtaining reliable research information more difficult. There is the
possibility that, under unusual international monetary or political conditions,
the Fund's assets might be more volatile than would be the case with other
investments.
Market risk for small or medium sized companies may be greater than that for
large companies. For example, smaller companies have limited financial
resources, limited product lines or inexperienced management.
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.
12
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in International Growth Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual total
returns for the periods shown compare with those of a broad measure of market
performance and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
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).
13
<PAGE>
The Class C return for the year through March 31, 2000, was %.
* 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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 Years Life of Class**
Class C Shares of
International Growth Fund* 85.66% 30.25% 19.91%
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 13.55%
Lipper International
Fund 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% 13.55 13.24%
Lipper International
Fund Universe Average 40.80% 15.05% 14.91 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.
* The returns shown for Class C are based on the performance of the Fund's prior
Class B. On March 24, 2000, that Class B was combined with and redesignated as
Class C, which had commenced operations on ____, 1999. The prior Class B's
performance has been adjusted to reflect the current CDSC structure applicable
to Class C.
** Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 27, 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.
14
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of International Growth 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)(4) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(5)
(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.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
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:
- ----------
(4) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(5) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
15
<PAGE>
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
16
<PAGE>
Large Cap Growth Fund
Goal
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 U.S. companies with market
capitalizations of $4 to $10 billion or greater at the time of purchase that
WRIMCO believes have appreciation possibilities. WRIMCO typically emphasizes
growth stocks, but also includes value stocks, in the Fund's portfolio to
provide a blend of value and growth potential. 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 companies of any size.
WRIMCO attempts to select securities with appreciation possibilities by looking
at many factors. These include:
o changes in economic and political conditions;
o the short-term and long-term outlook for the industry being analyzed;
o the management capability of the company being considered; and
o the company's market position, product line, technological position and
prospects for increased earnings.
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.
17
<PAGE>
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:
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
o 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
o the skill of WRIMCO in evaluating and selecting securities for the Fund.
As well, the Fund may invest a portion of its assets in foreign securities.
Foreign securities present additional risks such as currency fluctuations and
political or economic conditions affecting the foreign countries.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
The Fund is designed for investors seeking long-term investment growth. You
should consider whether the Fund fits your particular investment objectives.
18
<PAGE>
Performance
Since Large Cap Growth Fund has not been in operation for a full calendar year,
it does not have performance information of at least one calendar year to
include a bar chart or performance table.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Large Cap Growth Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load) (6) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(7)
(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.% 0.% 0.% 0.%
Total Annual Fund
Operating Expenses 0.% % % %
</TABLE>
- ----------
(6) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(7) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to voluntarily 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.
19
<PAGE>
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 $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years
Class A Shares $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
20
<PAGE>
Mid Cap Growth Fund
Goal
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. companies whose market capitalizations are within the range of
capitalizations of companies comprising the Standard & Poor's MidCap 400 Index
("S&P MidCap 400") 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:
o new or innovative products or services,
o adaptive or creative management,
o strong financial and operational capabilities to sustain growth,
o market potential, and
o 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:
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o 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;
21
<PAGE>
<PAGE>
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy; and
o 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
The 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.
22
<PAGE>
Performance
Since Mid Cap Growth Fund has not been in operation for a full calendar year, it
does not have performance information of at least one calendar year to include a
bar chart or performance table.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Mid Cap Growth Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load) (8) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(9)
(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.% 0.% 0.% 0.%
Total Annual Fund
Operating Expenses 0.% 0.% 0.% 0.%
</TABLE>
- ----------
(8) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(9) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to voluntarily 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.
23
<PAGE>
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 $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years
Class A Shares $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
24
<PAGE>
Science and Technology Fund
Goal
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 science and technology equity securities of U.S.
companies. Science and technology companies are companies whose products,
processes or services, in WRIMCO's opinion, are being or are expected to be
significantly benefited by the use or commercial application of scientific or
technological developments or discoveries. The Fund may invest in companies of
any size. The Fund emphasizes growth potential in selecting stocks; that is,
WRIMCO seeks companies in which earnings are likely to grow faster than the
economy.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include the issuer's:
o growth potential;
o earnings potential;
o management;
o industry position; and
o 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:
o 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;
25
<PAGE>
o rapid obsolescence of products or processes of companies in which the Fund
invests;
o government regulation in the science and technology industry;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o 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
o 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 science and
technology securities. This Fund is not suitable for all investors. You should
consider whether the Fund fits your investment objectives.
26
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Science and Technology 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.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
1998 44.03%
1999 177.01%
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 %.
* The returns shown are based on the performance of the Fund's prior Class
B. On March 24, 2000, that Class B was combined
27
<PAGE>
with and redesignated as Class C, which had commenced operations on,
_____, 1999.
Average Annual Total Returns
as of December 31, 1999 (%)
1 Year Life of Class**
Class C Shares of Science
and Technology Fund* 174.01% 78.42%
Goldman Sachs Technology
Industry Composite Index 88.86% 53.80%
S&P 400 Index % % %
Lipper Science and Technology
Fund 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 Index % % %
Lipper Science and Technology
Fund Universe Average 134.77% 99.09%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
* The 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 ____, 1999. The prior Class B's
performance has been adjusted to reflect the current CDSC structure applicable
to Class C.
** Since 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.
28
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Science and Technology Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(10) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(11)
(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.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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.
- ----------
(10) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(11) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
29
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
30
<PAGE>
Small Cap Growth Fund
Goal
Small Cap Growth Fund seeks growth of capital.
Principal Strategies
Small Cap Growth Fund, formerly known as Growth Fund, seeks to achieve its goal
by investing primarily in a diversified portfolio of 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 an 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:
o aggressive or creative management;
o technological or specialized expertise;
o new or unique products or services; and
o entry into new or emerging industries.
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 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 investments, a variety of
factors can affect its investment performance, such as:
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
31
<PAGE>
o the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries;
o 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
o the skill of WRIMCO 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:
o products offered may fail to sell as anticipated;
o a period of unprofitability may be experienced before a company develops
the expertise and clientele to succeed in an industry;
o the company may never achieve profitability; and
o 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 investors
who desire assured income and conservation of capital. You should consider
whether the Fund fits your particular investment objectives.
32
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Small Cap Growth 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.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
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).
33
<PAGE>
The Class C return for the year through March 31, 2000, was %.
* 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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 Years Life of Class**
Class C Shares of Small Cap
Growth Fund* 58.42% 30.75% 28.84%
Russell 2000 Growth Index 43.08% 18.95% 16.94%
Lipper Small-Cap Funds
Universe Average 33.35% 19.46% 18.12%
Class Y Shares of Small Cap
Growth Fund 62.79% 31.67%
Russell 2000 Growth Index 43.08% % 16.12%
Lipper Small-Cap Funds
Universe Average 33.35% % 17.53%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
* The 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 ____, 1999. The prior Class B's
performance has been adjusted to reflect the current CDSC structure applicable
to Class C.
** Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 27, 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.
34
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Small Cap Growth Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(12) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(13)
(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 % % % %
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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:
- ----------
(12) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(13) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on other Fund-level expenses for the fiscal year ended
March 31, 2000, and for Class A and Class B, the expenses attributable to those
classes that are anticipated for the current year. Actual expenses may be
greater or less than those shown.
35
<PAGE>
If shares are redeemed
at end of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
36
<PAGE>
Tax-Managed Equity Fund
Goal
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:
o the skill of WRIMCO in evaluating and selecting securities for the Fund;
37
<PAGE>
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o 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;
o 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
o 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.
38
<PAGE>
Performance
Tax-Managed Equity 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
This table describes the fees and expenses that you may pay if you buy and hold
shares of Tax-Managed Equity Fund.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(14) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(15)
(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.% 0.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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
- ----------
(14) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(15) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to voluntarily 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.
39
<PAGE>
$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 class 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 $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years
Class A Shares $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
40
<PAGE>
Total Return Fund
Goal
Total Return Fund seeks to provide current income while seeking capital growth.
Principal Strategies
Total Return Fund seeks to achieve its goal by investing primarily in common
stocks of U.S. companies with dominant market positions in their industries 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. At other times, such as when the economy no longer
presents a favorable environment for the common stocks of large U.S. companies,
the Fund may seek to achieve its goal by investing in investment grade debt
securities. The Fund may make such investments when WRIMCO believes the return
on these securities is attractive relative to the return on common stocks. The
Fund may invest in debt securities of any maturity and may invest in companies
of any size.
WRIMCO attempts to select securities with income and growth possibilities by
looking at many factors including the company's:
o dividend payment history;
o profitability record;
o history of improving sales and profits;
o management;
o leadership position in its industry; and
o stock price value.
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
41
<PAGE>
Because Total Return Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
o 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;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o 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
o 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 dividend income with the
potential for capital growth. You should consider whether the Fund fits your
investment objectives.
42
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Total Return Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
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
43
<PAGE>
quarterly return was -7.12% (the third quarter of 1998). The Class C
return for the year through March 31, 2000, was %.
* 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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 Years Life of Class**
Class C Shares of Total
Return Fund* 9.15% 20.91% 16.66%
S&P 500 Index 21.09% 28.59% 21.55%
Lipper Growth and Income
Fund 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
Fund 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.
* The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on ____, 1999. The
prior Class B's performance has been adjusted to reflect the current CDSC
structure applicable to Class C.
** Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 27, 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.
44
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Total Return Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(16) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(17)
(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.% 0.% 0.%
Total Annual Fund
Operating Expenses .% % % %
</TABLE>
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.
- ----------
(16) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(17) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
45
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
46
<PAGE>
The Investment Principles of the Funds
Investment Goals, Principal Strategies and Other Investments
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
47
<PAGE>
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:
o 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
o 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.
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 (rated BBB and higher by S&P or Baa and higher by MIS).
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
48
<PAGE>
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.
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 U.S. companies that WRIMCO believes have appreciation
possibilities. There is no guarantee that the Fund will achieve its goal.
The Fund invests primarily in common stock but may also own, to a limited
extent, preferred stock and debt securities, typically of investment grade
(rated BBB or higher by S&P or Baa or higher by MIS) 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.
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. companies whose market capitalizations are within the
range of capitalizations of companies comprising the S&P MidCap 400 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 S&P MidCap 400. Companies
whose capitalization falls outside the range of the S&P MidCap 400 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.
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 (rated BBB or higher by S&P or Baa or higher by MIS). The Fund may also
invest up to 25% of its total assets in foreign securities.
49
<PAGE>
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.
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:
o aerospace and defense electronics;
o biotechnology;
o business machines;
o cable and broadband access;
o communications and electronic equipment;
o computer software and services;
o computer systems;
o electronics;
o electronic media;
o internet and internet-related services;
o medical devices and drugs;
50
<PAGE>
o medical and hospital supplies and services; and
o 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. WRIMCO
typically emphasizes growth potential in selecting stocks. A stock has growth
potential if, in WRIMCO's opinion, the earnings of the company are likely to
grow faster than the economy.
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.
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 (rated BBB and higher by Standard
& Poor's or Baa and higher by Moody's Investors Service, Inc., or, if unrated,
deemed by WRIMCO to be of comparable quality). 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
51
<PAGE>
temporary defensive position, the Fund may not achieve its investment objective.
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:
o a long-term, low turnover approach to investing;
o an emphasis on lower-yielding securities to require distribution of
little, if any, taxable income;
o an attempt to avoid net realized short-term gains;
o in the sale of portfolio securities, selection of the most tax-favored
lots; and
o 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 (rated
BBB and higher by S&P or Baa and higher by MIS). The Fund may also buy foreign
securities; however, it may not invest more than 25% of its total assets in
foreign securities.
52
<PAGE>
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.
Total Return Fund
The goal of Total Return Fund is to provide current income while seeking capital
growth. The Fund seeks to achieve its goal by investing primarily in a
diversified portfolio of common stocks, or securities convertible into common
stocks, of U.S. companies that have a record of paying regular dividends 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:
o hold cash, commercial paper, certificates of deposit or other short-term
investments;
o invest in debt securities (including commercial paper or short-term U.S.
Government securities); or
o 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
53
<PAGE>
and Other Investments
Risks exist in any investment. Each Fund is subject to equity risk and other
market risk and financial risk.
o 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.
o 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.
54
<PAGE>
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.
55
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers four classes of shares for each Fund: 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. Some of the 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 calendar years) or Class C shares (if investing for less than seven
calendar 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
<TABLE>
<CAPTION>
Class A Class B Class C
- ------- ------- -------
<S> <C> <C>
o Initial sales charge o No initial sales charge o No initial sales charge
o No deferred sales charge o Deferred sales charge on o A 1% deferred sales
shares you sell within charge on shares you
six calendar years after sell within twelve
purchase months after purchase
o Maximum distribution and o Maximum distribution and o Maximum distribution and
service (12b-1) fees of service (12b-1) fees of service (12b-1) fees of
0.25% 1.00% 1.00%
o For an investment of o Converts to Class A o Does not convert to
$2 million or more, only shares at the end of the Class A shares, so
Class annual
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
A shares are available seventh calendar year expenses do not decrease
following the year of
purchase, thus reducing
future annual expenses
o For an investment of
$300,000 or more, you
may wish to consider
purchase of Class A shares
due to a reduced sales
charge and lower annual
expenses
</TABLE>
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.
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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 and higher than those for Class Y shares.
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<PAGE>
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%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
Sales Charge Reductions
Lower sales charges are available by:
o Combining additional purchases of Class A shares of any of the Funds in
the TBD 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 net asset
value ("NAV") of Class A shares
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<PAGE>
already held ("Rights of Accumulation");
o Grouping all purchases of Class A shares of TBD Group (the "Corporation"),
except shares of Money Market Fund made during a thirteen-month period
("Letter of Intent"); and
o Grouping purchases by certain related persons.
Additional information and applicable forms are available from the Distributor
and the firm through which you purchased your shares.
Contingent Deferred Sales Charge. A CDSC may be assessed against your redemption
amount of your Class B or Class C 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 Funds' Class B and
Class C shares. The CDSC will not be imposed on Class B or Class C 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 Class B or Class C shares
purchased during the CDSC period. The CDSC is applied to the lesser of amount
invested or redemption value.
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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 Class B or Class C shares 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 calendar
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 bought Class A shares.
A Fund's Class B shares will automatically convert to Class A shares of the Fund
at the end of the seventh calendar year following the year of purchase. 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
stated below.
Deferred
Date of Sales
Redemption Charge
- ---------- ------
anytime within 1st calendar year 5%
anytime within 2nd calendar year 4%
anytime within 3rd calendar year 3%
anytime within 4th calendar year 3%
anytime within 5th calendar year 2%
anytime within 6th calendar year 1%
after 6th calendar year 0%
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<PAGE>
All Class B investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the CDSC. For
Class B, the date of redemption is measured, in calendar years, from the first
calendar year of purchase. For example, if a shareholder opens an account on
July 1, 2000, then redeems all Class B shares on March 1, 2001, the shareholder
will pay a CDSC of 4%, the rate applicable to redemptions made within the second
calendar year of purchase. Please note that the CDSC is not based on the length
of time that shares are held. Instead, the CDSC is based on the calendar year of
purchase and the calendar year of redemption.
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:
o redemptions of Class B or Class C 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.
o redemptions of Class B or Class C 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.
o redemptions of Class B or Class C shares purchased by current or retired
Directors of the Corporation, Directors of affiliated companies, current
or retired officers or employees of the
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Corporation, WRIMCO, the Distributor or their affiliated companies,
financial advisors of Waddell & Reed, Inc., and by the members of
immediate families of such persons.
o redemptions of Class B or Class C 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.)
o redemptions of which the proceeds are reinvested in Class B or Class C
shares (must be reinvested in the same class as that which was redeemed)
of the Fund within forty-five days after such redemption.
o the exercise of certain exchange privileges.
o redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B or Class C shares if the aggregate NAV of those
shares is less than $500.
o redemptions effected by another registered investment company by virtue of
a merger or other reorganization with a Fund or by a former shareholder of
such investment company of Class B or Class C shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
shares, which requires certain 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:
o 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;
o 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
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<PAGE>
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;
o government entities or authorities and corporations whose investment is
$10 million or more and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support
services; and
o certain retirement plans and trusts for employees and financial advisors
of Waddell & Reed, Inc. and its affiliates.
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax-deductible.
o Individual Retirement Accounts (IRAs) allow an individual under 70 1/2,
with earned income, to invest up to $2,000 per tax year. The maximum
annual contribution for an investor and his or her spouse is $4,000
($2,000 per spouse) or, if less, the couple's combined earned income for
the taxable year.
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
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<PAGE>
o 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
couples 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.
o Education IRAs are established for the benefit of a minor, with
nondeductible contributions, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
o Simplified Employee Pension Plans (SEP-IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with
many of the same advantages as a Keogh Plan, but with fewer administrative
requirements.
o Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to their employees'
retirement accounts and generally involve fewer administrative
requirements than 401(k) or other qualified plans.
o 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.
o Pension and Profit-Sharing Plans, including 401(k) Programs, 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.
o 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
o 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
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<PAGE>
year per child free of Federal transfer tax consequences. Depending on state
laws, you can set up a custodial account under the Uniform Gifts to Minors Act
("UGMA") or the Uniform Transfers to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of each of the Funds through 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. Your Waddell & Reed or Legend financial
advisor can help you with any questions you might have.
To purchase any class of shares by check, make your check payable to Waddell &
Reed, Inc. Mail the check, along with your completed application, to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
To purchase Class Y shares by wire, you must first obtain an account number by
calling 800-366-2520, then mail a completed application to Waddell & Reed, Inc.,
at the 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.
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<PAGE>
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:
o The securities in a Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
o Bonds are generally valued according to prices quoted by an independent
pricing service.
o Short-term debt securities are valued at amortized cost, which
approximates market value.
o 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:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
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<PAGE>
o All of your purchases must be made in U.S. dollars.
o 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.
o If you purchase shares of a Fund from Legend advisors, certain
broker-dealers, banks or other authorized third parties, the Fund will be
deemed to have received your purchase order when Legend advisors or that
third party (or its designee) has received your order. Your order will
receive the offering price next calculated after the order has been
received in proper form by the authorized third party (or its designee).
You should consult Legend advisors or that firm to determine the time by
which it must receive your order for you to purchase shares of the Fund at
that day's price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
To Add to an Account Any amount
For Automatic Investment Service $25 (per Fund)
For Class Y:
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<PAGE>
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 by check, make your check payable to Waddell & Reed, Inc.
Mail the check to Waddell & Reed, Inc., along with:
o the detachable form that accompanies the confirmation of a prior purchase
or your year-to-date statement; or
o a letter stating your account number, the account registration, the Fund,
and the class of shares that you wish to purchase.
To add to your Class Y account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, for the account of Waddell & Reed Number 9800007978,
Special Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
If you purchase shares of the Funds from Legend advisors, certain
broker-dealers, banks or other authorized third parties, additional purchases
may be made through those firms.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to Class
B or Class C shares.
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<PAGE>
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
o the name on the account registration;
o the Fund's name;
o the Fund account number;
o the dollar amount or number, and the class, of shares to be redeemed; and
o any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed financial advisor, or
mail it to:
Waddell & Reed 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:
o If more than one person owns the shares, each owner must sign the written
request.
o If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Corporation telephone or
written assurance, satisfactory to the Corporation, that the check has
cleared and been honored. If you do not, payment of the redemption
proceeds on these
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<PAGE>
shares will be delayed until the earlier of 10 days or the date the
Corporation is able to verify that your purchase check has cleared and
been honored.
o 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.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities when the Corporation'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.
o If you purchased shares of a Fund from Legend advisors, certain
broker-dealers, banks or other authorized third parties, you may sell
those shares through those firms, some of which may charge you a fee and
may have additional requirements to sell Fund shares. The Fund will be
deemed to have received your order to sell shares when that firm (or its
designee) has received your order. Your order will receive the NAV next
calculated after the order has been received in proper form by the
authorized firm (or its designee). You should consult that firm to
determine the time by which it must receive your order for you to sell
shares at that day's price.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must be signed by
Joint Tenant all persons required to sign for
transactions, exactly as their names appear
on the account.
Sole Proprietorship The written instructions must be
signed by the individual owner of the business.
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
Retirement The written instructions must be signed by a
Account properly authorized person.
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<PAGE>
Trust The trustee must sign the written
instructions indicating capacity as
trustee. If the trustee's name is not in
the account registration, provide a
currently certified copy of the trust
document.
Business or At least one person authorized by
Organization corporate resolution to act on the account
must sign the written instructions.
Conservator, The written instructions must be signed by
Guardian or the person properly authorized by court
Other Fiduciary order to act in the particular fiduciary
capacity.
The Corporation may require a signature guarantee in certain situations such as:
o a redemption request made by a corporation, partnership or fiduciary;
o a redemption request made by someone other than the owner of record; or
o the check is made payable to someone other than the owner of record.
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but not
from a notary public.
The Corporation reserves the right to redeem at NAV all shares of a Fund owned
by you having an aggregate NAV of less than $500. The Corporation will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares of that Fund to $500. For Class B or Class C shares, these
redemptions are not subject to the deferred sales charge. The Corporation will
not apply its redemption right to individual retirement plan accounts,
retirement accounts or accounts which have an aggregate NAV of less than $500
due to market forces.
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
Corporation within forty-five days after the date of your redemption.
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<PAGE>
The CDSC will not apply to the proceeds of Class B or Class C shares which are
redeemed and then reinvested in Class B or Class C shares, 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 of a Fund and once as to Class C 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 Corporation and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The
Corporation will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Corporation fails to do so, the
Corporation 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 or update your
account records. At almost any time of the day or night, you may access your
account information from a touch-tone phone, or from our web site,
www.waddell.com, to:
o obtain information about your accounts;
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<PAGE>
o obtain price information about other funds in TBD Funds, Inc. or Waddell &
Reed Group of Funds; or
o request duplicate statements.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Funds. Call the telephone number listed for Client Services if you need
additional copies of annual or semiannual reports or account information.
Exchanges
You may sell your shares and buy shares of the same class of any of the funds
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. For Class
B and Class C shares, 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.
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 Corporation 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.
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<PAGE>
Regular Investment Plans allow you to transfer money into your Fund account, or
between Fund accounts, automatically. While Regular Investment Plans do not
guarantee a profit and will not protect you against loss in a declining market,
they can be an excellent way to invest for retirement, a home, educational
expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account with Funds,
Inc.
Minimum Amount Minimum Frequency
$25 (per Fund) Monthly
Funds Plus Service
To move money from Money Market Fund to another Fund in Funds, Inc., whether in
the same or a different Fund account
Minimum Amount Minimum Frequency
$100 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 and Science and Technology Fund, annually in
December; Large Cap Growth Fund, semiannually in June and 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 three options:
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<PAGE>
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. Income-Earned Option. Your capital gains and other non-dividend
distributions with respect to a class will be automatically paid in
additional shares of the same class of the distributing Fund, but you will
be sent a check for each dividend distribution. However, if the dividend
distribution is less than five dollars, the distribution will be
automatically paid in additional shares of the same class of the
distributing Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains
and other distributions if the total distribution is 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.
76
<PAGE>
A portion of the dividends paid by a Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by a Fund from U.S. corporations. However, dividends received
by a corporate shareholder and deducted by it pursuant to the dividends received
deduction are subject indirectly to the Federal alternative minimum tax.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the TBD 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 TBD 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
77
<PAGE>
may be other Federal, state or local tax considerations applicable to a
particular investor. You are urged to consult your own tax adviser.
78
<PAGE>
The Management of the Funds
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Corporation's
Board of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO and/or its predecessors have served
as investment manager to each of the registered investment companies in the
United Group of Mutual Funds, TBD Funds, Inc. and Target/United Funds, Inc.
since the inception of each investment company. WRIMCO is located at 6300 Lamar
Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Michael L. Avery is primarily responsible for the management of the equity
portion of the portfolio of Asset Strategy Fund. Mr. Avery has held his Fund
responsibilities since January 1997. He is Senior Vice President of WRIMCO, Vice
President of the Corporation and Vice President of other investment companies
for which WRIMCO serves as investment manager. From March 1995 to March 1998,
Mr. Avery was Vice President of, and Director of Research for, Waddell & Reed
Asset Management 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 of WRIMCO since August 1987, and
has been an employee of such since June 1981.
Daniel J. Vrabac is primarily responsible for the management of the fixed-income
portion of the portfolio of Asset Strategy Fund. Mr. Vrabac has held his Fund
responsibilities since January 1997. He is Vice President of the Corporation and
Vice President of other investment companies for which WRIMCO serves as
investment manager. From May 1994 to March 1998, Mr. Vrabac was Vice President
of, and a portfolio manager for, Waddell & Reed Asset Management Company. Mr.
Vrabac has served as an investment analyst with WRIMCO since May 1994 and has
been an employee of such since May 1994. Mr. Vrabac was a Vice President of
Kansas City Life Insurance Company from May 1983 to May 1994.
Mark G. Seferovich and Grant P. Sarris are primarily responsible for the
management of the portfolio of 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 Corporation and Vice President of other investment
companies for which WRIMCO serves as investment manager. Mr. Seferovich has
served as the portfolio manager of investment companies managed by WRIMCO since
February 1989 and has been an employee of such since February 1989. From March
1996 to March 1998, Mr. Seferovich was
79
<PAGE>
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company, a former affiliate of WRIMCO.
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 portfolio of
International Growth Fund. Mr. Mengel has held his Fund responsibilities since
joining WRIMCO on May 1, 1996. Mr. Mengel is Vice President of WRIMCO, Vice
President of the Corporation and Vice President of other investment companies
for which WRIMCO serves as investment manager. From 1993 to 1996, Mr. Mengel was
the President of Sal. Oppenheim jr. & Cie. Securities, Inc.
Daniel P. Becker is primarily responsible for the management of the portfolio of
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
Corporation 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 portfolio
of 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
Corporation 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 portfolio
of Science and Technology Fund. Mr. Herrmann has held his Fund responsibilities
since April 17, 2000. He is Vice President of the Fund and Vice President of
each investment company managed by WRIMCO. He is 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.; and 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.
80
<PAGE>
Cynthia P. Prince-Fox is primarily responsible for the management of the
portfolio of 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 Corporation 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.
Ms. Prince-Fox 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 and its predecessors.
James D. Wineland is primarily responsible for the management of the portfolio
of Total Return Fund. Mr. Wineland has held his Fund responsibilities since July
1, 1997. He is Vice President of WRIMCO, Vice President of the Corporation and
Vice President of other investment companies for which WRIMCO serves as
investment manager. From March 1995 to March 1998 Mr. Wineland was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. 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;
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
81
<PAGE>
net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3
billion;
for International Growth Fund, 0.85% of net assets up to $1 billion, 0.83% of
net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2
billion and up to $3 billion, and 0.76% of net assets over $3 billion;
for 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;
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.
For each of Large Cap Growth Fund, Mid Cap Growth Fund, and Tax-Managed Equity
Fund, WRIMCO has voluntarily agreed to waive its 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.
Prior to June 30, 1999, the management fee was computed on each Fund's (except
Large Cap Growth Fund, Mid Cap Growth Fund and Tax-Managed Equity Fund) NAV as
of the close of business each day at an annual rate as follows:
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<PAGE>
Annual
Fund Rate
- ---- ------
Asset Strategy
Fund 0.81%
Small Cap Growth Fund 0.81%
International
Growth Fund 0.81%
Science and Technology
Fund 0.71%
Total Return
Fund 0.71%
For the fiscal year ended March 31, 2000, management fees for each Fund then in
existence as a percentage of such Fund's net assets were as follows:
Management
Fund Fee
- ---- ---
Asset Strategy
Fund 0.81%
Small Cap Growth Fund 0.%
International
Growth Fund 0.%
Science and
Technology Fund 0.%
Total Return
Fund 0.71%
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<PAGE>
Financial Highlights
The following information is to help you understand the financial performance of
the 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 period*:
<TABLE>
<CAPTION>
For the
period
For the fiscal year from
ended March 31, 4/20/95**
---------------------------- to
2000 1999 1998 1997 3/31/96
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Class C Per-Share Data
Net asset value,
beginning of period .......... $ $11.42 $9.73 $10.15 $10.00
------ ------- ------- ------- -------
Income from investment
operations:
Net investment
income ..................... 0.15 0.21 0.23 0.16
Net realized and
unrealized gain (loss)
on investments ............. 0.05 2.16 (0.30) 0.14
------ ------- ------- ------- -------
Total from investment
operations ................... 0.20 2.37 (0.07) 0.30
------ ------- ------- ------- -------
Less distributions:
From net investment
income ..................... (0.16) (0.22) (0.21) (0.15)
From capital gains ........... (0.26) (0.46) (0.14) (0.00)
------ ------- ------- ------- -------
Total distributions ............ (0.42) (0.68) (0.35) (0.15)
------ ------- ------- ------- -------
Net asset value,
end of period ................ $ $11.20 $11.42 $9.73 $10.15
====== ======= ======= ======= =======
Class C Ratios/Supplemental Data
Total return ................... % 1.79% 24.94% -0.86% 3.00%
Net assets, end of
period (000
omitted) ..................... $ $30,473 $19,415 $13,398 $13,221
Ratio of expenses
</TABLE>
84
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
to average net
assets ....................... % 2.32% 2.44% 2.52% 2.54%***
Ratio of net investment
income to average net
assets ....................... % 1.38% 2.02% 2.21% 2.14%***
Portfolio
turnover rate ................ % 168.17% 220.67% 109.92% 75.02%
</TABLE>
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
** Commencement of operations.
*** Annualized.
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<PAGE>
ASSET STRATEGY FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
------------------------------- 12/29/95*
2000 1999 1998 1997 to 3/31/96
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $11.43 $9.73 $10.16 $10.23
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ..................... 0.26 0.31 0.27 0.07
Net realized and
unrealized gain (loss)
on investments ............. 0.05 2.16 (0.26) (0.08)
------ ------ ------ ------ ------
Total from investment
operations ................... 0.31 2.47 0.01 (0.01)
------ ------ ------ ------ ------
Less distributions:
From net investment
income ..................... (0.27) (0.31) (0.30) (0.06)
From capital gains ........... (0.26) (0.46) (0.14) (0.00)
------ ------ ------ ------ ------
Total distributions ............ (0.53) (0.77) (0.44) (0.06)
------ ------ ------ ------ ------
Net asset value,
end of period ................ $ $11.21 $11.43 $9.73 $10.16
====== ====== ====== ====== ======
Class Y Ratios/Supplemental Data
Total return ................... % 2.75% 26.06% 0.05% -0.25%
Net assets, end of
period (000
omitted) ..................... $ $307 $225 $116 $1
Ratio of expenses
to average net
assets ....................... % 1.45% 1.58% 1.61% 1.95%**
Ratio of net investment
income to average
net assets ................... % 2.25% 2.90% 2.97% 2.34%**
Portfolio turnover
rate ......................... % 168.17% 220.67% 109.92% 75.02%***
</TABLE>
* Commencement of operations.
** Annualized.
*** Portfolio turnover is for the period from April 20, 1995 to March 31,
1996.
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<PAGE>
INTERNATIONAL GROWTH FUND
For a Class C share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class C Per-Share Data
Net asset value,
beginning of
period ....................... $ $15.04 $12.40 $9.94 $9.36
------ ------- ------- ------- -------
Income from investment
operations:
Net investment
income (loss) .............. 0. (0.07) (0.10) (0.03) 0.08
Net realized and
unrealized gain (loss)
on investments ............. 0. 1.55 4.12 2.50 0.63
------ ------- ------- ------- -------
Total from investment
operations ................... 0. 1.48 4.02 2.47 0.71
------ ------- ------- ------- -------
Less distributions:
From net
investment income .......... 0. (0.00) (0.00) (0.01) (0.11)
From capital gains ........... 0. (0.94) (1.38) (0.00) (0.00)
In excess of net
investment income .......... 0. (0.00) (0.00) (0.00) (0.02)
------ ------- ------- ------- -------
Total distributions .......... 0. (0.94) (1.38) (0.01) (0.13)
------ ------- ------- ------- -------
Net asset value,
end of period ................ $ $15.58 $15.04 $12.40 $9.94
====== ======= ======= ======= =======
Class C Ratios/Supplemental Data
Total return ................... 0.% 10.36% 35.24% 24.85% 7.64%
Net assets, end of
period (000
omitted) ..................... $ $99,764 $87,041 $50,472 $20,874
Ratio of expenses
to average net
assets ....................... 0.% 2.35% 2.35% 2.46% 2.50%
Ratio of net investment
income (loss) to average
net assets ................... 0.% -0.53% -0.82% -0.52% 0.63%
Portfolio turnover
rate ......................... 0.% 116.25% 105.11% 94.76% 88.55%
</TABLE>
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
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<PAGE>
INTERNATIONAL GROWTH FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
------------------------------------ December 29, 1995*
2000 1999 1998 1997 to March 31, 1996
---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $15.35 $12.52 $9.95 $9.70
------ ------ ------ ------ -----
Income from investment
operations:
Net investment income ........ 0. 0.05 0.01 0.02 0.02
Net realized and
unrealized gain
on investments ............. 0. 1.62 4.20 2.56 0.23
------ ------ ------ ------ -----
Total from investment
operations ................... 0. 1.67 4.21 2.58 0.25
------ ------ ------ ------ -----
Less distributions:
From net investment
income ..................... 0. (0.00) (0.00) (0.01) (0.00)
From capital gains ........... 0. (0.94) (1.38) (0.00) (0.00)
------ ------ ------ ------ -----
Total distributions ............ 0. (0.94) (1.38) (0.01) (0.00)
------ ------ ------ ------ -----
Net asset value,
end of period ................ $ $16.08 $15.35 $12.52 $9.95
====== ====== ====== ====== =====
Class Y Ratios/Supplemental Data
Total return ................... 0.% 11.41% 36.45% 25.93% 2.58%
Net assets, end of
period (000
omitted) ..................... $ $629 $419 $227 $7
Ratio of expenses
to average net
assets ....................... 0.% 1.44% 1.51% 1.59% 1.84%**
Ratio of net investment
income to average
net assets ................... 0.% 0.36% 0.07% 0.05% 1.07%**
Portfolio turnover
rate ......................... 0.% 116.25% 105.11% 94.76% 88.55%**
</TABLE>
* Commencement of operations.
** Annualized.
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<PAGE>
SCIENCE AND TECHNOLOGY FUND
For a Class C share outstanding throughout each period*:
For the
For the fiscal year period from
ended March 31, 7/31/97**
------------------- to
2000 1999 3/31/98
---- ---- -------
Class C Per-Share Data
Net asset value,
beginning of period .................. $ $12.01 $10.00
---- ------- ------
Income from investment
operations:
Net investment
loss ............................... 0. (0.09) (0.07)
Net realized and
unrealized gain
on investments ..................... 0. 5.53 2.08
---- ------- ------
Total from investment
operations ........................... 0. 5.44 2.01
---- ------- ------
Net asset value,
end of period ........................ $0. $17.45 $12.01
==== ======= ======
Class C Ratios/Supplemental Data
Total return ........................... 0.% 45.30% 20.10%
Net assets, end of
period (000
omitted) ............................. $0. $44,371 $7,615
Ratio of expenses
to average net
assets ............................... 0.% 2.57% 3.20%***
Ratio of net investment
loss to average net
assets ............................... 0.% -1.26% -1.66%***
Portfolio
turnover rate ........................ 0.% 51.00% 26.64%
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999.
** Commencement of operations.
*** Annualized.
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<PAGE>
SCIENCE AND TECHNOLOGY FUND
For a Class Y share outstanding throughout the period:
For the For the
fiscal period from
year 6/9/98*
ended to
3/31/00 3/31/99
------- -------
Class Y Per-Share Data
Net asset value,
beginning of period .......................... $0. $12.20
------
Income from investment
operations:
Net investment
income ..................................... 0. 0.01
Net realized and
unrealized gain
on investments ............................. 0. 5.44
----- ------
Total from investment
operations ................................... 0. 5.45
----- ------
Net asset value,
end of period ................................ $0. $17.65
===== ======
Class Y Ratios/Supplemental Data
Total return ................................... 0.% 44.67%
Net assets, end of
period (000
omitted) ..................................... $0. $53
Ratio of expenses
to average net
assets ....................................... 0.% 0.62%**
Ratio of net investment
income to average net
assets ....................................... 0.% 0.54%**
Portfolio
turnover rate ................................ 0.% 51.00%**
* Commencement of operations.
** Annualized.
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<PAGE>
SMALL CAP GROWTH FUND
For a Class C share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class C Per-Share Data
Net asset value,
beginning of
period ....................... $0. $14.29 $9.08 $10.50 $8.45
---- -------- -------- -------- --------
Income from investment
operations:
Net investment
income (loss) .............. 0. (0.11) (0.13) (0.03) (0.01)
Net realized and
unrealized gain (loss)
on investments ............. 0. 2.91 5.91 (1.09) 2.25
---- -------- -------- -------- --------
Total from investment
operations ................... 0. 2.80 5.78 (1.12) 2.24
---- -------- -------- -------- --------
Less distribution
from capital gains ........... 0. (2.35) (0.57) (0.30) (0.19)
---- -------- -------- -------- --------
Net asset value,
end of period ................ $ $14.74 $14.29 $9.08 $10.50
==== ======== ======== ======== ========
Class C Ratios/Supplemental Data
Total return ................... 0.% 21.61% 65.37% -10.97% 26.57%
Net assets, end of period
(000 omitted) ............... $0. $424,612 $329,514 $198,088 $202,557
Ratio of expenses
to average net
assets ....................... 0.% 2.10% 2.13% 2.12% 2.14%
Ratio of net investment
income (loss) to average
net assets ................... 0.% -0.90% -1.12% -0.27% -0.25%
Portfolio turnover
rate ......................... 0.% 51.41% 33.46% 37.20% 31.84%
</TABLE>
* The financial data shown for a Class C share are based on the financial
data for a shares of the Fund's prior Class B. On March 24, 2000 that
Class B was combined with and redesignated as Class C, which had commenced
operations on _____, 1999.
91
<PAGE>
<PAGE>
SMALL CAP GROWTH FUND
For a Class Y share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
------------------------------------- 12/29/95**
2000 1999 1998 1997 to 3/3196
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $14.55 $9.16 $10.52 $10.11
---- ------ ------ ------- ------
Income from investment
operations:
Net investment
income (loss) .............. 0. 0.00 (0.03) 0.01 0.02
Net realized and
unrealized gain (loss)
on investments ............. 0. 3.01 5.99 (1.07) 0.39
---- ------ ------ ------- ------
Total from investment
operations ................... 0. 3.01 5.96 (1.06) 0.41
---- ------ ------ ------- ------
Less distribution
from capital gains ........... 0. (2.35) (0.57) (0.30) (0.00)
---- ------ ------ ------- ------
Net asset value,
end of period ................ $ $15.21 $14.55 $9.16 $10.52
==== ====== ====== ======= ======
Class Y Ratios/Supplemental Data
Total return ................... 0.% 22.73% 66.78% -10.37% 4.11%
Net assets, end of
period (000
omitted) ..................... $0. $7,942 $633 $264 $1
Ratio of expenses
to average net
assets ....................... 0.% 1.18% 1.30% 1.17% 1.17%***
Ratio of net investment
income (loss) to average
net assets ................... 0.% 0.08% -0.30% 0.31% 0.78%***
Portfolio turnover
rate ......................... 0.% 51.41% 33.46% 37.20% 31.84%***
</TABLE>
* Per-share and share amounts have been adjusted retroactively to reflect
the 100% stock dividend effected June 26, 1998.
** Commencement of operations.
*** Annualized.
92
<PAGE>
TOTAL RETURN FUND
For a Class C share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class C Per-Share Data
Net asset value,
beginning of
period ....................... $ $12.24 $9.09 $8.17 $6.37
--- -------- -------- -------- --------
Income from investment
operations:
Net investment income
(loss) ..................... 0. 0.03 (0.02) (0.01) (0.01)
Net realized and
unrealized gain
on investments ............. 0. 0.82 3.56 0.98 1.84
--- -------- -------- -------- --------
Total from investment
operations ................... 0. 0.85 3.54 0.97 1.83
--- -------- -------- -------- --------
Less distributions:
From net investment
income ..................... 0. (0.01) (0.00) (0.00) (0.00)
From capital gains ........... 0. (1.56) (0.39) (0.05) (0.03)
--- -------- -------- -------- --------
Total distributions ............ (1.57) (0.39) (0.05) (0.03)
--- -------- -------- -------- --------
Net asset value,
end of period ................ $ $11.52 $12.24 $9.09 $8.17
=== ======== ======== ======== ========
Class C Ratios/Supplemental Data
Total return ................... % 7.47% 39.57% 11.93% 28.75%
Net assets, end of
period (000
omitted) ..................... $ $508,210 $472,970 $317,453 $208,233
Ratio of expenses
to average net
assets ....................... % 1.93% 1.92% 1.95% 1.99%
Ratio of net investment
income (loss) to average
net assets ................... % 0.30% -0.23% -0.17% -0.11%
Portfolio turnover
rate ......................... % 54.73% 36.94% 26.23% 16.78%
</TABLE>
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 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.
93
<PAGE>
TOTAL RETURN FUND
For a Class Y share outstanding throughout each period*:
<TABLE>
<CAPTION>
For the fiscal year For the
ended March 31, period from
------------------------------------- 12/29/95**
2000 1999 1998 1997 to 3/31/96
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $12.46 $9.18 $8.19 $7.66
---- ------ ------ ----- -----
Income from investment
operations:
Net investment
income ..................... 0.12 0.05 0.02 0.02
Net realized and
unrealized gain
on investments ............. 0.84 3.62 1.02 0.51
---- ------ ------ ----- -----
Total from investment
operations ................... 0.96 3.67 1.04 0.53
---- ------ ------ ----- -----
Less distributions:
From net investment
income ..................... (0.08) (0.00) (0.00) (0.00)
From capital gains ........... (1.56) (0.39) (0.05) (0.00)
---- ------ ------ ----- -----
Total distributions ............ (1.64) (0.39) (0.05) (0.00)
---- ------ ------ ----- -----
Net asset value,
end of period ................ $ $11.78 $12.46 $9.18 $8.19
==== ====== ====== ===== =====
Class Y Ratios/Supplemental Data
Total return ................... % 8.37% 40.63% 12.69% 6.92%
Net assets, end of
period (000
omitted) ..................... $ $1,381 $943 $504 $87
Ratio of expenses
to average net
assets ....................... % 1.15% 1.20% 1.18% 0.96%***
Ratio of net investment
income to average
net assets ................... % 1.10% 0.50% 0.65% 1.04%***
Portfolio turnover
rate ......................... % 54.73% 36.94% 26.23% 16.78%***
</TABLE>
* Per-share and share amounts have been adjusted retroactively to reflect
the 100% stock dividend effected June 26, 1998.
** Commencement of operations.
*** Annualized.
94
<PAGE>
Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
928 Grand Boulevard 6300 Lamar Avenue
Kansas City, Missouri 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
95
<PAGE>
Funds, Inc.
You can get more information about the Funds in--
o The Statement of Additional Information (SAI), which contains
detailed information about each Fund, particularly its investment
policies and practices. You may not be aware of important
information about each 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).
o The Annual and Semiannual Reports to Shareholders, which detail each
Fund's actual investments and include financial statements as of the
close of the particular annual or semiannual period. The annual
report also contains a discussion of the market conditions and
investment strategies that significantly affected each Fund's
performance during the year covered by the report.
To request a copy of the current SAI or copies of a Fund's 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
WRP3000(6-00)
96
<PAGE>
TBD Funds, Inc.
High Income Fund
Limited-Term Bond Fund
Money Market Fund
Municipal Bond Fund
This prospectus offers shares in the fixed-income funds of TBD Funds, Inc.
(formerly known as Waddell & Reed Funds, Inc.).
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
June 30, 2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS.....................................................4
HIGH INCOME FUND.............................................................4
LIMITED-TERM BOND FUND......................................................11
MONEY MARKET FUND.............................................................
MUNICIPAL BOND FUND.........................................................20
THE INVESTMENT PRINCIPLES OF THE FUNDS......................................26
Investment Goals, Principal Strategies and Other Investments..............26
All Funds.................................................................30
Risk Considerations of Principal Strategies and Other Investments.........30
YOUR ACCOUNT................................................................32
Choosing a Share Class......................................................
Sales Charge Reductions.....................................................
Ways to Set Up Your Account...............................................40
Buying Shares.............................................................42
Minimum Investments.......................................................44
Adding to Your Account....................................................45
Selling Shares............................................................45
Telephone Transactions....................................................49
Shareholder Services......................................................49
Personal Service........................................................49
Reports.................................................................49
Exchanges...............................................................50
Automatic Transactions..................................................50
Distributions and Taxes...................................................51
Distributions...........................................................51
Taxes...................................................................52
THE MANAGEMENT OF THE FUNDS.................................................55
Portfolio Management......................................................55
Management Fee............................................................56
Financial Highlights........................................................58
2
<PAGE>
An Overview of the Funds
High Income Fund
Goals
High Income Fund seeks, as a primary goal, high current income. As a secondary
goal, the Fund seeks capital growth when consistent with its primary goal.
Principal Strategies
High Income Fund seeks to achieve its goals by investing primarily in
high-yield, high-risk, fixed-income securities of U.S. issuers, the risks of
which are, in the judgment of Waddell & Reed Investment Management Company
("WRIMCO"), the Fund's investment manager, consistent with the Fund's goals. The
Fund may invest in companies of any size. The Fund invests primarily in lower
quality bonds, commonly called "junk bonds," which are bonds rated BB and below
by Standard & Poor's ("S&P") and Ba and below by Moody's Investors Service
("MIS"). The Fund may invest an unlimited amount of its total assets in junk
bonds. As well, the Fund may invest in bonds of any maturity.
The Fund may invest up to 20% of its total assets in common stock in order to
seek capital growth. The Fund will emphasize a blend of value and growth in its
selection of common stock. Value stocks are those whose earnings WRIMCO believes
are currently selling below their true worth. Growth stocks are those whose
earnings WRIMCO believes are likely to grow faster than the economy.
WRIMCO may look at a number of factors in selecting securities for the Fund.
These include an issuer's past, current and estimated future:
o financial strength;
o cash flow;
o management;
o borrowing requirements; and
o responsiveness to changes in interest rates and business conditions.
3
<PAGE>
WRIMCO typically selects securities of companies in which the value of the
company is not reflected in the security.
Generally, in determining whether to sell a debt security, WRIMCO uses the same
type of analysis that it uses in buying debt securities. For example, WRIMCO may
sell a holding if the issuer's financial strength declines, or is anticipated to
decline, to an unacceptable level, or if management of the company weakens. As
well, WRIMCO may choose to sell an equity security if the issuer's growth
potential has diminished. WRIMCO may sell a security if the competitive
conditions of a particular industry have increased and WRIMCO believes the Fund
should, therefore, reduce its exposure to such industry. WRIMCO may also sell a
security if, in its opinion, the price of the security has risen to fully
reflect the company's improved creditworthiness and other investments with
greater potential exist. WRIMCO may also sell a security to take advantage of
more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because High Income Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
o the credit quality, earnings performance and other conditions of the
companies whose securities the Fund holds;
o the susceptibility of junk bonds to the risk of non-payment or default,
price volatility and lack of liquidity compared to higher-rated bonds;
o an increase in interest rates, which may cause the value of bonds held by
the Fund, especially bonds with longer maturities, to decline;
o the mix of securities in the Fund, particularly the relative weightings
in, and exposure to, different sectors and industries;
o changes in the maturities of bonds owned by the Fund;
o adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's
holdings to fall as part of a broad market decline; and
o the skill of WRIMCO in evaluating and managing the interest rate and
credit risks of the Fund's portfolio.
4
<PAGE>
Market risk for small or medium sized companies may be greater than that for
large companies. For example, smaller companies may have limited financial
resources, limited product lines or inexperienced management.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
High Income Fund is designed for investors who primarily seek a level of current
income that is higher than is normally available with securities in the higher
rated categories and, secondarily, seek capital growth where consistent with
this income goal, through a diversified portfolio. The Fund is not suitable for
all investors. You should consider whether the Fund fits your particular
investment objectives.
5
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in High Income 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.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o The bar chart does not reflect any deferred sales charge that you may be
required to pay upon redemption of the Fund's Class C shares. If the
deferred sales charge was included, the return would be less than that
shown.
o The performance table shows Class C and Class Y average annual total
returns and compares them to the market indicators listed. No performance
information is provided for Class A and Class B shares since these classes
do not have annual returns for a full calendar year.
o 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 (%)*
1998 3.64%
1999 4.83%
In the period shown in the chart, the highest quarterly return was 6.82%
(the first quarter of 1998) and the lowest quarterly return was -6.62%
(the third quarter of 1998). The Class C return for the year through March
31, 2000, was %.
*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, _____, 1999.
6
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year Life of Class**
Class C Shares of High
Income Fund* 1.89% 4.69%
Salomon Brothers High
Yield Market Index 1.73% 4.05%
Lipper High Current Yield
Fund Universe Average 4.53% 2.73%
Class Y Shares of High
Income Fund 5.64$ 6.63%
Salomon Brothers High
Yield Market Index 1.73% 1.73%
Lipper High Current Yield
Fund Universe Average 4.53% 4.53%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goals of
the Fund.
*The 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 ____, 1999. The
prior Class B's performance has been adjusted to reflect the current
contingent deferred sales charge ("CDSC") structure applicable to Class C.
**Since July 31, 1997, for Class C shares (based on the prior Class B shares)
and December 31, 1998, for Class Y shares. Because Class Y commenced
operations on a date other than at the end of a month, and partial month
calculations of the performance of the above indexes are not available,
index performance is calculated from December 31, 1998.
7
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of High Income 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) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
Management Fees 0.63% 0.63% 0.63% 0.63%
Distribution and
Service (12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses % 0.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
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.
- ----------
(1) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(2) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
8
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
*Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
9
<PAGE>
Limited-Term Bond Fund
Goal
Limited-Term Bond Fund seeks to provide a high level of current income
consistent with preservation of capital.
Principal Strategies
Limited-Term Bond Fund seeks to achieve its goal by investing primarily in
investment-grade debt securities of U.S. issuers, including corporate bonds,
mortgage-backed securities and U.S. Government securities. The Fund maintains a
dollar-weighted average maturity of not less than two years and not more than
five years. The Fund may invest in companies of any size.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
o the security's current coupon;
o the maturity of the security;
o the relative value of the security;
o the creditworthiness of the particular issuer (if not backed by the full
faith and credit of the U.S. Treasury); and
o the structure of the security, such as whether it has a put or a call
feature.
Generally, in determining whether to sell a security, WRIMCO uses the same type
of analysis that it uses in buying securities. WRIMCO may also sell a security
to take advantage of more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because Limited-Term Bond Fund primarily owns different types of debt
securities, a variety of factors can affect its investment performance, such as:
o an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to
decline;
o the credit quality, earnings performance and other conditions of the
issuers whose securities the Fund holds;
10
<PAGE>
o prepayment of higher-yielding bonds and mortgage-backed securities held by
the Fund;
o adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's
holdings to fall as part of a broad market decline; and
o WRIMCO's skill in evaluating and managing the interest rate and credit
risks of the Fund.
Market risk for small or medium sized companies may be greater than that for
large companies. For example, smaller companies have limited financial
resources, limited product lines or inexperienced management.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
Limited-Term Bond Fund is designed for investors seeking a high level of current
income consistent with preservation of capital. You should consider whether the
Fund fits your investment objectives.
11
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Limited-Term Bond Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual total
returns for the periods shown compare with those of a broad measure of market
performance and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
1993 7.32%
1994 -3.04%
1995 12.39%
1996 3.04%
1997 5.64%
1998 5.36%
1999 0.43%
In the period shown in the chart, the highest quarterly return was 4.52%
(the second quarter of 1995) and the lowest
12
<PAGE>
<PAGE>
quarterly return was -1.99% (the first quarter of 1994). The Class C
return for the year through March 31, 2000, was 0.%.
*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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 YearsLife of Class**
Class C Shares of Limited-
Term Bond Fund* -2.45% 5.30% 3.99%
Salomon Brothers 1-5 Years
Treasury/Government Sponsored/
Corporate Index 2.15% 6.84% 5.54%
Lipper Short-Intermediate
Investment Grade Debt
Fund Universe Average 0.89% 6.23% 5.17%
Class Y Shares of Limited-
Term Bond Fund 1.36% 4.46%
Salomon Brothers 1-5 Years
Treasury/Government Sponsored/
Corporate Index 2.15% 6.84% 5.38%
Lipper Short-Intermediate
Investment Grade Debt
Fund Universe Average 0.89% 6.23% 4.41%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*The returns shown for Class C are based on the performance of the Fund's
prior Class B. On March 24, 2000, that Class B was combined with and
redesignated as Class C, which had commenced operations on ____, 1999. The
prior Class B's performance has been adjusted to reflect the current CDSC
structure applicable to Class C.
**Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 27, 1995, for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and partial
month calculations of the performance of the above indexes are not
available, index performance is calculated from September 30, 1992, and
December 31, 1995, respectively.
13
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Limited-Term Bond Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(3) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses (4)
(expenses that are deducted from Fund assets)
Management Fees 0.50% 0.50% 0.50% 0.50%
Distribution and
Service (12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses % 0.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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.
- ----------
(3) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(4) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on other Fund-level expenses for the fiscal year ended
March 31, 2000, and for Class A and Class B, the expenses attributable to those
classes that are anticipated for the current year. Actual expenses may be
greater or less than those shown.
14
<PAGE>
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 $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
*Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
15
<PAGE>
Money Market Fund
Goal
Money Market Fund seeks maximum current income consistent with stability of
principal.
Principal Strategies
Money Market Fund seeks to achieve its goal by investing in U.S.
dollar-denominated, high-quality money market obligations and instruments. High
quality indicates that the securities will be rated A-1 or A-2 by S&P or Prime-1
or Prime-2 by MIS, or if unrated, will be of comparable quality as determined by
WRIMCO. The Fund seeks, as well, to maintain a net asset value ("NAV") of $1.00
per share. The Fund maintains a dollar-weighted average maturity of 90 days or
less, and the Fund invests only in securities with a remaining maturity of not
more than 397 calendar days.
Principal Risks of Investing in the Fund
Because Money Market Fund owns different types of money market obligations and
instruments, a variety of factors can affect its investment performance, such
as:
o an increase in interest rates, which can cause the value of the Fund's
holdings, especially securities with longer maturities, to decline;
o the credit quality and other conditions of the issuers whose securities
the Fund holds;
o adverse bond market conditions, sometimes in response to general economic
or industry news, that may cause the prices of the Fund's holdings to fall
as part of a broad market decline; and
o the skill of WRIMCO in evaluating and managing the interest rate and
credit risks of the Fund.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
Who May Want to Invest
The Fund is designed for investors who are risk-averse and seek to preserve
principal while earning current income and saving for short-term needs. You
should consider whether the Fund fits your particular investment objectives.
16
<PAGE>
17
<PAGE>
Performance
Since Money Market Fund has not been in operation for a full calendar year, no
performance information is included in this prospectus.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Money Market Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) None None None None
Maximum Deferred
Sales Charge (Load) (5) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(6)
(expenses that are deducted from Fund assets)
Management Fees 0.40% 0.40% 0.40% 0.40%
Distribution and
Service (12b-1) Fees None 1.00% 1.00% 0.25%
Other Expenses 0.% 0.% 0.% 0.%
Total Annual Fund
Operating Expenses 0.% 0.% 0.% 0.%
</TABLE>
- ----------
(5) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(6) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to voluntarily waive its investment
management fee 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.
18
<PAGE>
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 $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years
Class A Shares $ $
Class B Shares $ $
Class C Shares $ $
Class Y Shares $ $
19
<PAGE>
Municipal Bond Fund
Goal
Municipal Bond Fund seeks to provide income not subject to Federal income tax.
Principal Strategy
Municipal Bond Fund seeks to achieve its goal by investing primarily in
tax-exempt municipal bonds, mainly of investment grade (rated BBB or higher by
S&P or Baa or higher by MIS). The Fund may invest in bonds of any maturity.
"Municipal bonds" mean obligations the interest on which is not includable in
gross income for Federal income tax purposes. However, a significant portion of
the Fund's municipal bond interest may be subject to the Federal alternative
minimum tax ("AMT").
The Fund diversifies its holdings among two main types of municipal bonds:
o general obligation bonds, which are backed by the full faith, credit and
taxing power of the governmental authority, and
o revenue bonds, which are payable only from specific sources, such as the
revenue from a particular facility or a special tax. Revenue bonds include
certain private activity bonds ("PABs") and industrial development bonds
("IDBs"), which finance privately operated facilities.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
o the security's current coupon;
o the maturity of the security;
o the relative value of the security;
o the creditworthiness of the particular issuer (if not backed by the full
faith and credit of the U.S. Treasury); and
o the structure of the security, including whether it has a put or a call
feature.
Generally, in determining whether to sell a security, WRIMCO uses the same type
of analysis that is used in buying securities in order to determine whether the
security continues to be a desired investment for the Fund. WRIMCO may also sell
a security to take
20
<PAGE>
advantage of more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because Municipal Bond Fund primarily owns fixed income securities issued by
municipal authorities, a variety of factors can affect its investment
performance, such as:
o an increase in interest rates which may cause the value of the Fund's
securities, especially bonds with longer maturities, to decline;
o prepayment of higher-yielding bonds held by the Fund ("prepayment risk");
o changes in the maturities of bonds owned by the Fund;
o the credit quality of the issuers whose securities the Fund owns or of the
private companies involved in IDB-financed projects;
o the local economic, political or regulatory environment affecting bonds
owned by the Fund;
o failure of a bond's interest to qualify as tax-exempt;
o legislation affecting the tax status of municipal bond interest;
o adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's
holdings to fall as part of a broad market decline; and
o the skill of WRIMCO in evaluating and managing the interest rate and
credit risks of the Fund's portfolio.
A significant portion of the Fund's municipal bond interest may subject
investors to the AMT; this would have the effect of reducing the Fund's return
to any such investor.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
21
<PAGE>
Municipal Bond Fund is designed for investors seeking current income that is
primarily free from Federal income tax, through a diversified portfolio. You
should consider whether the Fund fits your particular investment objectives.
22
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in Municipal Bond Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
o The bar chart presents the average annual total returns for Class C and
shows how performance has varied from year to year.
o 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.
o 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.
o 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 (%)*
1993 13.73%
1994 -8.83%
1995 19.14%
1996 3.53%
1997 9.17%
1998 5.12%
1999 -7.04%
In the period shown in the chart, the highest quarterly return was 8.36%
(the first quarter of 1995) and the lowest
23
<PAGE>
<PAGE>
<PAGE>
<PAGE>
quarterly return was -7.14% (the first quarter of 1994). The Class C
return for the year through March 31, 2000, was %.
*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, _____, 1999.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999 (%)
1 Year 5 Years Life of Class**
Class C Shares of Municipal
Bond Fund* -9.72% 5.64% 4.70%
Lehman Brothers Municipal
Debt Index -2.07% 6.92% 5.89%
Lipper General Municipal
Debt Fund Universe Average -4.63% 5.76% 5.06%%
Class Y Shares of Municipal
Bond Fund -6.56% -6.15%
Lehman Brothers Municipal
Debt Index -2.07% 6.92% -4.63%
Lipper General Municipal Bond
Debt Fund Universe Average -4.63% 5.76% -2.07%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*The 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 ____, 1999. The
prior Class B's performance has been adjusted to reflect the current CDSC
structure applicable to Class C.
**Since September 21, 1992, for Class C shares (based on the prior Class B
shares) and December 30, 1998, for Class Y shares. Because each class
commenced operations on a date other than at the end of a month, and partial
month calculations of the performance of the above indexes are not
available, index performance is calculated from September 30, 1992, and
December 31, 1998, respectively.
24
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of Municipal Bond Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred
Sales Charge (Load)(7) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(8)
(expenses that are deducted from Fund assets)
Management Fees 0.53% 0.53% 0.53% 0.53%
Distribution and
Service (12b-1) Fees 0.25% 1.00% 1.00% 0.25%
Other Expenses % 0.% 0.% 0.%
Total Annual Fund
Operating Expenses % % % %
</TABLE>
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.
- ----------
(7) The CDSC, which is imposed on the lesser of amount invested or redemption
value of Class B shares, declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that Class B shares are held. Instead, the CDSC is based on the calendar
year of purchase and the calendar year of redemption. 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.
(8) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on 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.
25
<PAGE>
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 % % % %
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
If shares are not
redeemed at end
of period: 1 Year 3 Years 5 Years 10 Years
Class A Shares $ $ $ $
Class B Shares $ $ $ $*
Class C Shares $ $ $ $
Class Y Shares $ $ $ $
*Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
26
<PAGE>
The Investment Principles of the Funds
Investment Goals, Principal Strategies and Other Investments
High Income Fund
The primary goal of High Income Fund is to earn a high level of current income.
As a secondary goal, the Fund seeks capital growth when consistent with its
primary goal. The Fund seeks to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk, fixed-income securities, the
risks of which are, in the judgment of WRIMCO, consistent with the Fund's goals.
There is no guarantee that the Fund will achieve its goals.
The Fund primarily owns debt securities; however, it may also own, to a lesser
degree, preferred stock, common stock and convertible securities. In general,
the high income that the Fund seeks is paid by debt securities rated in the
lower rating categories of the established rating services or unrated securities
that are determined by WRIMCO to be of comparable quality; these are securities
rated BBB or lower by S&P, or Baa or lower by MIS and unrated securities.
Lower-quality debt securities, which include junk bonds, are considered to be
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-quality securities and may decline significantly in
periods of general economic difficulty.
The Fund will normally invest at least 65% of its total assets to seek a high
level of current income. The Fund limits its acquisition of common stock so that
no more than 20% of its total assets will consist of common stock and no more
than 10% of its total assets will consist of non-dividend-paying common stock.
The Fund may invest an unlimited amount of assets in foreign securities. At this
time, however, the Fund intends to invest in foreign securities to a limited
extent.
When WRIMCO believes that a temporary defensive position is desirable, it may
take any one or more of the following steps with respect to the assets in the
Fund:
o shorten the average maturity of the Fund's debt holdings;
o hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit); and/or
27
<PAGE>
o emphasize high-grade debt securities.
By taking a temporary defensive position the Fund may not achieve its investment
objectives. As an alternative to taking a temporary defensive position, or in
order to more quickly participate in anticipated market changes or market
conditions, the Fund may also invest in options and futures contracts.
Limited-Term Bond Fund
The goal of Limited-Term Bond Fund is to provide a high level of current income
consistent with preservation of capital. The Fund seeks to achieve its goal by
investing primarily in a diversified portfolio of investment-grade, limited-term
debt securities (securities with a dollar-weighted average maturity of 2-5
years) of U.S. issuers, including U.S. Government securities, (securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities),
collateralized mortgage obligations and other asset-backed securities. The Fund
will invest at least 65% of its total assets in bonds. There is no guarantee
that the Fund will achieve its goal.
The maturity of an asset-backed security is the estimated average life of the
security based on certain prescribed models or formulas used by WRIMCO. The
maturity of other types of debt securities is the earlier of the call date or
the maturity date, as appropriate. The Fund may also own, to a lesser extent,
common stocks and convertible securities, including convertible preferred stock
in certain circumstances.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to the Fund's assets, including any one or more
of the following:
o shorten the average maturity of the Fund's portfolio;
o hold short-term investments, cash or cash equivalents;
o emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
o invest in convertible preferred stock.
By taking a temporary defensive position the Fund may not achieve its investment
objective.
Money Market Fund
28
<PAGE>
The goal of Money Market Fund is maximum current income consistent with
stability of principal. The Fund seeks to achieve its goal by investing in a
diversified portfolio of high-quality money market instruments in accordance
with the requirements of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act"). There is no guarantee that the Fund will achieve its
goal.
The Fund invests only in the following U.S. dollar-denominated money market
obligations and instruments:
o U.S. government obligations (including obligations of U.S. government
agencies and instrumentalities);
o bank obligations and instruments secured by bank obligations, such as
letters of credit;
o commercial paper;
o corporate debt obligations, including variable amount master demand notes;
o Canadian government obligations; and
o certain other obligations (including municipal obligations) guaranteed as
to principal and interest by a bank in whose obligations the Fund may
invest or a by corporation in whose commercial paper the Fund may invest.
The Fund only invests in bank obligations if they are obligations of a bank
subject to regulation by the U.S. Government (including foreign branches of
these banks) or obligations of a foreign bank having total assets of at least
$500 million, and instruments secured by any such obligations.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
o the credit quality of the particular issuer or guarantor of the security;
o the maturity of the security; and
o the relative value of the security.
Generally, in determining whether to sell a security, WRIMCO will use the same
analysis that it uses in buying securities to determine if the security no
longer offers adequate return or does
29
<PAGE>
not comply with Rule 2a-7. WRIMCO may also sell a security to take advantage of
more attractive investment opportunities or to raise cash.
Municipal Bond Fund
The goal of Municipal Bond Fund is to provide income that is not subject to
Federal income tax. The Fund seeks to achieve this goal by investing primarily
in a diversified portfolio of municipal bonds. There is no guarantee that the
Fund will achieve its goal.
As used in this Prospectus, "municipal bonds" mean obligations the interest on
which is not includable in gross income for Federal income tax purposes. The
Fund anticipates that not more than 40% of the dividends it will pay to
shareholders will be treated as a tax preference item for AMT purposes. The Fund
and WRIMCO rely on the opinion of bond counsel for the issuer in determining
whether obligations are municipal bonds.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main types of municipal
bonds are general obligation bonds and revenue bonds. For general obligation
bonds, the issuer has pledged its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or a special tax or other revenue source. IDBs and PABs are revenue
bonds issued by or on behalf of public authorities to obtain funds to finance
privately operated facilities.
Other municipal obligations include lease obligations of municipal authorities
or entities and participations in these obligations.
At least 80% of the Fund's net assets will be invested, during normal market
conditions, in municipal bonds of investment grade, which means that the bonds
are either:
o rated at least BBB by S&P, or Baa by MIS; or
o if unrated, are determined by WRIMCO to be of comparable quality.
The Fund may invest up to 10% of its total assets in taxable debt securities
other than municipal bonds. These must be either:
o U.S. Government securities;
30
<PAGE>
o obligations of domestic banks and certain savings and loan associations;
o commercial paper rated at least A by S&P or MIS; and/or
o any of the foregoing obligations subject to repurchase agreements.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to the Fund's assets, including any one or more
of the following:
o shorten the average maturity of the Fund's portfolio;
o hold taxable obligations, subject to the limitations stated above;
o emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
o hedge exposure to interest rate risk by investing in futures contracts and
options on futures contracts.
By taking a defensive position, the Fund may not achieve its investment
objective.
All Funds
Each Fund may also invest in and use certain other types of instruments in
seeking to achieve its goal(s). For example, each Fund (other than Money Market
Fund) is permitted to invest in options, futures contracts, asset-backed
securities and other derivative instruments if it is permitted to invest in the
type of asset by which the return on, or value of, the derivative is measured.
At this time, each Fund has limited exposure to derivative investments.
You will find more information about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in the Statement of
Additional Information ("SAI").
Risk Considerations of Principal Strategies
and Other Investments
Risks exist in any investment. Each Fund is subject to market risk, financial
risk, and, in some cases, prepayment risk.
31
<PAGE>
o Market risk is the possibility of a change in the price of the security
because of market factors including changes in interest rates. Bonds with
longer maturities are more interest-rate sensitive. For example, if
interest rates increase, the value of a bond with a longer maturity is
more likely to decrease. Because of market risk, the share price of each
Fund (other than Money Market Fund) will likely change as well.
o Financial risk is based on the financial situation of the issuer of the
security. To the extent a Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the underlying securities
in which it invests. For an equity investment, a Fund's financial risk may
depend, for example, on the earnings performance of the company issuing
the stock.
o Prepayment risk is the possibility that, during periods of falling
interest rates, a debt security with a high stated interest rate will be
prepaid before its expected maturity date.
Certain types of a Fund's authorized investments and strategies, such as foreign
securities, junk bonds and derivative instruments, involve special risks.
Depending on how much a Fund invests or uses these strategies, these special
risks may become significant. For example, foreign investments may subject a
Fund to restrictions on receiving the investment proceeds from a foreign
country, foreign taxes, and potential difficulties in enforcing contractual
obligations, as well as fluctuations in foreign currency values and other
developments that may adversely affect a foreign country. Junk bonds pose a
greater risk of nonpayment of interest or principal than higher-rated bonds.
Derivative instruments may expose a Fund to greater volatility than an
investment in a more traditional stock, bond or other security.
For PABs and IDBs in which Municipal Bond Fund may invest, credit quality is
generally dependent on the credit standing of the company involved. To the
extent that this Fund invests in municipal bonds the payment of principal and
interest which is derived from revenue of similar projects, or in municipal
bonds of issuers located in the same geographic area, the Fund may be more
susceptible to the risks associated with economic, political or regulatory
occurrences that might adversely affect particular projects or areas. You will
find more information in the SAI about the types of projects in which Municipal
Bond Fund may invest from time to time and a discussion of the risks associated
with such projects.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value
32
<PAGE>
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.
33
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers four classes of shares for each Fund: 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. Some of the 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 calendar years) or Class C shares (if investing for less than seven
calendar 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
(For each Fund other than Money Market Fund)
<TABLE>
<CAPTION>
Class A Class B Class C
- ------- ------- -------
<S> <C> <C>
o Initial sales charge o No initial sales charge o No initial sales charge
o No deferred sales charge o Deferred sales charge on shares o A 1% deferred sales charge on
you sell within six calendar shares you sell within twelve
years after purchase months after purchase
o Maximum distribution and service o Maximum distribution and o Maximum distribution and
(12b-1) fees of 0.25% service (12b-1) fees of 1.00% service (12b-1) fees of 1.00%
o For an investment of $2 o Converts to Class A shares at o Does not convert to Class A
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
million or more, only Class A the end of the seventh shares, so annual expenses do
shares are available calendar year following the not decrease
year of purchase, thus
reducing future annual
expenses
o For an investment of
$300,000 or more,
you may wish to
consider purchase
of Class A shares
due to a reduced
sales charge and
lower annual
expenses
</TABLE>
General Comparison of Class A, Class B and Class C Shares Money Market Fund
<TABLE>
<CAPTION>
Class A Class B Class C
- ------- ------- -------
<S> <C> <C>
o No initial sales charge o No initial sales o No initial sales charge
charge
o Funds Plus o Funds Plus Service o Funds Plus Service
Service optional required for direct required for direct
investment investment
o No deferred sales charge o Deferred sales charge o A 1% deferred sales
on shares you sell charge on shares you
within six calendar sell within 12 months
years
o No distribution and o Maximum distribution o Maximum distribution
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
service (12b-1) fees and service (12b-1) and service (12b-1)
fees of 1.00% fees of 1.00%
o For an investment o Converts to Class A o Does not convert to
of $2,000,000 or more shares at the end Class A shares, so
only Class A shares of the seventh annual expenses do
are available calendar year not decrease
following the year
of purchase, thus
reducing future
annual expenses
</TABLE>
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant to Rule
12b-1 under the 1940 Act, ("Rule 12b-1") for each of its Class B, Class C and
Class Y shares and, except for Money Market Fund, for each of its Class A
shares. Under the Class A Plan, each Fund (other than Money Market Fund) may pay
Waddell & Reed, Inc. (the "Distributor") a fee of up to 0.25%, on an annual
basis, of the average daily net assets of the Class A shares. This fee is to
compensate the Distributor for the amounts it spends for, either directly or
through third parties, distributing the Fund's Class A shares, providing
personal service to Class A shareholders and/or maintaining Class A shareholder
accounts. Under the Class B Plan and the Class C Plan, each Fund may pay Waddell
& Reed, Inc. a fee of up to 0.75%, on an annual basis, of the average daily net
assets of the shares of the class to compensate the Distributor for, either
directly or through third parties, distributing the shares of that class and a
fee of up to 0.25%, on an annual basis, of the average daily net assets of the
shares of that class to compensate the Distributor for, either directly or
through third parties, providing personal service to shareholders of that class
and/or maintaining shareholder accounts for that class. No payment of the
distribution fee will be made, and no deferred sales charge will be paid, to the
Distributor by any Fund if, and to the extent that, the aggregate of the
distribution fees paid by the Fund and the deferred sales charges received by
the Distributor with respect to the Fund's Class B or Class C shares would
exceed the maximum amount of such charges that the Distributor is permitted to
receive under NASD rules as then in effect.
36
<PAGE>
Under the Class Y Plan, each Fund may pay the Distributor a fee of up to 0.25%,
on an annual basis, of the average daily net assets of the Fund's Class Y shares
to compensate the Distributor for, either directly or through third parties,
distributing the Class Y shares of that Fund, providing personal service to
Class Y shareholders and/or maintaining Class Y shareholder accounts.
Because the Plan fees are paid out of the assets of the applicable class on an
ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Class A shares (except Class A shares of Money Market Fund) are subject to an
initial sales charge when you buy them, based on the amount of your investment,
according to the table below. Class A shares pay an annual 12b-1 fee of up to
0.25% of average Class A net assets. The ongoing expenses of this class are
lower than those for Class B or Class C shares and higher than those for Class Y
shares.
High Income
37
<PAGE>
<TABLE>
<CAPTION>
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
- -------- -------- -------- --------
<S> <C> <C> <C>
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
</TABLE>
Limited-Term Bond
Municipal Bond
<TABLE>
<CAPTION>
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
- -------- -------- -------- --------
<S> <C> <C> <C>
Under
$100,000 4.25% 4.44%
$100,000
to less
than
$300,000 3.25 3.36
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
</TABLE>
Sales Charge Reductions
Lower sales charges are available by:
o Combining additional purchases of Class A shares of any of the funds in
the TBD 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
38
<PAGE>
already held ("Rights of Accumulation");
o Grouping all purchases of Class A shares of TBD Group (the "Corporation"),
except shares of Money Market Fund made during a thirteen-month period
("Letter of Intent"); and
o Grouping purchases by certain related persons.
Additional information and applicable forms are available from the Distributor
and the firm which you purchased your shares.
Contingent Deferred Sales Charge. A CDSC may be assessed against your redemption
amount of your Class B or Class C 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 and
Class C shares. The CDSC will not be imposed on Class B or Class C 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 Class B or Class C shares
purchased during the
39
<PAGE>
CDSC period. 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 Class B or Class C shares 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 calendar
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. A Fund's Class B shares will automatically convert to Class A shares of
the Fund at the end of the seventh calendar year following the year of purchase.
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
stated below.
Deferred
Date of Sales
Redemption Charge
- ---------- ------
anytime within 1st calendar year 5%
anytime within 2nd calendar year 4%
anytime within 3rd calendar year 3%
anytime within 4th calendar year 3%
anytime within 5th calendar year 2%
anytime within 6th calendar year 1%
after 6th calendar year 0%
40
<PAGE>
All Class B investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the CDSC. For
Class B, the date of redemption is measured, in calendar years, from the first
calendar year of purchase. For example, if a shareholder opens an account on
July 1, 2000, then redeems all Class B shares on March 1, 2001, the shareholder
will pay a CDSC of 4%, the rate applicable to redemptions made within the second
calendar year of purchase. Please note that the CDSC is not based on the length
of time that shares are held. Instead, the CDSC is based on the calendar year of
purchase and the calendar year of redemption.
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:
o redemptions of Class B or Class C 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.
o redemptions of Class B or Class C 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.
o redemptions of Class B or Class C shares purchased by current or retired
Directors of the Corporation, Directors of affiliated
41
<PAGE>
companies, current or retired officers or employees of the Corporation,
WRIMCO, the Distributor or their affiliated companies, financial advisors
of Waddell & Reed, Inc., and by the members of immediate families of such
persons.
o redemptions of Class B or Class C shares made pursuant to a shareholder's
participation in Funds Plus Service or other systematic withdrawal service
adopted for a Fund. (The service and this exclusion from the CDSC do not
apply to a one-time withdrawal.)
o redemptions of which the proceeds are reinvested in Class B or Class C
shares (must be reinvested in the same class as that which was redeemed)
of the Fund within forty-five days after such redemption.
o the exercise of certain exchange privileges.
o redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B or Class C shares if the aggregate NAV of those
shares is less than $500.
o redemptions effected by another registered investment company by virtue of
a merger or other reorganization with a Fund or by a former shareholder of
such investment company of Class B or Class C shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
account, which requires certain notice.
Class Y shares are not subject to a sales charge. Class Y shares pay an annual
12b-1 distribution and/or service fee of up to 0.25% of average net assets.
Class Y shares are only available for purchase by:
o 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;
42
<PAGE>
o 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;
o government entities or authorities and corporations whose investment is
$10 million or more and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support
services; and
o certain retirement plans and trusts for employees and financial advisors
of Waddell & Reed, Inc. and its affiliates.
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax-deductible.
o Individual Retirement Accounts (IRAs) allow an individual under 70 1/2,
with earned income, to invest up to $2,000 per tax year. The maximum
annual contribution for an investor and his or her spouse is $4,000
($2,000 per spouse) or, if less, the couple's combined earned income for
the taxable year.
43
<PAGE>
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
o 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
couples 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.
o Education IRAs are established for the benefit of a minor, with
nondeductible contributions, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
o Simplified Employee Pension Plans (SEP-IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with
many of the same advantages as a Keogh Plan, but with fewer administrative
requirements.
o Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to their employees'
retirement accounts and generally involve fewer administrative
requirements than 401(k) or other qualified plans.
o 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.
o Pension and Profit-Sharing Plans, including 401(k) Programs, 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.
o 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
o 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
44
<PAGE>
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of each of the Funds through 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. If you purchase Class B or Class C shares of
Money Market Fund directly rather than by exchange, you must establish a Funds
Plus Service Plan. Your Waddell & Reed or Legend financial advisor can help you
with any questions you might have.
To purchase any class of shares by check, make your check, money order, Federal
Reserve draft or other negotiable bank draft 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 888-WADDELL, 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.
45
<PAGE>
The price to buy a share of a Fund, called the offering price, is calculated
every business day. The Funds' shares are sold without a front-end sales charge.
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.
For Money Market Fund the NAV of each class will normally remain fixed at $1.00
per share.
In the calculation of a Fund's NAV:
o The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
o Bonds are generally valued according to prices quoted by an independent
pricing service.
o Short-term debt securities are valued at amortized cost, which
approximates market value.
o 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
46
<PAGE>
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:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
o All of your purchases must be made in U.S. dollars.
o Dividends for Money Market Fund do not accrue until the Fund has federal
funds available to it; federal funds are monies of a member bank of the
Federal Reserve System held in deposit at a Federal Reserve Bank.
o 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.
o If you purchase shares of a Fund from Legend advisors, certain
broker-dealers, banks or other authorized third parties, the Fund will be
deemed to have received your purchase order when Legend advisors or that
third party (or its designee) has received your order. Your order will
receive the Class Y offering price next calculated after the order has
been received in proper form by the Legend advisors or authorized third
party (or its designee). You should consult that firm to determine the
time by which it must receive your order for you to purchase shares of the
Fund at that day's price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
47
<PAGE>
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
To Add to an Account Any amount
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 by check, make your check payable to Waddell & Reed, Inc.
Mail the check to Waddell & Reed, Inc., along with:
o the detachable form that accompanies the confirmation of a prior purchase
or your year-to-date statement; or
o a letter stating your account number, the account registration, the Fund,
and the class of shares that you wish to purchase.
48
<PAGE>
To add to your Class Y account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, for the account of Waddell & Reed Number 9800007978,
Special Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
If you purchase shares of the Funds from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to Class
B or Class C shares.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
o the name on the account registration;
o the Fund's name;
o the Fund account number;
o the dollar amount or number, and the class, of shares to be redeemed; and
o 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,
49
<PAGE>
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.
To sell Class A shares of Money Market Fund by check: If you have elected this
method in your application or by subsequent authorization, the Corporation will
provide you with forms of checks drawn on UMB Bank, n.a. (the "Bank"). You may
make these checks payable to the order of any payee in any amount of $250 or
more.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated, subject to any applicable CDSC, after receipt of a written request
for redemption in good order by Waddell & Reed Services Company at the address
listed above. Note the following:
o If more than one person owns the shares, each owner must sign the written
request.
o If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Corporation telephone or
written assurance, satisfactory to the Corporation, that the check has
cleared and been honored. If you do not, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Corporation is able to verify that your purchase check has
cleared and been honored.
o 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.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities when the Corporation'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.
o If you purchased shares of a Fund from Legend advisors, certain
broker-dealers, banks or other authorized third parties, you may sell
those shares through those firms, some of which may charge you a fee and
may have additional requirements to sell Fund shares. The Fund will be
deemed to have received your order to
50
<PAGE>
sell shares when that firm (or its designee) has received your order. Your
order will receive the NAV next calculated after the order has been
received in proper form by the authorized firm (or its designee). You
should consult that firm to determine the time by which it must receive
your order for you to sell shares at that day's price.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or Joint The written instructions must be
Tenant signed by all persons required to
sign for transactions, exactly as
their names appear on the account.
Sole Proprietorship The written instructions must be
signed by the individual owner of the business.
UGMA, UTMA The custodian must sign the written
instructions indicating capacity as custodian.
Retirement Account The written instructions must be signed by
a properly authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's
name is not in the account registration, provide a
currently certified copy of the trust document.
Business or At least one person authorized by
Organization corporate resolution to act on the
account must sign the written
instructions.
Conservator, The written instructions must be
Guardian or Other signed by the person properly
Fiduciary authorized by court order to act in
the particular fiduciary capacity.
The Corporation may require a signature guarantee in certain situations such as:
o a redemption request made by a corporation, partnership or fiduciary;
o a redemption request made by someone other than the owner of record; or
51
<PAGE>
o the check is made payable to someone other than the owner of record.
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but not
from a notary public.
The Corporation reserves the right to redeem at NAV all shares of a Fund owned
by you having an aggregate NAV of less than $500. The Corporation will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares of that Fund to $500. For Class B or Class C shares, these
redemptions are not subject to the deferred sales charge. The Corporation will
not apply its redemption right to individual retirement plan accounts,
retirement accounts or accounts which have an aggregate NAV of less than $500
due to market forces.
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 a Fund
within forty-five days after the date of your redemption.
The CDSC will not apply to the proceeds of Class B or Class C shares which are
redeemed and then reinvested in Class B or Class C shares, 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 of a Fund and once as to Class C 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 Corporation and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The
Corporation will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Corporation fails to do so, the
Corporation
52
<PAGE>
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 or update your
account records. At almost any time of the day or night, you may access your
account information from a touch-tone phone, or from our web site,
www.waddell.com, to:
o obtain information about your accounts;
o obtain price information about other funds in TBD Funds, Inc.; or
o request duplicate statements.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Funds. Call the telephone number listed for Client Services if you need
additional copies of annual or semiannual reports or account information.
53
<PAGE>
Exchanges
Except as provided below, you may sell your shares and buy shares of the same
class of any of the 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. For Class B and Class C shares, 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.
You may exchange any Class A shares of the Fund that you have held for at least
six months and any Class A shares of the Fund acquired as payment of a dividend
or distribution for Class A shares of any other fund in the TBD Group. You may
exchange any Class A shares of the Limited-Term Bond and Municipal Bond Funds
that you have held for less than six months only for Class A shares of
Limited-Term Bond, Municipal Bond and Money Market Funds.
Exchanges may only be made into funds which are legally permitted for sale in
the state of residence of the investor. Note that exchanges out of the Funds may
have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Corporation 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 TBD.
54
<PAGE>
Minimum Amount Minimum Frequency
$25 (per Fund) Monthly
Funds Plus Service
To move money from Money Market Fund to another Fund in TBD, whether in the same
or a different Fund account in the same class
Minimum Amount Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year.
Usually, High Income Fund, Limited-Term Bond Fund, Money Market Fund and
Municipal Bond Fund distribute net investment income at the following times:
declared daily and paid monthly. Dividends declared for a particular day are
paid to shareholders of record on the prior business day. However, dividends
declared for Saturday and Sunday are paid to shareholders of record on the
preceding Thursday. Net capital gains (and any net gains from foreign currency
transactions) ordinarily are distributed by each Fund in December.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. Each Fund offers three 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. Income-Earned Option. Your capital gains and other non-dividend
distributions with respect to a class will be automatically paid in
additional shares of the same class of the distributing Fund, but you will
be sent a check for each dividend distribution. However, if the dividend
distribution is less than five dollars, the distribution will be
automatically paid in additional shares of the same class of the
distributing Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains
and other distributions if the total distribution is five dollars or
greater. If the distribution total is less than five dollars, the total
distribution will be automatically
55
<PAGE>
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 by Municipal Bond Fund that are designated by it as
exempt-interest dividends generally may be excluded by you from your gross
income. Distributions of a Fund's net capital gains, when designated as such,
are taxable to you as long-term capital gains, whether received in cash or paid
in additional Fund shares and regardless of the length of time you have owned
your shares. For Federal income tax purposes, your long-term capital gains
generally are taxed at a maximum rate of 20%.
Each Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that year.
Exempt-interest dividends paid by Municipal Bond Fund may be subject to income
taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that must
be treated by you as a "tax preference item" for purposes of calculating your
liability, if any, for the AMT; the Fund anticipates such portion will be not
more than 40% of the dividends it will pay to its shareholders. Municipal Bond
Fund will provide you with information concerning the amount of distributions
subject to the AMT after the end of each calendar year. Shareholders who may be
subject to the AMT should consult with their tax advisers concerning investment
in the Fund.
Entities or other persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by private activity bonds ("PABs")
or IDBs should consult their tax advisers before purchasing Municipal Bond Fund
shares because, for users of certain of these facilities, the interest on those
bonds is not exempt from Federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt
56
<PAGE>
person" who regularly uses, in trade or business, a part of a facility financed
from the proceeds of PABs or IDBs.
A portion of the dividends paid by a Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by a Fund from U.S. corporations. However, dividends received
by a corporate shareholder and deducted by it pursuant to the dividends received
deduction are subject indirectly to the Federal alternative minimum tax. No part
of the dividends paid by Limited-Term Bond Fund and Municipal Bond Fund is
expected to be eligible for this deduction.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the TBD 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 TBD Funds
without paying a sales charge due to the forty-five day reinvestment privilege
or exchange privilege. See "Your Account." In these cases, any gain on the
disposition of the original Class A Fund shares will be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase shares of a Fund within
thirty days before or after redeeming other shares of that Fund (regardless of
class) at a loss, part or all of that loss will not be deductible and will
increase the basis of the newly purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares of
Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds. If
such a proposal were enacted, the availability of municipal bonds for investment
by that Fund and the value of its portfolio would be affected. In that event,
that Fund may decide to reevaluate its investment goal and policies.
Withholding. Each Fund must withhold 31% of all taxable dividends, capital gains
and other distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer
57
<PAGE>
identification number. Withholding at that rate from taxable dividends, capital
gains and other distributions also is required for shareholders subject to
backup withholding.
State and local income taxes. The portion of the dividends paid by Limited-Term
Bond Fund and Money Market Fund (and, to a lesser extent, the other Funds)
attributable to interest earned on U.S. Government securities generally is not
subject to state and local income taxes, although distributions by any Fund to
its shareholders of net realized gains on the sale of those securities are fully
subject to those taxes. You should consult your tax adviser to determine the
taxability of dividends and other distributions by the Funds in your state and
locality.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting the Funds and their shareholders; you will
find more information in the SAI. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
58
<PAGE>
The Management of the Funds
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the Corporation's
Board of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO and/or its predecessors have served
as investment manager to each of the registered investment companies in the TBD
Funds, Inc. and Target/United Funds, Inc. since the inception of each investment
company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
Louise D. Rieke is primarily responsible for the management of the portfolio of
High Income Fund. Ms. Rieke has held her Fund responsibilities since July 31,
1997. She is Vice President of WRIMCO, Vice President of the Corporation and
Vice President of other investment companies for which WRIMCO serves as
investment manager. From November 1985 to March 1998, Ms. Rieke was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company, a former affiliate of WRIMCO. Ms. Rieke has served as the portfolio
manager for investment companies managed by WRIMCO and its predecessors since
July 1986 and has been an employee of such since May 1971.
W. Patrick Sterner is primarily responsible for the management of the portfolio
of Limited-Term Bond Fund. Mr. Sterner has held his Fund responsibilities since
September 1992. He is Vice President of WRIMCO, Vice President of the
Corporation and Vice President of another investment company for which WRIMCO
serves as investment manager. From August 1992 to March 1998, Mr. Sterner was
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. He has been an employee of WRIMCO since August 1992.
Mira Stevovich is primarily responsible for the management of the portfolio of
Money Market Fund. Ms. Stevovich has held her Fund responsibilities since the
inception of the Fund. She is Vice President of WRIMCO, Vice President and
Assistant Treasurer of the Corporation and Vice President and Assistant
Treasurer of other investment companies for which WRIMCO serves as investment
manager. Ms. Stevovich has served as the Portfolio Manager for investment
companies managed by WRIMCO and its predecessors since May 1998 and has been an
employee of such since March 1987.
is primarily responsible for the management of the portfolio of Municipal Bond
Fund. Mr. has held his Fund responsibilities since June 30, 2000. He is
59
<PAGE>
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
Management Fee
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in the share price or
dividends of that Fund; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained in the SAI.
The management fee is payable by a Fund at the annual rates of:
for High Income Fund, 0.625% of net assets up to $500 million, 0.60% of net
assets over $500 million and up to $1 billion, 0.55% of net assets over $1
billion and up to $1.5 billion, and 0.50% of net assets over $1.5 billion;
for Limited-Term Bond Fund, 0.50% of net assets up to $500 million, 0.45% of net
assets over $500 million and up to $1 billion, 0.40% of net assets over $1
billion and up to $1.5 billion, and 0.35% of net assets over $1.5 billion;
for Money Market Fund, 0.40% of annual net assets; and
for Municipal Bond Fund, 0.525% of net assets up to $500 million, 0.50% of net
assets over $500 million and up to $1 billion, 0.45% of net assets over $1
billion and up to $1.5 billion, and 0.40% of net assets over $1.5 billion.
However, WRIMCO has voluntarily agreed to waive its management fee for Money
Market Fund 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.
Prior to June 30, 1999, the management fee was computed on each Fund's (except
Money Market Fund) NAV as of the close of business each day at an annual rate as
follows:
60
<PAGE>
Annual
Fund Rate
- ---- ------
High Income
Fund 0.66%
Limited-Term
Bond Fund 0.56%
Municipal Bond
Fund 0.56%
For the fiscal year ended March 31, 2000, management fees for each Fund then in
existence as a percentage of such Fund's net assets were as follows:
Management
Fund Fee
- ---- ---
High Income
Fund 0.%
Limited-Term
Bond Fund 0.%
Municipal
Bond Fund 0.%
61
<PAGE>
Financial Highlights
The following information is to help you understand the financial performance of
the 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.
62
<PAGE>
High Income Fund
For a Class C share outstanding throughout each period*:
For the
For the fiscal year period from
ended March 31, 7/31/97**
------------------- to
2000 1999 3/31/98
---- ---- -----------
Class C Per-Share Data
Net asset value,
beginning of period ......... $0. $10.79 $10.00
------ ---------- ----------
Income from investment
operations:
Net investment
income .................... 0. 0.63 0.37
Net realized and
unrealized gain (loss)
on investments ............. 0. (0.82) 0.79
------ ---------- ----------
Total from investment
operations ................... 0. (0.19) 1.16
------ ---------- ----------
Less distributions:
Declared from net
investment income ......... 0. (0.63) (0.37)
From capital gains .......... 0. (0.03) (0.00)
------ ---------- ----------
Total distributions ........... 0. (0.66) (0.37)
------ ---------- ----------
Net asset value,
end of period ................ $0. $9.94 $10.79
====== ========== ==========
Class C Ratios/Supplemental Data
Total return ................... 0.% -1.72% 11.77%
Net assets, end of
period (000
omitted) ..................... $0. $25,427 $11,812
Ratio of expenses
to average net
assets ....................... 0.% 2.20% 2.52%***
Ratio of net investment
income to average net
assets ....................... 0.% 6.29% 5.98%***
Portfolio
turnover rate ................ 0.% 50.98% 67.82%
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999.
** Commencement of operations.
*** Annualized.
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<PAGE>
HIGH INCOME FUND
For a Class Y share outstanding throughout the period:
For the
For the period
fiscal year from
ended March 31, 12/30/98*
---------------- to
2000 3/31/99
---- ---------
Class Y Per-Share Data
Net asset value,
beginning of period .......... $0. $9.97
------ ------
Income from investment
operations:
Net investment
income ..................... 0. 0.20
Net realized and
unrealized gain
on investments ............. 0. 0.00
------ ------
Total from investment
operations ................... 0. 0.20
------ ------
Less distributions:
Declared from net
investment income .......... 0. (0.20)
From capital gains ........... 0. (0.03)
------ ------
Total distributions ............ 0. (0.23)
------ ------
Net asset value,
end of period ................ $0. $9.94
====== ======
Class Y Ratios/Supplemental Data
Total return ................... 0.% 2.45%
Net assets, end of
period (000
omitted) ..................... $0. $6
Ratio of expenses
to average net
assets ....................... 0.% 0.26%**
Ratio of net investment
income to average net
assets ....................... 0.% 8.55%**
Portfolio
turnover rate ................ 0.% 50.98%**
* Commencement of operations.
** Annualized.
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<PAGE>
Limited-Term Bond Fund
For a Class C share outstanding throughout each period*:
For the fiscal year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Class C Per-Share Data
Net asset value,
beginning of
period ............... $ $10.14 $9.90 $10.00 $ 9.70
------ ------ ------ ----- ------
Income from investment
operations:
Net investment
income ............. 0. 0.44 0.45 0.44 0.41
Net realized and
unrealized gain
(loss) on
investments ........ 0. 0.02 0.24 (0.09) 0.30
------ ------ ------ ----- ------
Total from investment
operations ........... 0. 0.46 0.69 0.35 0.71
------ ------ ------ ----- ------
Less distributions:
Declared from net
investment income .. 0. (0.44) (0.45) (0.44) (0.41)
From capital gains ... 0. (0.00) (0.00) (0.01) (0.00)
------ ------ ------ ----- ------
Total distributions .. 0. (0.00) (0.45) (0.45) (0.41)
------ ------ ------ ----- ------
Net asset value,
end of period ........ $ $10.16 $10.14 $9.90 $10.00
====== ====== ====== ===== ======
Class C Ratios/Supplemental Data
Total return ........... 0.% 4.65% 7.15% 3.52% 7.41%
Net assets, end of
period (000
omitted) ............. $ $21,311 $18,148 $17,770 $23,682
Ratio of expenses
to average net
assets ............... 0.% 2.11% 2.12% 2.07% 2.10%
Ratio of net investment
income to average
net assets............ 0.% 4.34% 4.52% 4.40% 4.14%
Portfolio turnover
rate ................. 0.% 32.11% 27.37% 23.05% 22.08%
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
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<PAGE>
LIMITED-TERM BOND FUND
For a Class Y share outstanding throughout each period:
For the fiscal year For the
ended March 31, period from
------------------- December 29, 1995*
2000 1999 1998 1997 to March 31, 1996
---- ---- ---- ---- ------------------
Class Y Per-Share Data
Net asset value,
beginning of
period ............... $0. $10.14 $9.90 $10.00 $10.16
----- ------ ------ ------ ------
Income from investment
operations:
Net investment
income.............. 0. 0.53 0.53 0.52 0.11
Net realized and
unrealized gain (loss)
on investments ..... 0. 0.02 0.24 (0.09) (0.16)
----- ----- ------ ------ ------
Total from investment
operations ........... 0. 0.55 0.77 0.43 (0.05)
----- ----- ------ ------ ------
Less distributions:
Declared from net
investment income .. 0. (0.53) (0.53) (0.52) (0.11)
From capital gains ... 0. (0.00) (0.00) (0.01) (0.00)
----- ----- ------ ------ ------
Total distributions .... 0. (0.53) (0.53) (0.53) (0.11)
----- ----- ------ ------ ------
Net asset value,
end of period ........ $ $10.16 $10.14 $9.90 $10.00
===== ===== ====== ====== ======
Class Y Ratios/Supplemental Data
Total return ........... 0.% 5.60% 7.91% 4.33% -0.49%
Net assets, end of
period (000
omitted).............. $0. $263 $184 $105 $1
Ratio of expenses
to average net
assets ............... 0.% 1.20% 1.32% 1.04% 1.18%**
Ratio of net investment
income to average
net assets ........... 0.% 5.25% 5.32% 5.62% 4.70%**
Portfolio turnover
rate ................. 0.% 32.11% 27.37% 23.05% 22.08%**
* Commencement of operations.
** Annualized.
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<PAGE>
Municipal Bond Fund
For a Class C share outstanding throughout each period*:
For the fiscal year ended March 31,
------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Class C Per-Share Data
Net asset value,
beginning of
period ............... $ $11.45 $10.74 $10.63 $10.30
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ............. 0. 0.42 0.44 0.45 0.43
Net realized and
unrealized gain
(loss) on
investments ........ 0. 0.10 0.71 0.11 0.33
------ ------ ------ ------ ------
Total from investment
operations ........... 0. 0.52 1.15 0.56 0.76
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income .. 0. (0.42) (0.44) (0.45) (0.43)
From capital gains ... 0. (0.31) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions 0. (0.73) (0.44) (0.45) (0.43)
------ ------ ------ ------ ------
Net asset value,
end of period ........ $ $11.24 $11.45 $10.74 $10.63
====== ====== ====== ====== ======
Class C Ratios/Supplemental Data
Total return ........... 0.% 4.64% 10.89% 5.32% 7.48%
Net assets, end of
period (000
omitted) ............. $0. $42,906 $40,023 $36,618 $33,869
Ratio of expenses
to average net
assets ............... 0.% 1.88% 1.89% 1.92% 1.93%
Ratio of net investment
income to average
net assets ........... 0.% 3.68% 3.94% 4.18% 4.05%
Portfolio turnover
rate ................. 0.% 41.53% 27.86% 34.72% 42.02%
* The financial data shown for a Class C share are based on the financial
data for a share of the Fund's prior Class B. On March 24, 2000, that
Class B was combined with and redesignated as Class C, which had commenced
operations on ____, 1999. On December 2, 1995, Fund shares then
outstanding were designated Class B shares.
67
<PAGE>
MUNICIPAL BOND FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the or the
fiscal For the For the fiscal For the
year period from period year period from
ended 12/30/98*** ended ended 12/29/95*
3/31/00 to 3/31/99 6/23/97** 3/31/97 to 3/31/96
------ ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of
period ....................... $ $11.58 $10.74 $10.63 $10.94
---- ------ ------ ------ ------
Income from investment
operations:
Net investment
income ..................... 0. 0.13 0.10 0.52 0.12
Net realized and
unrealized gain
(loss) on
investments ................ 0. (0.03) 0.29 0.11 (0.31)
---- ------ ------ ------ ------
Total from investment
operations ................... 0. 0.10 0.39 0.63 (0.19)
---- ------ ------ ------ ------
Less distributions:
Declared from net
investment income .......... 0. (0.13) (0.10) (0.52) (0.12)
From capital gains ........... 0. (0.31) (0.00) (0.00) (0.00)
---- ------ ------ ------ ------
Total distributions ............ 0. (0.44) (0.10) (0.52) (0.12)
---- ------ ------ ------ ------
Net asset value,
end of period ................ $0. $11.24 $11.03 $10.74 $10.63
==== ====== ====== ====== ======
Class Y Ratios/Supplemental Data
Total return ................... 0. 0.80% 3.22% 5.96% -1.80%
Net assets, end of
period (000
omitted) ..................... $0. $2 $0 $1 $1
Ratio of expenses
to average net
assets ....................... 0.% 1.00%**** 4.95%**** 1.28% 1.18%****
Ratio of net investment
income to average
net assets ................... 0.% 4.40%**** 4.12%**** 4.83% 4.33%****
Portfolio turnover
rate ......................... 0.% 41.53%**** 27.86% 34.72% 42.02%****
</TABLE>
* Initial commencement of operations.
** All outstanding shares were redeemed on June 23, 1997, at the ending net
asset value shown in the table.
*** Recommencement of operations.
**** Annualized.
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<PAGE>
Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
928 Grand Boulevard 6300 Lamar Avenue
Kansas City, Missouri 64106 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
69
<PAGE>
Funds, Inc.
You can get more information about the Funds in--
o The Statement of Additional Information (SAI), which contains
detailed information about each Fund, particularly the investment
policies and practices. You may not be aware of important
information about each 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).
o The Annual and Semiannual Reports to Shareholders, which detail each
Fund's actual investments and include financial statements as of the
close of the particular annual or semiannual period. The annual
report also contains a discussion of the market conditions and
investment strategies that significantly affected each Fund's
performance during the year covered by the report.
To request a copy of the current SAI or copies of a Fund's 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
70
<PAGE>
________________ FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
June 30, 2000
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with each prospectus
("Prospectus") for the Funds, Inc. (formerly known as Waddell & Reed Funds,
Inc.) (the "Corporation") dated June 30, 2000, which may be obtained from the
Corporation or its principal underwriter and distributor, Waddell & Reed, Inc.,
at the address or telephone number shown above.
TABLE OF CONTENTS
Performance Information ....................................
Investment Strategies, Policies and Practices...............
Investment Management and Other Services ...................
Purchase, Redemption and Pricing of Shares .................
Directors and Officers .....................................
Payments to Shareholders ...................................
Taxes ......................................................
Portfolio Transactions and Brokerage .......................
Other Information ..........................................
Appendix A .................................................
Financial Statements .......................................
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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.
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Non-standardized performance information may also be presented that may
not reflect the deferred sales charge.
The average annual total return quotations for the Class C shares of each
fund as of March 31, 2000, which is the most recent balance sheet included in
this SAI, for the periods shown were as follows:
One-Year Period Five-Year Period Period from
From 4-1-99 From 4-1-95 9/21/92* to
to 3-31-00 to 3-31-00 3-31-00
--------------- ---------------- -----------
Asset Strategy Fund % %**
Small Cap Growth Fund % % %
(formerly known as Growth Fund)
High Income Fund % %***
International Growth Fund % % %
Limited-Term Bond Fund % % %
Municipal Bond Fund % % %
Science and Technology Fund % %***
Total Return Fund % % %
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:
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One-Year Period Period from class
From 4-1-99 inception* to
to 3-31-00 3-31-00
--------------- --------------
Asset Strategy Fund % %
Small Cap Growth Fund % %
(formerly known as Growth Fund)
High Income Fund %
International Growth Fund % %
Limited-Term Bond Fund % %
Municipal Bond Fund %**
Science and Technology Fund %
Total Return Fund % %
*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.
The cumulative total return quotations for Class C shares of each Fund as
of March 31, 2000, which is the most recent balance sheet included in this SAI,
for the period shown were as follows:
Period from
class inception* to
to 3-31-2000
-------------
Asset Strategy Fund %
Small Cap Growth Fund %
(formerly known as Growth Fund)
High Income Fund %
International Growth Fund %
Limited-Term Bond Fund %
Municipal Bond Fund %
Science and Technology Fund %
Total Return Fund %
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*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 less than twelve months.
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:
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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 %
Municipal Bond Fund %
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 %
Municipal Bond Fund %
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
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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 %, %, %, %
and % 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 %, %, %, % and % for
marginal tax brackets of 15%, 28%, 31%, 36% and 39.6%, respectively.
No yield information is provided for Class A or Class B of Limited-Term
Bond Fund or Municipal Bond Fund since neither class had commenced operations as
of March 31, 2000.
Changes in yields primarily reflect different interest rates received by a
Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses.
Yield quotations for Class B shares do not reflect the imposition of the
deferred sales charge described above. If such deferred sales charge imposed at
the time of redemption were reflected, it would reduce the performance quoted.
No performance information is provided for Large Cap Growth Fund, Mid Cap
Growth Fund, Money Market Fund or Tax-Managed Equity Fund since they had not
commenced operations as of March 31, 2000.
Performance Rankings and Other Information
The Distributor or the Corporation also may from time to time publish for
one or more of the twelve Funds in advertisements or sales material performance
rankings as published by recognized independent mutual fund statistical services
such as Lipper Analytical Services, Inc., or by publications of general interest
such as Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune
or Morningstar Mutual Fund Values. Each class of a Fund may also compare its
performance to that of other selected mutual funds or selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average. Performance information may be quoted numerically
or presented in a table, graph or other illustration. In connection with a
ranking, a Fund may provide additional information, such as the particular
category to which
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it related, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
Performance information for a Fund may be accompanied by information about
market conditions and other factors that affected the Fund's performance for the
period(s) shown.
All performance information that a Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a Fund's shares when redeemed may be more or less
than their original cost.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and policies
the Funds' investment manager, Waddell & Reed Investment Management Company
("WRIMCO"), may employ and the types of instruments in which a Fund may invest,
in pursuit of a Fund's goal(s). A summary of the risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques, or use them to the full extent permitted by a Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help a Fund achieve its goal(s). See "Investment
Restrictions and Limitations" for a listing of the fundamental and
non-fundamental (e.g., operating) investment restrictions and policies of each
Fund.
Asset Allocation
Asset Strategy Fund allocates its assets among the following classes, or
types, of investments:
The short-term class includes all types of domestic and foreign securities
and money market instruments with remaining maturities of three years or less.
WRIMCO will seek to maximize total return within the short-term asset class by
taking advantage of yield differentials between different instruments, issuers,
and currencies. Short-term instruments may include corporate debt securities,
such as commercial paper and notes; government securities issued by U.S. or
foreign governments or their agencies or instrumentalities; bank deposits and
other financial institution obligations; repurchase agreements involving any
type
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of security; and other similar short-term instruments. These instruments may be
denominated in U.S. dollars or foreign currency.
The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than three years. WRIMCO seeks to maximize
total return within the bond class by adjusting Asset Strategy Fund's
investments in securities with different credit qualities, maturities, and
coupon or dividend rates, and by seeking to take advantage of yield
differentials between securities. Securities in this class may include bonds,
notes, adjustable-rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government agency
securities, zero coupon bonds, and other intermediate and long-term securities.
As with the short-term class, these securities may be denominated in U.S.
dollars or foreign currency. Asset Strategy Fund may not invest more than 35% of
its total assets in lower quality, high-yielding debt securities.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks, which are included in the
bond class). WRIMCO seeks to maximize total return within this asset class by
actively allocating assets to industry sectors expected to benefit from major
trends, and to individual stocks that WRIMCO believes to have superior growth
potential. Securities in the stock class may include common stocks, fixed-rate
preferred stocks (including convertible preferred stocks), warrants, rights,
depositary receipts, securities of closed-end investment companies, and other
equity securities issued by companies of any size, located anywhere in the
world.
WRIMCO seeks to take advantage of yield differentials by considering the
purchase or sale of instruments when differentials on spreads between various
grades and maturities of such instruments approach extreme levels relative to
long-term norms.
In making asset allocation decisions, WRIMCO typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.
The ability of Asset Strategy Fund to purchase and hold precious metals
such as gold, silver and platinum may allow it to benefit from stability in the
price of such metals at a time when the value of securities may be declining.
For example, during periods of declining stock prices, the price of gold may
increase or remain stable, while the value of the stock market may be subject to
a general decline.
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Precious metal prices are affected by various factors, such as economic
conditions, political events and monetary policies. As a result, the price of
gold, silver or platinum may fluctuate widely. The sole source of return to
Asset Strategy Fund from such investments will be gains realized on sales; a
negative return will be realized if the metal is sold at a loss. Investments in
precious metals do not provide a yield. Asset Strategy Fund's direct investment
in precious metals may be limited by tax considerations. See "Taxes" below.
High Income Fund
High Income Fund may invest in certain high-yield, high-risk,
non-investment grade debt securities (commonly referred to as "junk bonds"). The
market for such securities may differ from that for investment grade debt
securities. See the discussion below for information about the risks associated
with non-investment grade debt securities. See Appendix A to this SAI for a
description of bond ratings.
Money Market Fund
Money Market Fund may only invest in the money market obligations and
instruments listed below. In addition, as a money market fund, and in order for
the Fund to use the "amortized cost method" of valuing its portfolio securities,
the Fund must comply with Rule 2a-7 ("Rule 2a-7") under the Investment Company
Act of 1940, as amended (the "1940 Act"). Under Rule 2a-7, investments are
limited to those that are U.S. dollar denominated and that are rated in one of
the two highest rating categories by the requisite nationally recognized
statistical rating organization(s) ("NRSRO(s)") or are comparable unrated
securities. See Appendix A to this SAI for a description of some of these
ratings. In addition, Rule 2a-7 limits investments in securities of any one
issuer (except U.S. Government securities) to no more than 5% of the Fund's
total assets. Investments in securities rated in the second highest rating
category by the requisite NRSRO(s) or comparable unrated securities are limited
to no more than 5% of the Fund's total assets, with investment in such
securities of any one issuer being limited to the greater of one percent of the
Fund's total assets or $1,000,000. In accordance with Rule 2a-7, the Fund may
invest in securities with a remaining maturity of not more than 397 calendar
days. See discussion under "Determination of Offering Price."
(1) U.S. Government Securities: See "U.S. Government Securities."
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(2) Bank Obligations and Instruments Secured Thereby: Subject to the
limitations described above, time deposits, certificates of deposit, bankers'
acceptances and other bank obligations if they are obligations of a bank subject
to regulation by the U.S. Government (including obligations issued by foreign
branches of these banks) or obligations issued by a foreign bank having total
assets equal to at least U.S. $500,000,000, and instruments secured by any such
obligation. A "bank" includes commercial banks and savings and loan
associations. Time deposits are monies kept on deposit with U.S. banks or other
U.S. financial institutions for a stated period of time at a fixed rate of
interest. At present, bank time deposits are not considered by the Board of
Directors or WRIMCO, to be readily marketable. There may be penalties for the
early withdrawal of such time deposits, in which case, the yield of these
investments will be reduced.
(3) Commercial Paper Obligations Including Variable Amount Master Demand
Notes: Commercial paper rated as described above. A variable amount master
demand note represents a borrowing arrangement under a letter agreement between
a commercial paper issuer and an institutional investor.
(4) Corporate Debt Obligations: Corporate debt obligations if they are
rated as described above.
(5) Canadian Government Obligations: Obligations of, or obligations
guaranteed by, the Government of Canada, a Province of Canada or any agency,
instrumentality or political subdivision of that Government or any Province. The
Fund will not invest in Canadian Government obligations if more than 10% of the
value of its total assets would then be so invested, subject to the
diversification requirements applicable to the Money Market Fund.
(6) Certain Other Obligations: Obligations other than those listed in (1)
through (5) (such as municipal obligations) only if any such other obligation is
guaranteed as to principal and interest by either a bank or a corporation whose
securities the Fund is eligible to hold under the Rule.
The value of the obligations and instruments in which the Fund invests
will fluctuate depending in large part on changes in prevailing interest rates.
If these rates go up after the Fund buys an obligation or instrument, its value
may go down; if these rates go down, its value may go up. Changes in interest
rates will be more quickly reflected in the yield of a portfolio of short-term
obligations than in the yield of a portfolio of long-term obligations.
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Securities - General
The main types of securities in which the Funds may invest include common
stock, preferred stock, debt securities and convertible securities. Although
common stocks and other equity securities have a history of long-term growth in
value, their prices tend to fluctuate in the short term, particularly those of
smaller companies. A Fund (other than Money Market Fund) may invest in preferred
stock rated in any rating category of the established rating services or, if
unrated, judged by WRIMCO to be of equivalent quality. Debt securities have
varying levels of sensitivity to changes in interest rates and varying degrees
of quality. As a general matter, however, when interest rates rise, the values
of fixed-rate securities fall and, conversely, when interest rates fall, the
values of fixed-rate debt securities rise. Similarly, long-term bonds are
generally more sensitive to interest rate changes than short-term bonds.
Lower quality debt securities (commonly called "junk bonds") are
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than high-quality securities and may decline
significantly in periods of general economic difficulty. The market for
lower-rated debt securities may be thinner and less active than that for
higher-rated debt securities, which can adversely affect the prices at which the
former are sold. Adverse publicity and changing investor perceptions may
decrease the values and liquidity of lower-rated debt securities, especially in
a thinly traded market. Valuation becomes more difficult and judgment plays a
greater role in valuing lower-rated debt securities than with respect to
securities for which more external sources of quotations and last sale
information are available. Since the risk of default is higher for lower-rated
debt securities, WRIMCO's research and credit analysis are an especially
important part of managing securities of this type held by a Fund. WRIMCO
continuously monitors the issuers of lower-rated debt securities in a Fund's
portfolio in an attempt to determine if the issuers will have sufficient cash
flow and profits to meet required principal and interest payments. A Fund may
choose, at its expense or in conjunction with others, to pursue litigation or
otherwise exercise its rights as a security holder to seek to protect the
interests of security holders if it determines this to be in the best interest
of the Fund's shareholders.
A Fund (other than Money Market Fund) may invest in debt securities rated
in any rating category of the established rating services, including securities
rated in the lowest category (securities rated D by Standard & Poor's ("S&P")
and C by Moody's
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Investors Service, Inc. ("MIS")). Debt securities rated D by S&P or C by MIS are
in payment default or are regarded as having extremely poor prospects of ever
attaining any real investment standing. Debt securities rated at least BBB by
S&P or Baa by MIS are considered to be investment grade debt securities however,
securities rated BBB or Baa may have speculative characteristics. In addition, a
Fund will treat unrated securities judged by WRIMCO to be of equivalent quality
to a rated security as having the equivalent 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
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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.
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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
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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,
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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.
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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.
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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
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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 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.
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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
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maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Changes in the rate or "speed" of these payments can
cause the value of the mortgage backed securities to fluctuate rapidly. However,
these effects may not be present, or may differ in degree, if the mortgage loans
in the pools have adjustable interest rates or other special payment terms, such
as a prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically structured in a
manner that provides any of a wide variety of investment characteristics, such
as yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
reduced. These changes can result in volatility in the market value and in some
instances reduced liquidity, of the CMO class.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and may carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries on dates prior to
their stated maturities. Floating rate securities have interest rates that
change whenever there is a change in a designated base rate while variable rate
instruments provide for a specified periodic adjustment in the interest rate.
These formulas are designed to result in a market value for the instrument that
approximates its par value.
Indexed Securities
Each Fund (other than Money Market Fund and Municipal Bond Fund) may
purchase securities the value of which varies in relation to the value of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators, subject to its operating policy
regarding derivative instruments and, for Money Market Fund, subject to the
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requirements of Rule 2a-7. Indexed securities typically, but not always, are
debt securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency or other instrument to which they are indexed and may also be
influenced by interest rate changes in the United States and abroad. At the same
time, indexed securities are subject to the credit risks associated with the
issuer of the security and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying investments. Gold-indexed securities, for example, typically
provide for a maturity value that depends on the price of gold, resulting in a
security whose price tends to rise and fall together with gold prices.
Currency-indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by reference
to the values of one or more specified foreign currencies, and may offer higher
yields than U.S. dollar-denominated securities of equivalent issuers.
Currency-indexed securities may be positively or negatively indexed; that is,
their maturity value may increase when the specified currency value increases,
resulting in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign currencies
increase, resulting in a security whose price characteristics are similar to a
put on the underlying currency. Currency-indexed securities may also have prices
that depend on the values of a number of different foreign currencies relative
to each other.
Recent issuers of indexed securities have included banks, corporations,
and certain U.S. Government agencies. WRIMCO will use its judgment in
determining whether indexed securities should be treated as short-term
instruments, bonds, stocks, or as a separate asset class for purposes of Asset
Strategy Fund's investment allocations, depending on the individual
characteristics of the securities. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Loans and Other Direct Debt Instruments
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Asset Strategy Fund may invest in direct debt
instruments, subject to its policies regarding the quality of debt securities.
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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
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additional cash on demand. These commitments may have the effect of requiring
the Fund to increase its investment in a borrower at a time when it would not
otherwise have done so, even if the borrower's condition makes it unlikely that
the amount will ever be repaid. The Fund will set aside appropriate liquid
assets in a segregated custodial account to cover its potential obligations
under standby financing commitments.
For purposes of the limitations on the amount of total assets that Asset
Strategy Fund will invest in any one issuer or in issuers within the same
industry, the Fund generally will treat the borrower as the "issuer" of
indebtedness held by the Fund. In the case of loan participations where a bank
or other lending institution serves as financial intermediary between the Fund
and the borrower, if the participation does not shift to the Fund the direct
debtor-creditor relationship with the borrower, Securities and Exchange
Commission ("SEC") interpretations require the Fund, in appropriate
circumstances, to treat both the lending bank or other lending institution and
the borrower as "issuers" for these purposes. Treating a financial intermediary
as an issuer of indebtedness may restrict the Fund's ability to invest in
indebtedness related to a single financial intermediary, or a group of
intermediaries engaged in the same industry, even if the underlying borrowers
represent many different companies and industries.
Foreign Securities and Currencies
Each Fund (other than Limited-Term Bond Fund and Municipal Bond Fund) may
purchase securities of foreign issuers, including depositary receipts, subject
to the restrictions described in the Prospectus and this SAI. Limited-Term Bond
Fund and Municipal Bond Fund may not invest in foreign securities.
In general, depositary receipts are securities convertible into and
evidencing ownership of securities of foreign corporate issuers, although
depositary receipts may not necessarily be denominated in the same currency as
the securities into which they may be converted. American depositary receipts,
in registered form, are dollar-denominated receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities.
International depositary receipts and European depositary receipts, in bearer
form, are foreign receipts evidencing a similar arrangement and are designed for
use by non-U.S. investors and traders in non-U.S. markets. Global depositary
receipts are designed to facilitate the trading of foreign issuers by U.S. and
non-U.S. investors and traders.
WRIMCO believes that there are investment opportunities as well as risks
in investing in foreign securities. Individual
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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.
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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" below.
Restricted Securities
Restricted securities are securities that are subject to legal or
contractual restrictions on resale. However, restricted securities generally can
be sold in privately negotiated transactions, pursuant to an exemption from
registration under the Securities Act of 1933, as amended, or in a registered
public offering. Where registration is required, a Fund may be obligated to pay
all or part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, a Fund might
obtain a less favorable price than prevailed when it decided to seek
registration of the security.
There are risks associated with investment in restricted securities in
that there can be no assurance of a ready market for resale. Also, the
contractual restrictions on resale might
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prevent a Fund from reselling the securities at a time when such sale would be
desirable. Restricted securities in which a Fund seeks to invest need not be
listed or admitted to trading on a foreign or domestic exchange and may be less
liquid than listed securities. Certain restricted securities, e.g., Rule 144A
securities, may be determined to be liquid in accordance with guidelines adopted
by the Board of Directors.
See "Illiquid Investments."
Lending Securities
Securities loans may be made by each Fund (except Municipal Bond Fund) on
a short-term or long-term basis for the purpose of increasing the Fund's income.
If a Fund lends securities, the borrower pays the Fund an amount equal to the
dividends or interest on the securities that the Fund would have received if it
had not lent the securities. The Fund also receives additional compensation.
Under the Funds' current securities lending procedures, a Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO.
Any securities loan that a Fund makes must be collateralized in accordance
with applicable regulatory requirements (the "Guidelines"). At the time of each
loan, the Fund must receive collateral equal to no less than 100% of the market
value of the securities loaned. Under the present Guidelines, the collateral
must consist of cash, U.S. Government securities or bank letters of credit, at
least equal in value to the market value of the securities lent on each day that
the loan is outstanding. If the market value of the lent securities exceeds the
value of the collateral, the borrower must add more collateral so that it at
least equals the market value of the securities lent. If the market value of the
securities decreases, the borrower is entitled to the return of the excess
collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for a Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that a Fund may accept as collateral are agreements
by banks (other than the borrowers of the Fund's securities), entered into at
the request of the borrower and for its account and risk, under which the banks
are obligated to pay to the Fund, while the letter is in effect, amounts
demanded by
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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
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the event of bankruptcy or other default by the seller, there may be possible
delays and expenses in liquidating the underlying securities or other
collateral, decline in their value and loss of interest. The return on such
collateral may be more or less than that from the repurchase agreement. The
Funds' repurchase agreements will be structured so as to fully collateralize the
loans. In other words, the value of the underlying securities, which will be
held by the Fund's custodian bank or by a third party that qualifies as a
custodian under Section 17(f) of the Investment Company Act of 1940, as amended
(the "1940 Act"), is and, during the entire term of the agreement, will remain
at least equal to the value of the loan, including the accrued interest earned
thereon. Repurchase agreements are entered into only with those entities
approved by WRIMCO on the basis of criteria established by the Board of
Directors.
Warrants and Rights
Warrants are options to purchase equity securities at a specified price
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends, and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
When-Issued and Delayed-Delivery Transactions
Each Fund may purchase any securities in which it may invest on a
when-issued or delayed-delivery basis or sell them on a delayed-delivery basis.
In either case payment and delivery for the securities takes place at a future
date. The securities so purchased or sold by a Fund are subject to market
fluctuation; their value may be less or more when delivered than the purchase
price paid or received. When purchasing securities on a when issued or
delayed-delivery basis, a Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. No interest accrues to a
Fund until delivery and payment is completed. When a Fund makes a commitment to
purchase securities on a when-issued or delayed-delivery basis, it will record
the transaction and thereafter reflect the value of the securities in
determining its 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
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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.
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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
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does not own a corresponding security and, therefore, the transaction does not
relate to a security the Fund owns. Rather, it relates to a security that the
Fund intends to acquire. If a Fund does not complete the hedge by purchasing the
security it anticipated purchasing, the effect on the Fund's portfolio is the
same as if the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that a
Fund owns or intends to acquire. Financial Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which a Fund has invested or expects to invest. Financial Instruments on debt
securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Financial Instruments is subject to applicable regulations of
the SEC, the several exchanges upon which they are traded and the Commodity
Futures Trading Commission (the "CFTC"). In addition, a Fund's ability to use
Financial Instruments will be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below,
WRIMCO expects to discover additional opportunities in connection with Financial
Instruments and other similar or related techniques. These new opportunities may
become available as WRIMCO develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new Financial Instruments or
other techniques are developed. WRIMCO may utilize these opportunities to the
extent that they are consistent with a Fund's goal(s) and permitted by a Fund's
investment limitations and applicable regulatory authorities. A Fund might not
use any of these strategies, and there can be no assurance that any strategy
used will succeed. The Funds' Prospectus or SAI will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. In general,
these techniques may increase the volatility of a Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices
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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.
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(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Fund entered into a short hedge because WRIMCO projected a decline in the price
of a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not attempted to hedge at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Fund sell a portfolio
security at a disadvantageous time.
(5) A Fund's ability to close out a position in a Financial Instrument
prior to expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of the
other party to the transaction (the "counterparty") to enter into a transaction
closing out the position. Therefore, there is no assurance that any position can
be closed out at a time and price that is favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. A Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or forward contracts, or (2) cash and liquid assets with a value,
marked-to-market daily, sufficient to cover its potential obligations to the
extent not covered as provided in (1) above. Each Fund will comply with SEC
guidelines regarding cover for these instruments and will, if the guidelines so
require, set aside cash or liquid assets in an account with its custodian in the
prescribed amount as determined daily.
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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
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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
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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
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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.
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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
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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.
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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
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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
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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.
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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
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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
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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
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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
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redeemable securities. Total Return Fund, Small Cap Growth Fund,
International Growth Fund, High Income Fund, Mid Cap Growth Fund,
Large Cap Growth Fund, Science and Technology Fund and Tax-Managed
Equity Fund may buy shares of an investment company that does not
issue redeemable securities if the Fund does so in a regular
transaction in the open market and in compliance with the
requirements of the 1940 Act. Each of these Funds may purchase such
securities if, as a result of such purchase, no more than 10% of its
total assets are invested in such securities. Notwithstanding the
foregoing, each of these Funds may also acquire investment company
shares as part of a merger, consolidation or other reorganization;
(iii) Each Fund (other than Asset Strategy Fund) may not lend money or
other assets, other than through certain limited types of loans;
however, each of these Funds may buy debt securities and other
obligations consistent with its goal and its other investment
policies and restrictions, may enter into repurchase agreements (see
"Repurchase Agreements") and, except Municipal Bond Fund, may lend
its portfolio securities to the extent allowed, and in accordance
with the requirements under, the 1940 Act. Asset Strategy Fund may
not make loans, except (a) by lending portfolio securities to the
extent allowed, and in accordance with the requirements under, the
1940 Act; (b) through the purchase of debt securities and other
obligations consistent with its goal and its other investment
policies and restrictions; and (c) by engaging in repurchase
agreements with respect to portfolio securities (see "Repurchase
Agreements" above);
(iv) No Fund may invest for the purpose of exercising control or
management of another issuer;
(v) No Fund may sell securities short (unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities
sold short) or purchase securities on margin, except that (1) this
policy does not prevent a Fund from entering into short positions in
foreign currency, futures contracts, options, forward contracts,
swaps, caps, floors, collars and other financial instruments, (2) a
Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and (3) a Fund may make margin payments
in connection with futures contracts, options, forward contracts,
swaps, caps, floors, collars and other financial instruments;
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(vi) No Fund may engage in the underwriting of securities of other
issuers, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed an
underwriter under Federal securities laws;
(vii) No Fund may invest in a security if, as a result, it would own more
than 10% of the outstanding voting securities of an issuer, or if
more than 5% of a Fund's total assets would be invested in
securities of that issuer, provided that U.S. Government securities
are not subject to this limitation and up to 25% of each Fund's
total assets may be invested without regard to these restrictions;
(viii) No Fund (other than Science and Technology Fund) may buy a security
if, as a result, 25% or more of the Fund's total assets would then
be invested in securities of issuers having their principal business
activities in the same industry, except for municipal bonds (other
than industrial development bonds) and U.S. Government securities;
(ix) Money Market Fund and Municipal Bond Fund may not purchase warrants;
(x) Each Fund (other than Asset Strategy Fund) may not purchase or sell
physical commodities; however, this policy does not prevent these
Funds (other than Limited-Term Bond Fund, Money Market Fund, or
Municipal Bond Fund) from purchasing and selling foreign currency,
futures contracts, options, forward contracts, swaps, caps, floors,
collars and other financial instruments. Asset Strategy Fund may not
purchase or sell physical commodities, except that this Fund may
purchase and sell precious metals for temporary, defensive purposes;
however, this policy shall not prevent this Fund from purchasing and
selling foreign currency, futures contracts, options, forward
contracts, swaps, caps, collars, floors and other financial
instruments;
(xi) No Fund may issue senior securities. Asset Strategy Fund may not
issue bonds or any other class of securities preferred over shares
of the Fund in respect of the Fund's assets or earnings, provided
that this Fund may issue additional series and classes of shares in
accordance with its Articles of Incorporation;
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Total Return Fund, Small Cap Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund, Science and
Technology Fund and High Income Fund may not borrow money, except
that these Funds may borrow money (and pledge assets in connection
therewith) from banks for temporary, extraordinary or emergency
purposes but only up to 5% of their respective total assets. Asset
Strategy Fund may not borrow money, except that this Fund may borrow
money for emergency or extraordinary purposes (not for leveraging or
investment) in an amount not exceeding 33 1/3% of the value of its
total assets (less liabilities other than borrowings). Any
borrowings that come to exceed 33 1/3% of the value of Asset
Strategy Fund's total assets by reason of a decline in net assets
will be reduced within three days to the extent necessary to comply
with the 33 1/3% limitation. For purposes of this limitation, "three
days" means three days, exclusive of Sundays and holidays;
(xii) Total Return Fund, Small Cap Growth Fund, Limited-Term Bond Fund,
Municipal Bond Fund, International Growth Fund and High Income Fund
may not invest in interests in oil, gas or mineral leases or mineral
development programs, including oil and gas limited partnerships;
(xiii) At least 80% of Municipal Bond Fund's net assets will be invested
during normal market conditions in municipal bonds of investment
grade; and
(xiv) No Fund may participate on a joint, or a joint and several basis, in
any trading account in securities.
The method of determining who is an issuer for purposes of the 5%
limitation in fundamental restriction (ix) is non-fundamental. In particular, in
applying this limitation:
(a) For municipal bonds created by a particular government but backed
only by the assets and revenues of a subdivision of that government,
such as an agency, instrumentality, authority or other subdivision,
the Fund considers such subdivision to be the issuer;
(b) For IDBs and PABs, the nongovernmental user of facilities financed
by them is considered a separate issuer; and
(c) The Fund considers a guarantee of a municipal bond to be a separate
security that would be given a value and
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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) At least 65% of the respective total assets of Small Cap Growth
Fund, International Growth Fund, Large Cap Growth Fund and Mid Cap
Growth Fund will be invested during normal market conditions in
growth stocks. At least 65% of Tax-Managed Equity Fund's total
assets will be invested during normal market conditions 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
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assets in securities of issuers located in any single state.
(vi) At least 65% of Limited-Term Bond Fund's total assets will be
invested during normal market conditions in bonds, and at least 65%
of Municipal Bond Fund's total assets will be invested during normal
market conditions in bonds exclusive of other municipal debt
obligations.
(vii) Money Market Fund may not purchase the securities of any one issuer
(other than U.S. Government securities) if, as a result of such
purchase, more than 5% of its total assets would be invested in the
securities of any one issuer, as determined in accordance with Rule
2a-7. Money Market Fund may not invest more than 5% of its total
assets in securities rated in the second highest rating category by
the requisite rating organization(s) or comparable unrated
securities, with investments in such securities of any one issuer
(except U.S. Government securities) limited to the greater of 1% of
the Fund's total assets or $1,000,000, as determined in accordance
with Rule 2a-7;
(viii) Subject to the diversification requirements of Rule 2a-7, Money
Market Fund may invest up to 10% of its total assets in Canadian
Government obligations. Money Market Fund may not invest more than
25% of its total assets in a combination of Canadian Government
obligations and foreign bank obligations;
(ix) Each Fund (other than Asset Strategy Fund and Money Market Fund)
does not currently intend to invest in non-investment grade debt
securities if, as a result, more than 5% of its total assets,
respectively, would consist of such investments. Asset Strategy Fund
may not invest more than 35% of its total assets in non-investment
grade debt securities and unrated securities judged by WRIMCO to be
of equivalent quality. Limited-Term Bond Fund does not currently
intend to invest more than 50% of its total assets in securities
rated in the lowest tier of investment grade debt securities (those
rated BBB by S&P or Baa by MIS). Money Market Fund may not invest in
such securities.
(x) Asset Strategy Fund currently intends to limit its investments in
foreign securities, under normal market conditions, to no more than
50% of its total assets.
(xi) Each of Total Return Fund and Small Cap Growth Fund may invest up to
10% of its net assets, and Science and
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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) High Income Fund and Science and Technology Fund do not currently
intend to invest more than 5% of their respective total assets in
the shares of investment companies. Asset Strategy Fund does not
currently intend to purchase shares of investment companies that do
not redeem their shares except in a regular transaction in the open
market where no commission except ordinary broker's commission is
paid and if, as a result, no more than 10% of its total assets would
be invested in such securities. Asset Strategy Portfolio does not
currently intend to purchase shares of open-end investment
companies. These limitations do not apply to securities received by
Asset Strategy Fund as dividends, through offers of exchange, or as
a result of a reorganization, consolidation or merger.
(xv) No 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 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.
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(xvi) 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.
(xvii) 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.
(xviii) Asset Strategy Fund does not currently intend to lend assets other
than securities to other parties, except by acquiring loans, loan
participations, or other forms of direct debt instruments. (This
limitation does not apply to purchases of debt securities and other
obligations or to repurchase agreements.)
(xix) Asset Strategy Fund, Large Cap Growth Fund, Mid Cap Growth Fund,
Money Market Fund and Tax-Managed Equity Fund do not currently
intend to invest in oil, gas, or other mineral exploration or
development programs or leases.
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.
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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 % 168.17%
Small Cap Growth Fund % 51.41%
High Income Fund % 50.98%
International Growth Fund % 116.25%
Limited-Term Bond Fund % 32.11%
Municipal Bond Fund % 41.53%
Science and Technology Fund % 51.00%
Total Return Fund % 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 %; the rate for
the remainder of the portfolio was %.
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.
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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 Group of Funds
(formerly known as the United Group of Funds), __________ 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 United Group of Mutual Funds and acts as principal underwriter and
distributor for variable life insurance and variable annuity policies for which
Target/United Funds, Inc. is the underlying investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Corporation and Waddell & Reed Services Company (the "Agent"), a subsidiary of
the Distributor, the Agent performs shareholder servicing functions, including
the maintenance of shareholder accounts, the issuance, transfer and redemption
of shares, distribution of dividends and payment of redemptions, the furnishing
of related information to the Corporation and handling of shareholder inquiries.
A new Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the
Corporation and the Agent, the Agent provides the Corporation with bookkeeping
and accounting services and assistance, including maintenance of the
Corporation's records, pricing of the Corporation's shares, preparation of
prospectuses for existing
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shareholders, preparation of proxy statements and certain shareholder reports. A
new Accounting Services Agreement, or amendments to an existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Payments for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus. The management
fees paid to WRIMCO during the fiscal years ended March 31, 2000, 1999 and 1998
for each of the Funds then in existence were as follows:
2000 1999 1998
---- ----- ----
Asset Strategy Fund $ $ 201,083 $ 127,507
Small Cap Growth Fund __ 2,846,036 2,041,002
High Income Fund __ 123,728 24,352*
International Growth Fund __ 725,596 553,692
Limited-Term Bond Fund __ 107,424 101,985
Municipal Bond Fund __ 226,707 216,501
Science and Technology Fund __ 130,141 17,585*
Total Return Fund __ 3,391,371 2,837,414
*For the period from 7/31/97, the date of in itial public of fering, 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. 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; 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.
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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 _ 15,000 10,000
High Income Fund _ 10,000 833*
Small Cap Growth Fund _ 54,167 49,167
International Growth Fund _ 30,000 30,000
Limited-Term Bond Fund _ 10,000 10,000
Municipal Bond Fund _ 20,000 20,000
Science and Technology Fund _ 10,833 2,972*
Total Return Fund _ 60,000 59,167
*For the period 7/31/97, the date of initial public offering, to 3-31-98.
Because the Corporation pays a management fee for investment supervision
and an accounting services fee for accounting services as discussed above,
WRIMCO and the Agent, respectively, pay all of their own expenses in providing
these services. Amounts paid by the Corporation under the Shareholder Servicing
Agreement are described above. The Distributor and its affiliates pay the
Corporation's Directors and officers who are affiliated with the Distributor and
its affiliates. The Corporation pays the fees and expenses of the Corporation's
other Directors.
The Corporation pays all of its other expenses. These include, for each
Fund, the costs of materials sent to shareholders, audit and outside legal fees,
taxes, brokerage commissions, interest, insurance premiums, custodian fees, fees
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payable by the Corporation under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Distribution Arrangement
The Distributor acts as principal underwriter and distributor of the
Corporation's shares pursuant to an underwriting agreement (the "Underwriting
Agreement"). The Underwriting Agreement requires the Distributor to use its best
efforts to sell the shares of the Corporation but is not exclusive, and permits
and recognizes that the Distributor also distributes shares of other investment
companies and other securities. Shares are sold on a continuous basis.
Under the Distribution and Service Plan (the "Plan") for Class A shares
adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act, each Fund
(other than Money Market Fund) may pay Waddell & Reed, Inc., a fee not to exceed
0.25% of the Fund's average annual net assets attributable to Class A shares,
paid monthly, to compensate Waddell & Reed, Inc. for its costs and expenses in
connection with, either directly or through others, the distribution of the
Class A shares and/or the provision of personal services to Class A shareholders
and/or maintenance of Class A shareholder accounts.
Under the Plans adopted for Class B shares and Class C shares
respectively, each Fund may pay the Distributor a service fee not to exceed
0.25% of the Fund's average annual net assets attributable to that class, paid
monthly, to compensate Waddell & Reed, Inc. for its services, either directly or
through others, in connection with the provision of personal services to
shareholders of that class and/or the maintenance of shareholder accounts of
that class and a distribution fee not to exceed 0.75% of the Fund's average
annual net assets attributable to that class, paid monthly, to compensate the
Distributor for its services, either directly or through others, in connection
with the distribution of shares of that class. Under a Distribution and Service
Plan for Class Y shares (the "Class Y Plan") adopted by the Corporation pursuant
to Rule 12b-1, the Corporation, with respect to each Fund, pays the Distributor
daily a distribution and/or service fee not to exceed, on an annual basis, 0.25%
of the particular Fund's Class Y NAV.
The Distributor offers the Corporation's shares through its financial
advisors, registered representatives and sales managers ("sales force") unless
it elects, to make distribution of shares also through other broker-dealers,
banks and other appropriate intermediaries. In distributing shares through its
sales force,
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the Distributor will pay commissions and incentives to the sales forces at or
about the time of sale and will incur other expenses including costs for
prospectuses, sales literature, advertisements, sales office maintenance,
processing of orders and general overhead with respect to its efforts to
distribute the Corporation's shares. The Plans permit Waddell & Reed, Inc. to
receive compensation for the class-related distribution activities through the
distribution fee, subject to the limit contained in the Plan. The Plans also
contemplate that Waddell & Reed, Inc. may be compensated for amounts it expends
in compensating, training and supporting registered financial advisors, sales
managers and/or other appropriate personnel in providing personal services to
shareholders of each Fund and/or maintaining shareholder accounts; increasing
services provided to shareholders of each Fund by office personnel located at
field sales offices; engaging in other activities useful in providing personal
service to shareholders of each Fund and/or maintenance of shareholder accounts;
and in compensating broker-dealers who may regularly sell shares of each Fund,
and other third parties, for providing shareholder services and/or maintaining
shareholder accounts with respect to Fund shares. Each Plan and the Underwriting
Agreement contemplate that the Distributor may be compensated for these
class-related distribution efforts through the distribution fee.
The sales force and other parties may be paid continuing compensation
based on the value of the shares held by shareholders to whom the member of the
sales force is assigned to provide personal services, and the Distributor or its
subsidiary, Waddell & Reed Services Company, as well as other parties may also
provide services to shareholders through telephonic means and written
communications. There were no service fees or distribution fees paid by a Fund
for Class A or Class B for the fiscal year ended March 31, 2000, because these
classes had not commenced operations. For the fiscal year ended March 31, 2000,
the Corporation paid (or accrued) the following amounts to the Distributor as
distribution fees and service fees, respectively, under the old Class B and the
Class C Plan for each of the Funds: Asset Strategy Fund - $ and $; High Income
Fund - $ and $ ; International Growth Fund - $ and $ ; Limited-Term Bond Fund -
$ and $; Municipal Bond Fund - $ and $; Small Cap Growth Fund - $ and $; Science
and Technology Fund - $ and $ ; and Total Return Fund - $ and $ . 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 - $; High Income Fund - $;
International Growth Fund - $; Limited-Term Bond Fund - $; Municipal Bond Fund -
$; Science and Technology Fund - $; Small Cap Growth Fund - $; and Total Return
Fund - $. The distribution fees were paid to compensate the Distributor for its
expenses relating to sales force compensation, providing
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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
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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 its prior
Class B then in existence as follows: Asset Strategy Fund - $; High Income Fund
- - $; International Growth Fund - $; Limited-Term Bond Fund - $; Municipal Bond
Fund - $; Science and Technology Fund - $; Small Cap Growth Fund - $ and Total
Return Fund - $.
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 - $; Small Cap Growth
Fund - $; Limited-Term Bond Fund - $; Municipal Bond Fund - $; International
Growth Fund - $; Asset Strategy Fund - $; Science and Technology Fund - $; and
High Income Fund - $.
Custodial and Auditing Services
The custodian for each Fund is UMB Bank, n.a., 928 Grand Boulevard, Kansas
City, Missouri. In general, the custodian is responsible for holding each Fund's
cash and securities. Deloitte & Touche LLP, 1010 Grand Boulevard, Kansas City,
Missouri, the Funds' independent auditors, audits the Corporation's financial
statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The NAV of each class of the shares of a Fund is the value of the assets
of that class, less the class's liabilities, divided by the total number of
outstanding shares of that class.
Class A shares of the Funds are sold at their next determined NAV plus the
sales charge described in the Prospectus. The sales charge is paid to Waddell &
Reed, Inc., the Fund's Distributor. The price makeup as of March 31, 2000, which
is the most recent balance sheet included in this SAI, was as follows:
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NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ........................ $
Add: selling commission (5.75% of offering price) ..... .
-----
Maximum offering price per Class A share
(Class A NAV divided by 94.25%)..................... $
=====
The offering price of a Class A share is its NAV next calculated following
acceptance of a purchase order plus the sales charge described in the
Prospectus. The offering price of a Class B, Class C or a Class Y share is its
NAV next calculated following acceptance of a purchase order. The number of
shares you receive for your purchase depends on the next offering price after
the Distributor receives and accepts your order at its principal business office
at the address shown on the cover of this SAI. You will be sent a confirmation
after your purchase which will indicate how many shares you have purchased.
Shares are normally issued for cash only.
The Distributor need not accept any purchase order, and it or the
Corporation may determine to discontinue offering Corporation shares for
purchase.
The NAV per share is ordinarily computed once on each day that the NYSE is
open for trading, as of the later of the close of the regular session of the
NYSE or the close of the regular session of any domestic securities or
commodities exchange on which an option or futures contract held by a Fund is
traded. The NYSE annually announces the days on which it will not be open for
trading. The most recent announcement indicates that the NYSE will not be open
on the following days: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. However, it is possible that the NYSE may close on other
days. The NAV changes every business day, since the value of the assets and the
number of shares outstanding changes every business day.
The securities in the portfolio of each Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded
over-the-counter are priced using The Nasdaq Stock Market, which provides
information on bid and asked prices quoted by major dealers in such stocks.
Bonds, other than convertible bonds, are generally valued using a third-party
pricing system. Convertible bonds are valued using this pricing system only on
days when there is no
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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
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to purchase the related investment is decreased by the amount of the premium it
received. If a Fund exercises a put it purchased, the amount the Fund receives
from the sale of the related investment is reduced by the amount of the premium
it paid. If a put or call written by a Fund expires, it has a gain in the amount
of the premium; if a Fund enters into a closing purchase transaction, it will
have a gain or loss depending on whether the premium was more or less than the
cost of the closing transaction.
Minimum Initial and Subsequent Investments
For Class A, Class B and Class C shares, initial investments must be at
least $500 with the exceptions described in this paragraph. A $100 minimum
initial investment pertains to exchanges of shares from one Fund to another
Fund. A $50 minimum initial investment pertains to purchases for certain
retirement plan accounts and to accounts for which an investor has arranged, at
the time of initial investment, to make subsequent purchases for the account by
having regular monthly withdrawals of $25 or more made from a bank account. A
minimum initial investment of $25 is applicable to purchases made through
payroll deduction for or by employees of WRIMCO, the Distributor, their
affiliates or certain retirement plan accounts for these individuals. Except
with respect to certain exchanges and automatic withdrawals from a bank account,
a shareholder may make subsequent investments of any amount.
For Class Y shares, investments by government entities or authorities or
by corporations must total at least $10 million. There is no initial investment
minimum for other Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges. The
schedule of sales charges appears in the Prospectus for Class A shares. 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 [TBD] Revocable Trust Form);
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2. Purchases by that individual's spouse purchasing for his or her own
account (includes [TBD] 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 Gifts to Minors Act ("UGMA") or Uniform Transfers to Minors Act
("UTMA") 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).
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
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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."
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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").
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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
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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.
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
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purchase Class A shares at NAV whether or not the custodian himself is an
eligible purchaser.
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.
Shares may also be issued at NAV in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund is a party.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus for the Class A shares, there
are a number of instances in which a Fund's Class A shares are sold or issued on
a basis other than at the maximum public offering price, that is, NAV plus the
highest sales charge. Some of these instances relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one time
or over a period of time as under an LOI or Rights of Accumulation. See the
table of sales charges in the Prospectus. The reasons for these quantity
discounts are, in general, that (i) they are traditional and have long been
permitted in the industry and are therefore necessary to meet competition as to
sales of shares of other funds having such discounts, (ii) certain quantity
discounts are required by rules of the National Association of Securities
Dealers, Inc. (as is elimination of sales charges on the reinvestment of
dividends and distributions), and (iii) they are designed to avoid an unduly
large dollar amount of sales charges on substantial purchases in view of reduced
selling expenses. Quantity discounts are made available to certain related
persons for reasons of family unity and to provide a benefit to tax-exempt plans
and organizations.
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. In
no case in
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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
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.
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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 Privilege
Class A Share Exchanges
Once a sales charge has been paid on Class A shares of one Fund, these
shares and any shares added to them from dividends or distributions paid in
shares may be freely exchanged for Class A shares of another Fund. The shares
you exchange must be worth at least $100 or you must already own shares of a
Fund into which you want to exchange.
Except where the special rules described below apply, you may exchange
Class A shares you own in a Fund for Class A shares of another Fund or, for
customers of Waddell & Reed, Inc. or Legend Equities, Corp. ("Legend"), for
Class A shares of a fund in Waddell & Reed Group of Funds (formerly known as the
United Group of 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
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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 Group of Funds, formerly known as
the United Group of Funds) only if (i) you received the shares to be exchanged
as a result of one or more exchanges of shares on which a maximum sales charge
was originally paid (currently, 5.75%), or (ii) the shares to be exchanged have
been held for at least six months from the date of the original purchase.
However, you may exchange, and these restrictions do not apply to exchanges of,
Class A shares of Limited-Term Bond, Municipal Bond Fund or Money Market Fund
(or, for customers of Waddell & Reed, Inc. or Legend, Class A shares of Waddell
& Reed Municipal Bond Fund, Inc., Waddell & Reed Government Securities Fund,
Inc. or Waddell & Reed Cash Management, Inc.).
Class B Share Exchanges
You may exchange Class B shares of one Fund for Class B shares of another
Fund or, for customers of Waddell & Reed, Inc. or Legend, for Class B shares of
a fund in the Waddell & Reed Group of 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 Group of Funds (formerly known as the United Group
of 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.
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Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any other
Fund or, for customers of Waddell & Reed, Inc. or Legend, for Class Y shares of
a fund within the Waddell & Reed Group of 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).
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
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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
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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.
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Redemptions
The Prospectus gives information as to redemption procedures and deferred
sales charges. Redemption payments are made within seven days from receipt of
request, unless delayed because of emergency conditions determined by the SEC,
when the NYSE is closed other than for weekends or holidays, or when trading on
the NYSE is restricted. Payment is made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities. Payment for
redemptions of shares of the Corporation may be made in portfolio securities
when the Corporation's Board of Directors determines that conditions exist
making cash payments undesirable. Redemptions made in securities will be made
only in readily marketable securities and the shareholder will incur commission
or other transaction charges in order to convert these securities into cash.
Securities used for payment of redemptions are valued at the value used in
figuring NAV. The Corporation, however, has elected to be governed by Rule 18f-1
under the 1940 Act, pursuant to which it is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for
any one shareholder.
Reinvestment Privilege
Each Fund offers a one-time reinvestment privilege that allows you to
reinvest without charge all or part of any amount of Class A shares you redeem
from the Fund by sending that Fund the amount you wish to reinvest. The amount
you return will be reinvested in Class A shares of that Fund at the NAV next
calculated after the Fund receives the returned amount. Your written request to
reinvest and the amount to be reinvested must be received within forty-five days
after your redemption request was received. You can do this only once as to
Class A shares of a Fund, and the Fund must be offering Class A shares at the
time your reinvestment request is received. You do not use up this privilege by
redeeming Class A shares to invest the proceeds at NAV in a Keogh plan or an
IRA.
There is also a reinvestment privilege for Class B and Class C shares
under which you may reinvest in any one or more of the Funds all or part of any
amount of Class B or Class C 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
Class B or Class C shares, as applicable. If Class B or Class C shares of a Fund
are then being offered, you can put all or part of your redemption payment back
into the Class B or Class C shares of that Fund at the NAV next calculated after
you have returned the amount. Your written request to do this must be received
within forty-five days after your redemption request was received.
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You can do this only once as to Class B shares of that Fund and once as to Class
C shares of that Fund. For purposes of determining future deferred sales
charges, the reinvestment will be treated as a new investment. You do not use up
this privilege by redeeming Class B or Class C shares to invest the proceeds at
NAV in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
Each of the Funds has the right to require the redemption of shares held
under any account or any plan if the aggregate NAV of such shares (taken at cost
or value as the Board of Directors may determine) is less than $500. The Board
has no intent to require redemptions in the foreseeable future. If it should
elect to require redemptions, shareholders who are affected will receive prior
written notice and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Corporation are handled by outside
organizations selected by the Board of Directors. The Board of Directors has
responsibility for establishing broad corporate policies for the Corporation and
for overseeing overall performance of the selected experts. It has the benefit
of advice and reports from independent counsel and independent auditors. The
majority of the Directors are not affiliated with Waddell & Reed, Inc.
The principal occupation during the past five years of each Director and
officer of the Corporation is stated below. Each of the persons listed through
and including Mr. Vogel is a member of the Corporation's Board of Directors. The
other persons are officers of the Corporation but are not members of the Board
of Directors. For purposes of this section, the term "Fund Complex" includes
each of the registered investment companies in the Waddell & Reed Group of
Mutual Funds, 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.
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KEITH A. TUCKER*
Chairman of the Board of Directors of the Corporation 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 and Chief Executive Officer of Waddell & Reed
Financial Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell
& Reed, Inc. and Waddell & Reed Services Company; formerly, President of 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 & Craig, P.C., a law firm.
Date of birth: July 29, 1953.
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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 Corporation and each of
the other funds in the Fund Complex; Executive Vice President, Chief Operating
Officer and Director of Waddell & Reed Financial, Inc.; Vice President, Chief
Operating Officer, Director and Treasurer of Waddell & Reed Financial Services,
Inc.; Executive Vice President, Principal Financial Officer, Director and
Treasurer of WRIMCO; President, Chief Executive Officer, Principal Financial
Officer, Director and Treasurer of Waddell & Reed, Inc.; Director and Treasurer
of Waddell & Reed Services Company; Chairman, Chief Executive Officer, President
and Director of Fiduciary Trust Company of New Hampshire, an affiliate of
Waddell & Reed, 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 Corporation and each of the other funds in the Fund
Complex; 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; 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.
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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.
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Daniel C. Schulte
Vice President, Assistant Secretary and General Counsel of the Corporation
and each of the other funds in the Fund Complex; Vice President, Secretary and
General Counsel of Waddell & Reed Financial, Inc., Waddell & Reed Financial
Services Company, Waddell & Reed, Inc., WRIMCO and Waddell & Reed Services
Company; 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 Corporation
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
Corporation 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. Date of birth: November 27, 1964.
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 Waddell & Reed Asset Management Company. Date of birth: January 11, 1959.
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Louise D. Rieke
Vice President of the Corporation and two other funds in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed Asset
Management Company. Date of birth: April 24, 1949.
Grant P. Sarris
Vice President of the Fund and 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. 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 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 Waddell & Reed Asset
Management Company. Date of birth: July 24, 1954.
James D. Wineland
Vice President of the Corporation and two other funds in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed Asset
Management Company. Date of birth: September 25, 1951.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
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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 elected a
position as Director Emeritus.
The Corporation, the funds in the Waddell & Reed Group 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 Group (formerly known as the United Group) 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
Group 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:
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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
John A. Dillingham
David P. Gardner
Linda K. Graves
Joseph Harroz, Jr.
John F. Hayes
Glendon E. Johnson
William T. Morgan
Ronald C. Reimer
Frank J. Ross, Jr.
Eleanor B. Schwartz
Frederick Vogel III
*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
- ------------------- ---------- ------------ -------
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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
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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.
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
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(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
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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 fund's policy 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
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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
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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
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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.
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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.
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Municipal Bond Fund
The aggregate dividends excludable from the gross income of the Municipal
Bond Fund's shareholders may not exceed the Fund's net tax-exempt income. If the
Fund's shares are sold at a loss after being held for six months or less, the
loss will be disallowed to the extent of any exempt-interest dividends received
on those shares. Tax-exempt interest attributable to certain IDBs or PABs
(including a proportionate part of the exempt-interest dividends paid by the
Fund attributable thereto) is a tax preference item for purposes of the AMT.
Exempt-interest dividends received by a corporate shareholder also may be
indirectly subject to the AMT without regard to whether the Fund's tax-exempt
interest was attributable to those IDBs or PABs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
tax-exempt income such as the Fund's exempt interest dividends) plus 50% of
their benefits exceeds certain base amounts. Exempt-interest dividends from the
Fund still are tax-exempt to the extent described in the Prospectus; they are
only included in the calculation of whether a recipient's income exceeds the
established amounts.
If the Fund invests in any instruments that generate taxable income, under
the circumstances described in the Prospectus, distributions of the income
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of its earnings and profits. Moreover, if the Fund realizes capital
gains as a result of market transactions, any distribution of those gains will
be taxable to its shareholders. There also may be collateral Federal income tax
consequences regarding the receipt of exempt-interest dividends by shareholders
such as S corporations, financial institutions, and property and casualty
insurance companies. A shareholder falling into any such category should consult
its tax adviser concerning its investment in shares of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange for the purchase and sale of securities for the
portfolio of each Fund. With respect to Limited-Term Bond Fund, Money Market
Fund, Municipal Bond Fund and High Income Fund, many purchases are made directly
from issuers or from underwriters, dealers or banks. Purchases from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers will include the spread between the bid and the asked
prices. Otherwise, transactions in
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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 Group and Target/United Funds, Inc. or other accounts for which it has
investment discretion, including accounts affiliated with WRIMCO. 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, WRIMCO will ordinarily
allocate the transaction pro rata based on the orders placed, subject to certain
variances provided for in the written procedures. 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,
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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.
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2000 1999 1998
---- ----- -----
Asset Strategy Fund $ _ $ 51,488 $26,334
Small Cap Growth Fund _ 172,608 82,603
High Income Fund _ 616 ---*
International Growth Fund _ 475,534 386,865
Limited-Term Bond Fund _ --- ---
Municipal Bond Fund _ --- 1,371
Science and Technology Fund _ 16,836 4,802*
Total Return Fund _ 355,480 288,547
------ ---------- --------
Total $ $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 ...................... $ $
Small Cap Growth Fund ....................
High Income Fund* ........................
International Growth Fund ................
Limited-Term Bond Fund ...................
Municipal Bond Fund ......................
Science and Technology Fund*..............
Total Return Fund ........................
------------ --------
Total ................................. $ $
============ ========
As of March 31, 2000,
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.
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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. 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; Class B and Class C shares are subject to a CDSC and to
ongoing distribution and service fees; Class B shares convert at the end of the
seventh calendar year following the first year of purchase to Class A shares;
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, which in turn are expected to be lower than for Class Y
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.
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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 ____________, 2000 the Distributor purchased for investment ______
Class A, Class B, Class C and Class Y shares of Large Cap Growth Fund, Mid Cap
Growth Fund and Tax-Managed Equity Fund at a NAV of $10 per share and Money
Market Fund at a NAV of $1 per share.
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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.
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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.
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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:
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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.
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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
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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
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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.
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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
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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
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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.
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REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits:
(a) Articles of Incorporation, as amended, filed by EDGAR on May 16,
1997 as EX-99.B1-charter to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A*
Articles Supplementary, filed by EDGAR on May 16, 1997 as
EX-99.B1-wrartsup to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A*
Articles Supplementary (combination of Class B into Class C),
attached hereto as EX-99.B(a)wrartsup
(b) Bylaws, as amended, filed by EDGAR on June 27, 1996 as
EX-99.B2-wrbylaw to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A*
Amendment to Bylaws filed by EDGAR on April 30, 1999 as
EX-99.B(b)-wrbylaw2 to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement with amended fee schedule to reflect
the addition of Science and Technology Fund and High Income Fund,
filed by EDGAR on May 16, 1997 as EX-99.B5-wrima to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A*
Fee Schedule (Exhibit A) to the Investment Management Agreement, as
amended, attached hereto as EX-99.B(d)wrimafee
(e) Underwriting Agreement filed by EDGAR on June 27, 1995 as
EX-99.B6-wrua to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement, as amended, filed by EDGAR on April 30, 1999 as
EX-99.B(g)-wrca to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
Custodian Agreement, as amended, attached hereto as EX-99.B(g)wrca.
The Custodian Agreement for ________, Inc. Large-Cap Growth Fund is
attached and being filed as a representative copy. The Custodian
Agreements for all twelve series of _________, Inc. are identical
with the exception of their respective effective dates.
(h) Shareholder Servicing Agreement, filed by EDGAR on April 30, 1999
<PAGE>
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, attached hereto as
EX-99.B(h)wrnavapp
Fund Class Y application, as amended, attached hereto as
EX-99.B(h)wrappcy
Compensation Table (Exhibit B) to the Shareholder Servicing
Agreement, as amended, attached hereto as EX-99.B(h)wrssacom
Fidelity Bond Coverage (Exhibit C) to the Shareholder Servicing
Agreement, as amended, attached hereto as EX-99.B(h)wrssafid
(i) Opinion and Consent of Counsel, attached hereto as
EX-99.B(i)wrlegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants, will be
attached as EX-99.B(j)wrconsnt in the 485(b) filing to be completed
on or about June 21, 2000
(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.
<PAGE>
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, will be attached
as EX-99.B(m)wrdspca in the 485(b) filing to be completed on or
about June 21, 2000
Distribution and Service Plan for Class B shares, will be attached
as EX-99.B(m)wrdspcB in the 485(b) filing to be completed on or
about June 21, 2000
(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, will be attached as
EX-99.B(o)wrmcp1 in the 485(b) filing to be completed on or about
June 21, 2000
Multiple Class Plan, as proposed to be amended, will be attached as
EX-99.B(o)wrmcp2 in the 485(b) filing to be completed on or about
June 21, 2000
(p) Code of Ethics attached hereto as Ex-99.B(p)wrcode
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
<PAGE>
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:
<PAGE>
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
United Small Cap Fund, Inc.
United Tax-Managed Equity Fund, Inc.
Advantage I
Advantage II
Advantage Plus
Advantage Gold
(b) The information contained in the underwriter's application on Form
BD, as filed on April 11, 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
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED
FUNDS, INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND,
INC., UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC., UNITED
SMALL CAP FUND, INC., UNITED TAX-MANAGED EQUITY FUND, INC., TARGET/UNITED FUNDS,
INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called the "Corporation"),
and certain directors and officers for the Corporation, do hereby constitute and
appoint KEITH A. TUCKER, ROBERT L. HECHLER, DANIEL C. SCHULTE and KRISTEN A.
RICHARDS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: February 9, 2000 /s/ Robert L. Hechler
--------------------------
Robert L. Hechler, President
/s/ Keith A. Tucker Chairman of the Board February 9, 2000
- ------------------- -----------------
Keith A. Tucker
/s/ Robert L. Hechler President, Principal February 9, 2000
- -------------------- Financial Officer and -----------------
Robert L. Hechler Director
<PAGE>
/s/ Henry J. Herrmann Vice President and February 9, 2000
- -------------------- Director -----------------
Henry J. Herrmann
/s/ Theodore W. Howard Vice President, Treasurer February 9, 2000
- -------------------- and Principal Accounting -----------------
Theodore W. Howard Officer
/s/ James M. Concannon Director February 9, 2000
- -------------------- -----------------
James M. Concannon
/s/ John A. Dillingham Director February 9, 2000
- -------------------- -----------------
John A. Dillingham
/s/ David P. Gardner Director February 9, 2000
- ------------------- -----------------
David P. Gardner
/s/ Linda K. Graves Director February 9, 2000
- -------------------- -----------------
Linda K. Graves
/s/ Joseph Harroz, Jr. Director February 9, 2000
- -------------------- -----------------
Joseph Harroz, Jr.
/s/ John F. Hayes Director February 9, 2000
- -------------------- -----------------
John F. Hayes
/s/ Glendon E. Johnson Director February 9, 2000
- -------------------- -----------------
Glendon E. Johnson
/s/ William T. Morgan Director February 9, 2000
- -------------------- -----------------
William T. Morgan
<PAGE>
/s/ Ronald C. Reimer Director February 9, 2000
- -------------------- -----------------
Ronald C. Reimer
/s/ Frank J. Ross, Jr. Director February 9, 2000
- -------------------- -----------------
Frank J. Ross, Jr.
/s/ Eleanor B. Schwartz Director February 9, 2000
- -------------------- -----------------
Eleanor B. Schwartz
/s/ Frederick Vogel III Director February 9, 2000
- -------------------- -----------------
Frederick Vogel III
Attest:
/s/ Kristen A. Richards
- --------------------------------
Kristen A. Richards
Vice President and Secretary
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment pursuant to Rule
485(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 17th day
of April, 2000.
WADDELL & REED FUNDS, INC.
(Registrant)
By /s/ Robert L. Hechler*
------------------------
Robert L. Hechler, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/ Keith A. Tucker* Chairman of the Board April 17, 2000
- ---------------------- ----------------
Keith A. Tucker
/s/ Robert L. Hechler* President, Principal April 17, 2000
- ---------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/ Henry J. Herrmann* Vice President and April 17, 2000
- ---------------------- Director ----------------
Henry J. Herrmann
/s/ Theodore W. Howard* Vice President, Treasurer April 17, 2000
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/ James M. Concannon* Director April 17, 2000
- ------------------ ----------------
James M. Concannon
/s/ John A. Dillingham* Director April 17, 2000
- ------------------ ----------------
<PAGE>
John A. Dillingham
<PAGE>
/s/ David P. Gardner* Director April 17, 2000
- ------------------ ----------------
David P. Gardner
/s/ Linda K. Graves* Director April 17, 2000
- ------------------ ----------------
Linda K. Graves
/s/ Joseph Harroz, Jr.* Director April 17, 2000
- ------------------ ----------------
Joseph Harroz, Jr.
/s/ John F. Hayes* Director April 17, 2000
- ------------------- ----------------
John F. Hayes
/s/ Glendon E. Johnson* Director April 17, 2000
- ------------------- ----------------
Glendon E. Johnson
/s/ William T. Morgan* Director April 17, 2000
- ------------------- ----------------
William T. Morgan
/s/ Ronald C. Reimer* Director April 17, 2000
- ------------------ ----------------
Ronald C. Reimer
/s/ Frank J. Ross, Jr.* Director April 17, 2000
- ------------------ ----------------
Frank J. Ross, Jr.
/s/ Eleanor B Schwartz* Director April 17, 2000
- ------------------- ----------------
Eleanor B. Schwartz
/s/ Frederick Vogel III* Director April 17, 2000
- ------------------- ----------------
Frederick Vogel III
*By
Kristen A. Richards
<PAGE>
Attorney-in-Fact
ATTEST:
Daniel C. Schulte
Assistant Secretary
EX-99.B(a)wrartsup
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
WADDELL & REED FUNDS, INC.
Pursuant to Sections 2-105, 2-605 and 2-607 of the Maryland General
Corporation Law, Waddell & Reed Funds, Inc. (the "Corporation"), a Maryland
corporation, having its principal office in Baltimore, Maryland, hereby adopts
the following Articles of Amendment to the Corporation's Articles of
Incorporation:
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article FIFTH of the Articles of Incorporation
of the Corporation, as amended ("Articles of Incorporation"), the Board of
Directors has heretofore duly designated, in accordance with Maryland General
Corporation Law, the aggregate number of shares of capital stock which the
Corporation is authorized to issue at Six Billion (6,000,000,000) shares of
capital stock (par value $0.01 per share), amounting in the aggregate to a par
value of Sixty Million Dollars ($60,000,000). Such shares have heretofore been
classified by the Board of Directors among the series of the Corporation as
follows:
Total Return Fund, Class B 250,000,000 shares
Total Return Fund, Class Y 150,000,000 shares
Total Return Fund, Class C 100,000,000 shares
Growth Fund, Class B 250,000,000 shares
Growth Fund, Class Y 150,000,000 shares
Growth Fund, Class C 100,000,000 shares
Limited-Term Bond Fund, Class B 250,000,000 shares
Limited-Term Bond Fund, Class Y 150,000,000 shares
Limited-Term Bond Fund, Class C 100,000,000 shares
Municipal Bond Fund, Class B 250,000,000 shares
Municipal Bond Fund, Class Y 150,000,000 shares
Municipal Bond Fund, Class C 100,000,000 shares
International Growth Fund, Class B 250,000,000 shares
International Growth Fund, Class Y 150,000,000 shares
International Growth Fund, Class C 100,000,000 shares
Asset Strategy Fund, Class B 250,000,000 shares
Asset Strategy Fund, Class Y 150,000,000 shares
Asset Strategy Fund, Class C 100,000,000 shares
High Income Fund, Class B 250,000,000 shares
High Income Fund, Class Y 150,000,000 shares
High Income Fund, Class C 100,000,000 shares
Science and Technology Fund, Class B 250,000,000 shares
Science and Technology Fund, Class Y 150,000,000 shares
<PAGE>
Science and Technology Fund, Class C 100,000,000 shares
SECOND: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors hereby, in accordance with Sections 2-105
and 2-605(a)(4) of the Maryland General Corporation Law, redesignates the shares
previously designated as Class B shares of a series as Class C shares of that
series and combines such redesignated shares and the Class C shares of that
series to result in a single class, Class C, of such series, effective March 24,
2000, as follows:
Total Return Fund, Class C 350,000,000 shares
Growth Fund, Class C 350,000,000 shares
Limited-Term Bond Fund, Class C 350,000,000 shares
Municipal Bond Fund, Class C 350,000,000 shares
International Growth Fund, Class C 350,000,000 shares
Asset Strategy Fund, Class C 350,000,000 shares
High Income Fund, Class C 350,000,000 shares
Science and Technology Fund, Class C 350,000,000 shares
THIRD: The aggregate number of shares of all classes of stock of the
Corporation remains at Six Billion (6,000,000,000), the par value per share
remains at $0.01 per share, and the aggregate par value of all authorized stock
remains Sixty Million Dollars ($60,000,000). Except as provided in the foregoing
Article SECOND of these Articles of Amendment, the designation and aggregate
number of shares of capital stock of each series and class that the Corporation
is authorized to issue remain unchanged from those set forth in Article FIRST.
All authorized shares that have not been designated or classified remain
available for future designation and classification.
FOURTH: The amendments contained herein were approved by a majority of the
Board of Directors of the Corporation and are limited to changes permitted by
Section 2-605(a)(4) of the Maryland General Corporation Law to be made without
action by the stockholders of the Corporation.
FIFTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles of Amendment on behalf of the Corporation this
15th day of March, 2000.
/s/ Kristen A. Richards
-----------------------------------
Kristen A. Richards, Vice President
2
<PAGE>
Attest: /s/ Daniel C. Schulte
-------------------------
Daniel C. Schulte,
Assistant Secretary
The undersigned, Vice President of Waddell & Reed Funds, Inc. who executed
on behalf of said Corporation the foregoing Articles of Amendment, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles of Amendment to be the act of said
Corporation and further certifies that, to the best of her knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
WADDELL & REED FUNDS, INC.
By: /s/ Kristen A. Richards
-----------------------------------
Kristen A. Richards, Vice President
3
EX-99.B(d)wrimafee
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
_______________, INC.
FEE SCHEDULES
A cash fee computed each day on net asset value for each Fund at the annual
rates listed below:*
Asset Strategy Fund
Net Assets Fee
- ---------- ---
Up to $1 billion 0.70% of net assets
Over $1 billion and up to $2 billion 0.65% of net assets
Over $2 billion and up to $3 billion 0.60% of net assets
Over $3 billion 0.55% of net assets
High Income Fund
Net Assets Fee
- ---------- ---
Up to $500 million 0.625% of net assets
Over $500 million and up to $1 billion 0.60% of net assets
Over $1 billion and up to $1.5 billion 0.55% of net assets
Over $1.5 billion 0.50% of net assets
International Growth Fund
Net Assets Fee
- ---------- ---
Up to $1 billion 0.85% of net assets
Over $1 billion and up to $2 billion 0.83% of net assets
Over $2 billion and up to $3 billion 0.80% of net assets
Over $3 billion 0.76% of net assets
<PAGE>
Large Cap Growth Fund
Net Assets Fee
- ---------- ---
Up to $1 billion 0.70% of net assets
Over $1 billion and up to $2 billion 0.65% of net assets
Over $2 billion and up to $3 billion 0.60% of net assets
Over $3 billion 0.55% of net assets
Limited-Term Bond Fund
Net Assets Fee
- ---------- ---
Up to $500 million 0.50% of net assets
Over $500 million and up to $1 billion 0.45% of net assets
Over $1 billion and up to $1.5 billion 0.40% of net assets
Over $1.5 billion 0.35% of net assets
Mid Cap Growth Fund*
Net Assets Fee
- ---------- ---
Up to $1 billion 0.85% of net assets
Over $1 billion and up to $2 billion 0.83% of net assets
Over $2 billion and up to $3 billion 0.80% of net assets
Over $3 billion 0.76% of net assets
Money Market Fund
A cash fee computed each day on net asset value for the Fund at the annual rate
of 0.40% of net assets.
2
<PAGE>
Municipal Bond Fund
Net Assets Fee
- ---------- ---
Up to $500 million 0.525% of net assets
Over $500 million and up to $1 billion 0.50% of net assets
Over $1 billion and up to $1.5 billion 0.45% of net assets
Over $1.5 billion 0.40% of net assets
Science and Technology Fund
Net Assets Fee
- ---------- ---
Up to $1 billion 0.85% of net assets
Over $1 billion and up to $2 billion 0.83% of net assets
Over $2 billion and up to $3 billion 0.80% of net assets
Over $3 billion 0.76% of net assets
Small Cap Growth Fund
Net Assets Fee
- ---------- ---
Up to $1 billion 0.85% of net assets
Over $1 billion and up to $2 billion 0.83% of net assets
Over $2 billion and up to $3 billion 0.80% of net assets
Over $3 billion 0.76% of net assets
Tax-Managed Equity Fund
Net Assets Fee
- ---------- ---
Up to $1 billion 0.65% of net assets
Over $1 billion and up to $2 billion 0.60% of net assets
Over $2 billion and up to $3 billion 0.55% of net assets
3
<PAGE>
Over $3 billion 0.50% of net assets
Total Return Fund
Net Assets Fee
- ---------- ---
Up to $1 billion 0.70% of net assets
Over $1 billion and up to $2 billion 0.65% of net assets
Over $2 billion and up to $3 billion 0.60% of net assets
Over $3 billion 0.55% of net assets
* If a Fund's net assets are less than $25 million, Waddell & Reed Investment
Management Company has agreed to voluntarily waive the management fee, subject
to its right to change or modify this waiver.
4
<PAGE>
As Amended and Effective June 30, 2000.
5
EX-99.B(g)wrca
CUSTODIAN AGREEMENT
Dated as of May 17, 2000
Between
UMB BANK, n.a.
and
_________________, INC. LARGE CAP GROWTH FUND
<PAGE>
Table of Contents
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposits
2.13 Foreign Exchange Transactions
2.14 Securities Loans
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public
Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
<PAGE>
IV. Subcustodians
4.01 Domestic Subcustodians
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians
4.03 Special Subcustodians
4.04 Termination of a Subcustodian
4.05 Certification Regarding Foreign Sub-Subcustodians
V. Standard of Care, Indemnification
5.01 Standard of Care
5.02 Liability of the Custodian for Actions
of Other Persons
5.03 Indemnification by Fund
5.04 Investment Limitations
5.05 Fund's Right to Proceed
5.06 Indemnification by Custodian
5.07 Custodian's Right to Proceed
VI. Compensation
VII. Termination
VIII. Defined Terms
IX. Miscellaneous
9.01 Execution of Documents, Etc.
9.02 Representations and Warranties
9.03 Entire Agreement
9.04 Waivers and Amendments
9.05 Interpretation
9.06 Captions
9.07 Governing Law
9.08 Notices
9.09 Assignment
9.10 Counterparts
9.11 Confidentiality; Survival of Obligations
Appendix "A"
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 17th day of May, 2000 between __________, Inc.
Large Cap Growth Fund (the "Fund") and UMB Bank, n.a. (the "Custodian").
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on behalf
of the Fund in accordance with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations thereunder,
under the terms and conditions set forth in this Agreement, and the Custodian
has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause to
be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and duties
set forth in this Article II. Pursuant to and in accordance with Article IV
hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of and keep
safely the Assets in accordance with the terms and conditions hereof on behalf
of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund either:
(i) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form; or
<PAGE>
(ii) in book-entry form by a Securities System (as hereinafter defined) in
accordance with the provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the Fund
in the name of the Fund or the Fund's nominee, or in the nominee name of the
Custodian unless specifically directed by Proper Instructions (as hereinafter
defined) to hold such registered securities in so-called street name; provided
that, in any event, all Assets shall be held in an account of the Custodian
containing only assets of the Fund. Notwithstanding the foregoing, unless it
receives Proper Instructions to the contrary, the Custodian shall register all
securities in the name of the Custodian's nominee as authorized by the Fund. All
securities held directly or indirectly by the Custodian hereunder shall at all
times be identifiable on the records of the Custodian. Except as otherwise
provided herein, the Custodian shall keep the Assets physically segregated from
those of other persons or entities. The Custodian shall execute and deliver all
certificates and documents in connection with registration of securities as may
be required by the applicable provisions of the Internal Revenue Code, the laws
of any State or territory of the United States and the laws of any jurisdiction
in which the securities are held.
Section 2.03. Purchase of Assets.
(a) Security Purchases. Upon receipt of Proper Instructions, the Custodian
shall pay for and receive securities purchased for the account of the Fund,
provided that payment shall be made by Custodian only upon receipt of the
securities: (a) by the Custodian; (b) by a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) by a Securities
System. Notwithstanding the foregoing, upon receipt of Proper Instructions: (i)
in the case of a repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the Securities System that
the securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as hereinafter defined) maintained with such
Securities System by the Custodian, provided that the Custodian's instructions
to the Securities System require that the Securities System may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account; (ii) in the case of time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures contracts or
options, pursuant to Sections 2.09, 2.10, 2.12 and 2.13 hereof, the Custodian
may make payment therefor before receipt of an advice or transaction; and (iii)
in the case of the purchase of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make payment therefor
and receive delivery of such securities in accordance with local custom and
practice generally accepted by Institutional Clients (as hereinafter defined) in
the country in which the settlement occurs, but in all events subject to the
standard of care set forth in Article V hereof. For purposes of this Agreement,
an "Institutional Client" shall mean a major commercial bank, corporation,
insurance company, or substantially similar institution, which, as a substantial
part of its
<PAGE>
business operations, purchases or sells securities and makes use of custodial
services.
(b) Other Asset Purchases. Upon receipt of Proper Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of the Fund as provided in Proper Instructions.
Section 2.04. Exchanges of Securities. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the account
of the Fund for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities for transfer into the name of the Fund, the Fund's nominee
or the nominee name of the Custodian as permitted by Section 2.02(b); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued will be delivered to the Custodian.
Section 2.05. Sales of Securities. Upon receipt of Proper Instructions,
the Custodian shall make delivery of securities which have been sold for the
account of the Fund, but only against payment therefor in the form of: (a) cash,
certified check, bank cashier's check, bank credit, or bank wire transfer; (b)
credit to the account of the Custodian with a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) credit to the
Account of the Custodian with a Securities System, in accordance with the
provisions of Section 2.22 hereof. Notwithstanding the foregoing: (i) in the
case of the sale of securities, the settlement of which occurs outside of the
United States of America, such securities shall be delivered and paid for in
accordance with local custom and practice generally accepted by Institutional
Clients in the country in which the settlement occurs, but in all events subject
to the standard of care set forth in Article V hereof; and (ii) in the case of
securities held in physical form, such securities shall be delivered and paid
for in accordance with "street delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a receipt for such securities,
provided that the Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent, and provided further that, subject to the standard of care
set forth in Article V hereof, the Custodian shall not be responsible for the
selection of or the failure or inability to perform of such broker or its
clearing agent.
Section 2.06. Depositary Receipts. Upon receipt of Proper Instructions,
the Custodian shall surrender securities to the depositary used for such
securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively , as "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the
<PAGE>
depositary has acknowledged receipt of instructions to issue ADRs with respect
to such securities in the name of the Custodian or a nominee of the Custodian,
for delivery to the Custodian at such place as the Custodian may from time to
time designate. Upon receipt of Proper Instructions, the Custodian shall
surrender ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the Custodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities underlying such
ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision of
this Agreement to the contrary, the Custodian shall promptly notify the Fund in
writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian shall,
following receipt or knowledge, convey such information to the Fund in a timely
manner based upon the circumstances of each particular case. Whenever any such
rights or privileges exist, the Fund will, in a timely manner based upon the
circumstances of each particular case, provide the Custodian with Proper
Instructions. Absent the Custodian's timely receipt of Proper Instructions, the
Custodian shall not be liable for not taking any action or not exercising such
rights prior to their expiration unless such failure is due to Custodian's
failure to give timely notice to the Fund in accordance with this Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit
<PAGE>
and maintain in a segregated account, securities (either physically or by
book-entry in a Securities System), cash or other Assets; and (c) pay, release
and/or transfer such securities, cash or other Assets in accordance with any
such agreement and with notices or other communications evidencing the
expiration, termination or exercise of such options furnished by the OCC, the
securities or options exchange on which such options are traded or such other
organization as may be responsible for handling such option transactions. The
Fund and the broker-dealer shall be responsible for determining the sufficiency
of assets held in any segregated account established in compliance with
applicable margin maintenance requirements and the performance of other terms of
any option contract; provided, however, that the Custodian shall be liable for
performance of its duties under this Agreement and in accordance with Proper
Instructions, and shall be liable for performance of its duties under any other
agreement between the Custodian, any registered broker-dealer and, if necessary,
the Fund. Notwithstanding anything herein to the contrary, if the Fund issues
Proper Instructions to sell a naked option (including stock index options), then
as part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions, or
pursuant to the provisions of any futures margin procedural agreement among the
Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
<PAGE>
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions. Such
Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and (b)
the Custodian shall have no duty with respect to the selection of the Banking
Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt of
Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in
<PAGE>
Section 2.25. The Custodian shall have no duty with respect to the selection of
the currency brokers or Banking Institutions with which the Fund deals or, so
long as the Custodian acts in accordance with Proper Instructions, for the
failure of such brokers or Banking Institutions to comply with the terms of any
contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained herein,
upon receipt of Proper Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form of
U.S. Dollars or foreign currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions, the
Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts due
and payable to the Fund with respect to portfolio securities and other Assets;
(b) promptly credit to the account of the Fund all income and other payments
relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable
<PAGE>
interest rates, the Custodian shall use its best efforts to collect amounts due
and payable to the Fund. The Custodian shall promptly notify the Fund in writing
by facsimile transmission or in such other manner as the Fund and Custodian may
agree in writing if any amount payable with respect to portfolio securities or
other Assets is not received by the Custodian when due. The Custodian shall not
be responsible for the collection of amounts due and payable with respect to
portfolio securities or other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the Fund
to pay dividends or other distributions to shareholders of the Fund and to make
payment to shareholders who have requested repurchase or redemption of their
shares of the Fund (collectively, the "Shares"), the Custodian shall promptly
release cash or securities (a) in the case of cash, upon receipt of Proper
Instructions, to one or more Distribution Accounts (as hereinafter defined)
designated by the Fund in such Proper Instructions; or (b) in the case of
securities, upon the receipt of Special Instructions (as hereinafter defined) to
such entity or account designated by the Fund in such Special Instructions. For
purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive funds
representing cash payments received for Shares issued or sold from time to time
by the Fund, and shall promptly credit such funds to the account of the Fund.
The Custodian shall promptly notify the Fund of Custodian's receipt of cash in
payment for Shares issued by the Fund by facsimile transmission or in such other
manner as the Fund and Custodian may agree in writing. Upon receipt of Proper
Instructions, the Custodian shall: (a) deliver all federal funds received by the
Custodian in payment for Shares in payment for such investments as may be set
forth in such Proper Instructions and at a time agreed upon between the
Custodian and the Fund; and (b) make federal funds available to the Fund as of
specified times agreed upon from time to time by the Fund and the Custodian, in
the amount of checks received in payment for Shares which are deposited to the
accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or cause
to be delivered to the Fund, in the most expeditious manner practicable, all
forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985, for the
specific purpose of direct communications
<PAGE>
between such issuer and the Fund unless the Fund directs the Custodian otherwise
in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend to
all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the Custodian
shall take such action as the Fund deems necessary or appropriate to cause each
deposit account established by the Custodian pursuant to this Section 2.21 to be
insured to the maximum extent possible by all applicable deposit insurers,
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The Custodian
may deposit and/or maintain domestic securities owned by the Fund in: (a) The
Depository Trust Company; (b) the Participants Trust Company; (c) any book-entry
system as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115
(ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2,
or (iii) the book-entry regulations of federal agencies substantially in the
form of 31 CFR 306.115; or (d) any other domestic clearing agency registered
with the Securities and Exchange Commission ("SEC") under Section 17A of the
Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
<PAGE>
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of
the Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate
the use of any Securities System (except the federal book-entry system) on
behalf of the Fund as promptly as practicable and shall take all actions
reasonably practicable to safeguard the securities of the Fund maintained with
such Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions, the
Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
<PAGE>
Section 2.24. Establishment of Segregated Account. Upon receipt of Proper
Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall provide
any assistance reasonably requested by the Fund in the preparation of reports to
Fund shareholders and others, audits of accounts, and other ministerial matters
of like nature. The Custodian shall maintain complete and accurate records with
respect to securities and other Assets held for the accounts of the Fund as
required by the rules and regulations of the SEC applicable to investment
companies registered under the 1940 Act, including, but not limited to: (a)
journals or other records of original entry containing a detailed and itemized
daily record of all receipts and deliveries of securities (including certificate
and transaction identification numbers, if any), and all receipts and
disbursements of cash; (b) ledgers or other records reflecting (i) securities in
transfer, (ii) securities in physical possession, (iii) securities borrowed,
loaned or collateralizing obligations of the Fund, (iv) monies borrowed and
monies loaned (together with a record of the collateral therefor and
substitutions of such collateral), and (v) dividends and interest received; and
(c) cancelled checks and bank records relating thereto. The Custodian shall keep
such other books and records of the Fund as the Fund shall reasonably request.
All such books and records maintained by the Custodian shall be maintained in a
form acceptable to the Fund and in compliance with the rules and regulations of
the SEC, including, but not limited to, books and records required to be
maintained by Section 31(a) of the 1940 Act and the rules and regulations from
time to time adopted thereunder. All books and records maintained by the
Custodian pursuant to this Agreement shall at all times be the property of the
Fund and shall be available during normal business hours for inspection and use
by the Fund and its agents, including without limitation, its independent
certified public accountants. Notwithstanding the preceding sentence, the Funds
shall not take any actions or cause the Custodian to take any actions which
would knowingly cause, either directly or indirectly, the Custodian to violate
any applicable laws, regulations or orders. Notwithstanding the provisions of
this Section 2.25, in the event the Fund purchases cash, securities and other
Assets requiring the use of a Domestic Subcustodian or Foreign Sub-Subcustodian,
the Custodian shall be entitled to rely upon and use the books, records and
accountings of the Domestic Subcustodian as its means of accounting to the Fund
for all cash,
<PAGE>
securities and other Assets deposited with such entities; provided however, that
such books, records and accountings on which the Bank may rely must be
maintained in the United States by such Domestic Subcustodian and, provided
further, that any agreement between the Custodian and such Domestic Subcustodian
must state that the Domestic Subcustodian agrees to make any records available
upon request and preserve, for the periods described in Rule 31a-2 of the 1940
Act, the records required to be maintained by Rule 31a-1 of the 1940 Act. In no
event shall the Custodian be entitled to rely upon and use books, records and
accountings which are maintained outside of the United States.
Section 2.26. Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as the Fund may request to obtain
from year to year favorable opinions from the Fund's independent certified
public accountants with respect to the Custodian's activities hereunder in
connection with the preparation of the Fund's Form N-1A and the Fund's Form
N-SAR or other periodic reports to the SEC and with respect to any other
requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At the
request of the Fund, the Custodian shall deliver to the Fund a written report
prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in writing
("Overdraft Notice") of any Overdraft by facsimile transmission or in such other
manner as the Fund and the Custodian may agree in writing. The Custodian shall
have a right of set-off against all Assets (except for Assets held in a
segregated margin account or otherwise pledged in connection with options or
futures contracts held for the benefit of the Fund and for Assets allocated to
any other Overdraft or loan made hereunder); provided, however, the Custodian
shall promptly notify the Fund in writing of any intent to exercise a right of
set-off against Assets hereunder and shall
<PAGE>
not exercise any such right of set-off against Assets hereunder unless and until
the Fund has failed to pay (within ten (10) days after the Fund's receipt of
such notice of intent to exercise a right of set-off), any Overdraft, together
with all accrued interest thereon. Notwithstanding the provisions of any
applicable law, including, without limitation, the Uniform Commercial Code, the
only rights or remedies which the Custodian is entitled to with respect to
Overdrafts is the right of set-off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special Instructions"
shall mean Proper Instructions countersigned or confirmed in writing by the
Treasurer or any Assistant Treasurer of the Fund or any other person designated
by the Treasurer of the Fund in writing, which countersignature or confirmation
shall be (i) included on the same instrument containing the Proper Instructions
or on a separate instrument relating thereto, and (ii) delivered by hand, by
facsimile transmission or in such other manner as the Fund and the Custodian
agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
<PAGE>
Section 3.02. Authorized Persons. Concurrently with the execution of this
Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
<PAGE>
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed and which has been
designated as a Foreign Custody Manager (as such term is defined in Rule 17f-5
of the 1940 Act) by the Custodian and approved by the Fund's board ("Approved
Foreign Custody Manager") may appoint a Foreign Sub-Subcustodian or Interim
Sub-Subcustodian (as each are hereinafter defined) in accordance with this
Article IV; provided that the Fund's board also has approved the agreement
between the Custodian and the Foreign Custody Manager specifying the Foreign
Custody Manager's duties ("Delegation Agreement"). For purposes of this
Agreement, all Domestic Subcustodians, Special Subcustodians, Foreign
Sub-Subcustodians and Interim Sub-Subcustodians shall be referred to
collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time and
from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940
Act or any trust company or other entity any of which meet requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and provided, further, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved Domestic
Subcustodian and the countries where, Foreign Sub-Subcustodians and the
securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the parties
hereto in writing, from time to time, in accordance with the provisions of
Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. A Domestic Subcustodian which is an
Approved Foreign Custody Manager, or the Domestic Subcustodian, may appoint any
(1)(a) "Qualified Foreign Bank" (as such term is defined in Rule 17f-5) meeting
the requirements of an "Eligible Foreign Custodian" (as such term is defined in
Rule 17f-5) or by SEC order exempt therefrom; (b) majority-owned direct or
indirect subsidiary of a "U.S. bank" (as such term is defined in Rule 17f-5) or
bank holding company meeting the requirements of an Eligible Foreign Custodian
or exempt by SEC order therefrom; or (c) any bank (as such term is defined in
Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under
Section 17(f) of the 1940 Act and the rules and regulations thereunder (each a
"Foreign Sub-Subcustodian") or (2) any
<PAGE>
"Securities Depository" (as such term is defined in Rule 17f-5) or clearing
agency meeting the requirements of an Eligible Foreign Custodian or exempt by
SEC order therefrom ("Securities Depositories and Clearing Agencies"), provided
that the Foreign Custody Manager's appointments of such Eligible Foreign
Custodians shall at all times be governed by the Delegation Agreement, except
that the Fund's investment adviser, Waddell & Reed Investment Management
Company, shall be responsible for the appointment of a compulsory depository, as
applicable.
(b) Interim Sub-Subcustodians. Notwithstanding the foregoing, in the event
that the Fund shall invest in a security or other Asset to be held in a country
in which the Foreign Custody Manager has not appointed an Eligible Foreign
Custodian, the Custodian shall, or shall cause the Domestic Subcustodian to,
promptly notify the Fund in writing by facsimile transmission or in such other
manner as the Fund and Custodian shall agree in writing of the unavailability of
an approved Foreign Sub-Subcustodian in such country; and upon the receipt of
Special Instructions, the Custodian shall, or shall cause the Domestic
Subcustodian to, appoint or approve any Person (as hereinafter defined)
designated by the Fund in such Special Instructions, to hold such security or
other Asset. (Any Person appointed or approved as a sub-subcustodian pursuant to
this Section 4.02(b) is hereinafter referred to as an "Interim
Sub-Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special Instructions,
the Custodian shall, on behalf of the Fund, appoint one or more banks, trust
companies or other entities designated in such Special Instructions to act as a
subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i) cause
each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and an Interim
Sub-Subcustodian. In the event that the Custodian is unable to cause such
subcustodian or sub-subcustodian to fully perform its obligations thereunder,
<PAGE>
the Custodian shall promptly notify the Fund in writing and forthwith, upon the
receipt of Special Instructions, terminate or cause the termination of such
Subcustodian or Sub-Subcustodian with respect to the Fund and, if necessary or
desirable, appoint or cause the appointment of a replacement Subcustodian or
Sub-Subcustodian in accordance with the provisions of this Article IV. In
addition to the foregoing, the Custodian (A) may, at any time in its discretion,
upon written notification to the Fund, terminate any Domestic Subcustodian which
is not an approved Foreign Custody Manager, and (B) shall, upon receipt of
Special Instructions, terminate any Special Subcustodian or Domestic
Subcustodian which is an Approved Foreign Custody Manager with respect to the
Fund, in accordance with the termination provisions under the applicable
subcustodian agreement, and (C) shall, upon receipt of Special Instructions,
cause the Domestic Subcustodian to terminate any Foreign Sub-Subcustodian or
Interim Sub-Subcustodian as to its use of such entities with respect to the
Fund, in accordance with the termination provisions under the applicable
sub-subcustodian agreement.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver, or cause any Domestic
Subcustodian that has been approved as a Foreign Custody Manager to deliver, to
the Fund a certificate stating: (i) the identity of each Foreign
Sub-Subcustodian then acting on behalf of the Custodian; (ii) the countries in
which and the Securities Depositories and Clearing Agents through which each
such Foreign Sub-Subcustodian is then holding cash, securities and other Assets
of the Fund; and (iii) such other information as may be requested by the Fund to
ensure compliance with rules and regulations under the 1940 Act.
Upon request of the Fund, the Custodian also shall deliver, or cause any
Domestic Subcustodian that has been approved as a Foreign Custody Manager to
deliver, to the Fund: (i) legal opinions relating to whether local law restricts
with respect to U.S.-registered mutual funds (a) access of a fund's independent
public accountants to books and records of a Foreign Sub-Subcustodian, foreign
Securities Depository or foreign Clearing Agent, (b) a fund's ability to recover
in the event of bankruptcy or insolvency of a Foreign Sub-Subcustodian, foreign
Securities Depository or foreign Clearing Agent, (c) a fund's ability to recover
in the event of a loss by a Foreign Sub-Subcustodian, foreign Securities
Depository or foreign Clearing Agent, and (d) the ability of a foreign investor
(such as a fund) to convert cash and cash equivalents to U.S. dollars; (ii) a
summary of information regarding foreign Securities Depositories and foreign
Clearing Agents; and (iii) country profile information containing market
practice for (a) delivery versus payment, (b) settlement method, (c) currency
restrictions, (d) buy-in practices, (e) foreign ownership limits and (f) unique
market arrangements.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable care
and diligence in carrying out all of its duties and obligations under
<PAGE>
this Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian; or (iii)
any "Sovereign Risk", which for the purpose of this Agreement shall mean
nationalization, expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental authority, de
facto or de jure, or enactment, promulgation, imposition or enforcement by any
such governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Fund's property; or acts of war,
terrorism, insurrection or revolution, civil commotion, nuclear fission or
fusion or radioactivity.
(c) Mitigation by Custodian. Upon the occurrence of any event which causes
or may cause any loss, damage or expense to the Fund, (i) the Custodian shall,
(ii) the Custodian shall cause any applicable Domestic Subcustodian or Foreign
Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts to cause
any applicable Interim Sub-Subcustodian or Special Subcustodian to, use all
commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all
<PAGE>
expenses incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be liable
to the Fund for any loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the Custodian
for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
<PAGE>
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (defined in Section 5.01(b)) or where any Person
maintaining securities, currencies, deposits or other Assets of the Fund in
connection with any such transactions has exercised reasonable care maintaining
such property or in connection with any such transaction involving such Assets.
A "Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not be
liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
<PAGE>
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the limitations
set forth in this Agreement and in addition to the reimbursement
<PAGE>
obligations provided in Section 5.02(a), the Custodian agrees to indemnify and
hold harmless the Fund and its nominees from all loss, damage and expense
(including reasonable attorneys' fees) suffered or incurred by the Fund or its
nominee caused by or arising from the failure of the Custodian, its nominee,
employees or agents to comply with the terms or conditions of this Agreement or
arising out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall not
be liable for indemnification under this Section 5.06 unless the Fund shall have
promptly notified the Custodian in writing of the commencement of any litigation
or proceeding brought against the Fund in respect of which indemnity may be
sought under this Section 5.06. With respect to claims in such litigation or
proceedings for which indemnity by the Custodian may be sought and subject to
applicable law and the ruling of any court of competent jurisdiction, the
Custodian shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Custodian may be subject to an indemnification
obligation; provided, however, the Fund shall be entitled to participate in (but
not control) at its own cost and expense, the defense of any such litigation or
proceeding if the Custodian has not acknowledged in writing its obligation to
indemnify the Fund with respect to such litigation or proceeding. If the
Custodian is not permitted to participate or control such litigation or
proceeding under applicable law or by a ruling of a court of competent
jurisdiction, or if the Custodian chooses not to so participate, the Fund shall
not consent to the entry of any judgement or enter into any settlement in any
such litigation or proceeding without providing the Custodian with adequate
notice of any such settlement or judgement, and without the Custodian's prior
written consent which consent shall not be unreasonably withheld or delayed. The
Fund shall submit written evidence to the Custodian with respect to any cost or
expense for which it is seeking indemnification in such form and detail as the
Custodian may reasonably request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything to
the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with
<PAGE>
respect to such claim, the Custodian shall retain the right to settle,
compromise and/or terminate any action or proceeding in respect of the loss,
damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an obligation
of the Custodian to enforce the Fund's rights. The Custodian agrees to reimburse
the Fund for out-of-pocket expenses incurred by it in connection with the
fulfillment of its obligations under this Section 5.07; provided, however, that
such reimbursement shall not apply to expenses occasioned by or resulting from
the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "A" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing delivered
or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor
<PAGE>
custodian, the Custodian shall be entitled to compensation for its services in
accordance with the fee schedule most recently in effect, for such period as the
Custodian retains possession of such securities and other Assets, and the
provisions of this Agreement relating to the duties and obligations of the
Custodian and the Fund shall remain in full force and effect for such period. In
the event of the appointment of a successor custodian, the cash, securities and
other Assets owned by the Fund and held by the Custodian, any Subcustodian or
nominee shall be delivered, at the terminating party's expense, to the successor
custodian; and the Custodian agrees to cooperate with the Fund in the execution
of documents and performance of other actions necessary or desirable in order to
substitute the successor custodian for the Custodian under this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Approved Foreign Custody Manager Article IV
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Delegation Agreement Article IV
Distribution Account 2.16
Domestic Subcustodian 4.01
Eligible Foreign Custodian 4.02(a)
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instructions 3.01(a)
SEC 2.22
Securities Depositories and Clearing Agencies 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.01(b)
Special Instructions 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
<PAGE>
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and deliver
to the Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement, provided that the exercise
by the Custodian or any Subcustodian of any such rights shall in all events be
in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby represents
and warrants that each of the following shall be true, correct and complete as
of the date of execution of this Agreement and, unless notice to the contrary is
provided by the Fund to the Custodian, at all times during the term of this
Agreement: (i) the Fund is duly organized under the laws of its jurisdiction of
organization and is registered as an open-end management investment company
under the 1940 Act or is a series of portfolio of such entity; and (ii) the
execution, delivery and performance by the Fund of this Agreement are (w) within
its power, (x) have been duly authorized by all necessary action, and (y) will
not (A) contribute to or result in a breach of or default under or conflict with
any existing law, order, regulation or ruling of any governmental or regulatory
agency or authority, or (B) violate any provision of the Fund's corporate
charter or other organizational document, or bylaws, or any amendment thereof or
any provision of its most recent Prospectus or Statement of Additional
Information.
(b) Representations and Warranties of the Custodian. The Custodian hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Custodian to the Fund, at all times during the term
of this Agreement: (i) the Custodian is duly organized under the laws of its
jurisdiction of organization and qualifies to serve as a custodian to open-end
management investment companies under the provisions of the 1940 Act; and (ii)
the execution, delivery and performance by the Custodian of this Agreement are
(w) within its power (x) have been duly authorized by all necessary action, and
(y) will not (A) contribute to or result in a breach of or default under or
conflict with any existing law, order, regulation or ruling of any governmental
or regulatory agency or authority, or (B) violate any provision of the
Custodian's corporate charter, or other organizational document, or bylaws, or
any amendment thereof. The
<PAGE>
Custodian acknowledges receipt of a copy of the Fund's most recent Prospectus
and Statement of Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement may
be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought.
Section 9.05. Interpretation. In connection with the operation of this
Agreement, the Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
Section 9.06. Captions. Headings contained in this Agreement, which are
included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
Section 9.07. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
<PAGE>
Section 9.08. Notices. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
_____________, Inc. Large Cap Growth Fund
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
UMB Bank, n.a.
928 Grand Boulevard, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
Section 9.10. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties hereto
agree that each shall treat confidentially the terms and conditions of this
Agreement and all information provided by each party to the other regarding its
business and operations. All confidential information provided by a party hereto
shall be used by any other party hereto solely for the purpose of rendering
services pursuant to this Agreement and, except as may be required in carrying
out this Agreement, shall not be disclosed to any third party without the prior
consent of such providing party. The foregoing shall not be applicable to any
information that is publicly available when provided or thereafter becomes
publicly available other than through a breach
<PAGE>
of this Agreement, or that is required to be disclosed by any bank examiner of
the Custodian or any Subcustodians, any auditor or examiner of the parties
hereto, by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07, Section
2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article VI hereof
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
___________________, INC. UMB BANK, n.a.
LARGE CAP GROWTH FUND
By: __________________________ By: ____________________________
Name: Kristen A. Richards Name: Ralph Santoro
Title: Vice President Title: Senior Vice President
<PAGE>
APPENDIX "A"
TO
CUSTODIAN AGREEMENT
BETWEEN
____________________, INC. LARGE CAP GROWTH FUND
AND
UMB BANK, N.A.
Dated as of May 17, 2000
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets held
in the United States including but not limited to American Depositary Receipts.
Foreign assets shall include all assets held outside the United States including
but not limited to securities which clear through Euroclear or CEDEL. The
Custodian will provide as soon as practicable after receiving the information
provided by the Fund with respect to the net asset level numbers, a bill for the
Fund, including such reasonable detail in support of each bill as may be
reasonably requested by the Fund. As used in this Appendix "A", "United Funds"
shall mean all funds in the United Group of Funds, Target/United Funds, Inc. and
_________________, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00005 for the first $5,000,000,000 of the net assets of all the United
Funds, plus .00004 for any net assets exceeding $5,000,000,000 of the
assets of all the United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(a) For each portfolio transaction* processed through a
Depository (DTC, PTC or Fed) $ 7.00
(b) For each portfolio transaction* processed through
the New York office (physical settlement) $20.00
(c) For each futures/option contract written $25.00
(d) For each principal/interest paydown $ 6.00
(e) For each interfund note transaction $ 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and
cash management balances of each Fund at the Custodian to earn the
Custodian's daily repurchase agreement rate less reserve requirements and
FDIC premiums. Negative earnings credits will be charged on all
uncollected custody and cash management balances of each Fund at the
Custodian's prime rate less 150 basis points on each day a negative
balance occurs. Positive and/or negative earnings credits will be
monitored daily for each Fund and the net positive or negative amount for
each Fund will be included in the monthly statements. Excess positive
credits for each Fund will be carried forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
<PAGE>
Includes all charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
<PAGE>
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
Market: Annual Asset Fees Transaction Fees
------ ----------------- ----------------
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
China .0045 $75
Czech Republic .0055 $135
Denmark .0011 $60
Finland .0011 $85
France .0011 $85
Germany .0008 $60
Hong Kong .0009 $85
Hungary .0065 $210
India .0055 $135
Indonesia .0009 $85
Ireland .0011 $60
Israel .0035 $160
Italy .0011 $70
Japan .0008 $40
Korea .0035 $60
Malaysia .0009 $85
Mexico .0016 $60
Netherlands .0011 $35
New Zealand .0009 $85
Norway .0011 $85
Peru .0070 $160
Philippines .0035 $95
Poland .0060 $110
Portugal .0035 $145
Singapore .0009 $85
Spain .0009 $85
Sweden .0011 $70
Switzerland .0009 $85
Taiwan .0035 $85
Thailand .0009 $85
Turkey .0045 $110
U.K. .0011 $60
Segregated Account Fee: $175 monthly charge per fund holding foreign
assets.
Note: Fee Schedule eliminates sub-custodian asset and transaction-based
out-of-pocket expenses. Other sub-custodian out-of-pocket expenses (i.e.
Scrip fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
<PAGE>
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits:
(1) An annual fee to be computed as of month end and payable each month
of the Fund's fiscal year (after receipt of the bill issued to the
Fund based upon its portion of short-term dollar denominated
assets), at the annual rate of:
.0004 on all short-term dollar denominated assets of the United
Funds.
(2) Portfolio Transaction Fees:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members $153.00
First Chicago Clearing Centre-Income Collection $ 64.00
D. Euroclear Eligible Issues:
(1) An annual fee to be computed as of month end and payable each month
of the Fund's fiscal year (after receipt of the bill issued to the
Fund based upon its portion of Euroclear issues), at the annual rate
of:
2.5 basis points on all United Funds Euroclear assets held in
account at UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
<PAGE>
SUBCUSTODIAN LIST
PURSUANT TO CUSTODIAN AGREEMENT
BETWEEN
________________________, INC. LARGE CAP GROWTH FUND
AND
UMB BANK, n.a.
Dated as of May 17, 2000
This Subcustodian List relates to the Custodian Agreements between UMB
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as subsequently amended and restated:
Fund Date
---- ----
United Asset Strategy Fund, Inc. February 22, 1995
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
United Small Cap Fund, Inc. August 18, 2000
United Tax-Managed Equity Fund, Inc. February 25, 2000
Target/United Funds, Inc.*
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Asset Strategy Portfolio May 1, 1995
Science and Technology Portfolio April 4, 1997
_________________, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
International Growth Fund April 24, 1992
Growth Fund April 24, 1992
Asset Strategy Fund April 20, 1995
High Income Fund July 31, 1997
Science and Technology Fund July 31, 1997
Large Cap Growth Fund May 17, 2000
Mid Cap Growth Fund May 17, 2000
Small Cap Growth Fund May 17, 2000
Tax-Managed Equity Fund May 17, 2000
*Formerly, TMK/United Funds, Inc.
The following is a list of Domestic Subcustodians, Foreign Subcustodian and
Special Subcustodians under the Custodian Agreement as amended:
<PAGE>
A. Domestic Custodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Custodians
<TABLE>
<CAPTION>
Country Sub-Custodian Depository
<S> <C> <C>
Argentina Citibank, n.a. CDV; CRYL
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, BOVESPA, CLC
Brazil
Canada Canadian Imperial Bank of Commerce CDS; The Bank of Canada
Chile Citibank, n.a. None
China Standard Chartered Bank SSCCRC; SSCC
Czech Republic Ceskoslovenska Obchodni CNB; SCP
Banka A.S.
Denmark Den Danske Bank VP
Finland Merita Securities Association; Finnish Central
Securities Depository Ltd.
France Banque Indosuez SICOVAM; Banque de France
Germany Deutsche Bank KASSENVEREIN
Hungary Citibank, N.A. KELER Ltd.
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities Clearing Company
India Citibank, N.A., Mumbai National Securities Depository Limited
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Israel Bank Hapoalim B.M. TASE Clearinghouse Ltd.
Italy Banca Commerciale Italiana MONTE TITOLI, Banca D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia Hong Kong Bank Malaysia Berhad MCD; Bank Negara Malaysia
Mexico Citibank Mexico, s.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. Phillipines Central Depository, Inc.
Poland Bank Polska Kasa Opieki S.A. NPB
Portugal Banco Espirito Santo E Comercial Interbolsa
De Lisboa
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Taiwan Standard Chartered Bank, Taipei TSCD
Thailand HongKong & Shanghai Banking Corp. Share Depository Center (SDC)
Turkey Citibank, n.a. TvS, Central Bank of Turkey
United Kingdom Midland Securities PLC CMO; CGO; CrestCo
</TABLE>
C. Special Subcustodians:
Republic National Bank of New York
The Bank of New York, n.a.
Waddell & Reed, Inc. ---------------------
P.O. Box 29217 Division Office Stamp
Shawnee Mission, KS 66201-9217
---------------------
Mutual Funds
Net Asset Value (NAV)
Application
- --------------------------------------------------------------------------------
I (We) make application for an account to be established as follows:
|_| A NAV account to be established.
|_| A new Fund to be added to an existing NAV account
|_| An existing non-NAV account to be converted to a NAV account.
- --------------------------------------------------------------------------------
Check applicable block:
|_| Home Office Personnel
|_| Field Personnel
|_| 401(k) Plan with 100 or more eligible employees
- --------------------------------------------------------------------------------
REGISTRATION TYPE (one only) o SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS o
- --------------------------------------------------------------------------------
NON RETIREMENT PLAN
|_| Single Name |_| Joint Tenants W/ROS
TOD |_| Yes |_| No
|_| Uniform Gifts (Transfers) To Minors (UGMA/UTMA)
|_| Dated Trust Date of Trust_____________________________
|_| Declaration of Trust Revocable (attach CUF 0022) NOT AVAILABLE IN ILLINOIS
|_| Other: _____________________________________________________________________
Use this section for Retirement Plans with Custodians other than
Fiduciary Trust Co.
- --------------------------------------------------------------------------------
RETIREMENT PLAN
|_| Individual IRA
|_| Rollover (Qual. plan lump sum distr.)
|_| Simplified Employee Pension (SEP)
(For a new Plan, attach MRP1166-AA)
|_| TSA |_| ORP
|_| 457 Plan
(For a new Plan attach MRP1401)
(If billing is required, attach form CSF 1417)
|_| SIMPLE IRA (For a new Plan, attach MRP1659-AA)
|_| Owner-Only Profit Sharing Plan
(For a new Plan attach MRP0651-AP)
|_| Owner-Only Money Purchase Plan
(For a new Plan attach MRP0651-AM)
|_| Roth IRA
|_| Conversion Roth IRA
|_| Education IRA
________________________________________________________________________________
Employer's Name (Do Not Abbreviate)
________________________________________________________________________________
Street City State Zip
- --------------------------------------------------------------------------------
REGISTRATION |_| NEW ACCOUNT or
|_| NEW FUND FOR EXISTING ACCOUNT: |_|_|_|_|_|_|_|-|_|
(Must have same ownership)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Individual Name (exactly as desired)/Trustee/Custodian
Date of Birth
|_|_|_|_|_|_|
Month Day Year
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Joint Name (if any, exactly as desired)/Co-Trustee/Minor (for UGMA/UTMA)
|_|_|_|_|_|_| ________________
Month Day Year Relationship
________________________________________________________________________________
Mailing Address
__________________________ _________ _____ ______/_______-_____________
City State Zip Telephone
Social Security #: |_|_|_|-|_|_|-|_|_|_|_|
or Taxpayer Identification #: |_|_|-|_|_|_|_|_|_|_|
- --------------------------------------------------------------------------------
BENEFICIARY: For Retirement Plan and TOD (Transfer On Death) Accounts Only
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
________________________ ___________________________ _______________ ______________ _________%
________________________ ___________________________ _______________ ______________ _________%
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed
101 - W&R Total Return
102 - W&R Growth
103 - W&R Limited Term Bond
104 - W&R Municipal Bond
(not available for Retirement Plans)
105 - W&R International Growth
106 - W&R Asset Strategy
108 - W&R Science & Technology
109 - W&R High Income
621 - Income
622 - Science & Technology
623 - Accumulative
624 - Bond
625 - International Growth
626 - Gold and Government
627 - Continental Income
628 - High Income
629 - Vanguard
630 - New Concepts
634 - High Income II
680 - Retirement Shares
684 - Asset Strategy
750 - Cash Management
753 - Government Securities
760 - Municipal Bond
762 - Municipal High Income
(760 and 762 not available for Retirement Plans)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
OPEN ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
-------------If Retirement Plan------------
IRA Monthly AIS* Div./C.G. Distr*** Existing Accounts
Fund Amount Yr. Deductible or TOP Form or (Assumes RR) To Be Converted
(enter code) Enclosed of Contr. Non-Deductible Another Carrier Payroll Ded.** RR CC CR To NAV
---------- --------- -------------- --------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
Total $_________ $_____________
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Attach AIS Authorization Form #(CUF714)
**Attach Payroll Deduction Authorization (PFM743)
***RR = Reinvest Div/Cap Gain
CC = Cash Div/Cap Gain
CR = Cash Div/Reinvest Cap Gain
NAV application must be approved and signed by Division Manager or Regional Vice
President for field personnel and 401(k) plans or Supervisor for Home Office
personnel. Refer to the reverse side for more details.
<PAGE>
- --------------------------------------------------------------------------------
CHECK SERVICE (Not available for retirement plans)
- --------------------------------------------------------------------------------
Send information to establish redemption checking account for:
|_| United Government Securities |_| United Cash Management
- --------------------------------------------------------------------------------
EXPEDITED REDEMPTION: For United Cash Management (UCM) Only.
- --------------------------------------------------------------------------------
________________________________________________________________________________
Name & Address of Bank/Financial Institution
________________________________________________________________________________
Street
________________________________________________________________________________
City State Zip
________________________________________________________________________________
ABA/Routing # of Bank/Financial Institution
________________________________________________________________________________
Customer's Account Number
On UCM Accounts where epedited redemption is requested, Waddell & Reed, Inc. is
authorized to honor any requests from anyone for redemption of fund shares so
long as the proceeds are transmitted to the identified account. All wires must
be transmitted exactly as registered on the UCM Account.
- --------------------------------------------------------------------------------
ELIGIBLE PURCHASERS
- --------------------------------------------------------------------------------
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated from
service from Waddell & Reed or affiliated companies with a vested interest
in any Employee Benefit Plan sponsored by Waddell & Reed or its affiliated
companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales
Representative. A retired sales representative is defined as any sales
representative who was at the time of separation from service with Waddell &
Reed a Senior Account Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to
Minors Act purchasing for the child of an employee or sales representative.
(The Custodian need not be an Eligible Purchaser.
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers.
C. CHANGES IN REGISTRATION - A change in registration of shares purchased at
net asset value will be permitted provided the new registration maintains
ownership by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - The minimum initial purchase is generally $500 for the United
Group of Funds and $1000 for Waddell & Reed Funds. Lower minimums apply to
certain Retirement Plan purchases. See a prospectus for minimum purchase
amounts.
G. GENERAL -
1. Shares purchased at net asset value will not be added to existing sales
load accounts. New accounts will be established.
2. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will
also apply to the converted/transferred shares.
- --------------------------------------------------------------------------------
TERMINATION
- --------------------------------------------------------------------------------
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at any time without notice.
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENT
- --------------------------------------------------------------------------------
o I (we) have received a copy of the current prospectus(es) of the Funds
selected.
o If purchasing an IRA, I (we) have read the Retirement Plan and Custody
Agreement and agree to the terms and conditions set forth therein, and do
hereby establish the Individual Retirement Plan.
o In the case of a 401(k) plan, I (we) certify that more than 100 employees
are currently eligible to participate.
- --------------------------------------------------------------------------------
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct (or I
am waiting for a number to be issued to me) and (strike the following if not
true) that I am not subject to backup withholding because (a) I am exempt
from backup withholding, or (b) I have not been notified by the IRS that I
am subject to backup withholding as a result of a failure to report all
interest and dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
- --------------------------------------------------------------------------------
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding." An approved application must be submitted for each initial
purchase, each new Fund, and each conversion to NAV. Full payment must
accompany the application. No order will be accepted by wire nor by written
request except on the approved application. MAIL THIS APPLICATION FOR ANY
INITIAL PURCHASE, NEW FUND, AND CONVERSION TO NAV TO THE HOME OFFICE
CUSTOMER SERVICE DIVISION. REPEAT PURCHASES IN AN EXISTING FUND ACCOUNT
SHOULD BE MAILED TO THE HOME OFFICE CUSTOMER SERVICE DIVISION ACCOMPANIED BY
THE TEAR-OFF PORTION OF A CONFIRMATION.
I am eligible to purchase shares at net asset value, I have read all the terms
and conditions stated above and understand and agree to all of them. I agree to
notify Waddell & Reed if my account(s) become ineligible of NAV status.
- --------------------------------------------------------------------------------
________________________________________________________________________________
Signature of Applicant
________________________________________________________________________________
Signature of Division Manager/RVP or
Supervisor for Home Office Personnel
________________________________________________________________________________
Name of Waddell & Reed Employee or Representative,
if applicable
________________________________________________________________________________
Representative Number, if applicable
________________________________________________________________________________
Date
________________________________________________________________________________
Applicant's relationship to Employee or Representative
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOME OFFICE USE ONLY
- --------------------------------------------------------------------------------
If a Retirement Plan, Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the Custody Agreement, as evidenced
by the authorized signature/initials in the OSJ box below.
- --------------------------------------------------------------------------------
OSJ:
------------------------------------------
CUF0025(12/97)
UNITED GROUP OF FUNDS INSTITUTIONAL
WADDELL & REED FUNDS PURCHASE
APPLICATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
INSTRUCTIONS You can open an account by calling 1-800-366-2520 Date
Fill in where or by mailing an application and check to Waddell & Reed,
applicable Inc., 6300 Lamar, Shawnee Mission, Kansas 66202.
- --------------------------------------------------------------------------------------------------------------
Account Name _______________________________________________________ Tax I.D. No. _______
Registration
_______________________________________________________
Number and Street __________________________________________
FULL ADDRESS
Please fill in City __________________________ State _______________ Zip Code ______________________
completely, including
telephone number. Telephone __________________________________ Citizen of: |_| U.S. |_| Other (specify)
- --------------------------------------------------------------------------------------------------------------
|_| Please establish an account(s) as follows:
INITIAL Dividends and capital
gains to be paid:*
INVESTMENT(S): Account No. Assigned _________________ Amount Reinvested in Shares Paid in Cash
--------- -------------------- ------------
FUND(S) TO BE PURCHASED (SEE REVERSE
SIDE FOR FUND NAMES)
______________________________________ $________ |_| |_|
______________________________________ $________ |_| |_|
______________________________________ $________ |_| |_|
______________________________________ $________ |_| |_|
Total Amount $________ *If no election is checked,
all payments will be rein-
vested
- --------------------------------------------------------------------------------------------------------------
I (We) hereby authorize Waddell & Reed Services Co. to act upon instructions received
by telephone to have amounts withdrawn from my organization's account(s) in the
Portfolio(s) and wired or mailed to the bank account designed below.
I (We) hereby ratify any such instructions and agree that the Fund(s), Waddell & Reed,
Inc. or Waddell & Reed Services, Co. will not be liable for any loss, liability, cost
or expense for acting upon such instructions in accordance with the procedures set
forth in the Prospectus.
EXPEDITED
REDEMPTION Note: The indicated bank must be a member of the Federal Reserve System.
SERVICE
Name of Bank _______________________________________________ A.B.A. No._______________
Number and Street ____________________________________________________________________
City ___________________________ State _______________ Zip Code ______________________
Account Name _________________________________________ Account No. ___________________
- --------------------------------------------------------------------------------------------------------------
TELEPHONE This account will be established with a telephone exchange privilege which will
EXCHANGE authorize Waddell & Reed Services Co. to act upon instructions by telephone to
PRIVILEGE exchange Fund shares held in my (our) account for shares of other Funds eligible under
the Exchange Privilege to be held in an identically registered account(s) (see
Prospectus for details), unless you check the box on the left to indicate your
rejection of this service.
Check box at the right I (We) hereby ratify any instructions given pursuant to this authorization and agree
if this service is that the Funds, Waddell & Reed, Inc. or Waddell & Reed Ser vices Co. will not be
NOT requested. |_| liable for any loss, liability, cost or expense for acting upon instructions believed
to be genuine.
- --------------------------------------------------------------------------------------------------------------
Under penalties of perjury, I (we) certify that the number shown on this application
is the correct Tax Identification Number of my organization and that the organization
is not subject to backup withholding either because it has not been notified that it
is subject to backup withholding as a result of a failure to report all interest,
dividends or capital gains, or the Internal Revenue Service has notified it that it is
no longer subject to backup withholding. The undersigned certifies that I (we) have
full authority and legal capacity to purchase shares of the Fund and affirm that I
(we) have received a current Prospectus and agree to be bound by its terms.
AUTHORIZED
SIGNATURE(S)
Complete Corporate 1. _____________________________________ 2. _____________________________________
Resolution on Authorized Signature Authorized Signature
reverse side.
_____________________________________ _____________________________________
Title Title
3. _____________________________________ 4. _____________________________________
Authorized Signature Authorized Signature
_____________________________________ _____________________________________
Title Title
- --------------------------------------------------------------------------------------------------------------
CAP1635-Y(1O/98)
</TABLE>
<PAGE>
Corporate Resolution
IT WILL BE NECESSARY FOR YOU TO PROVIDE A CERTIFIED COPY OF A CORPORATE
RESOLUTION OR OTHER CERTIFICATE OF AUTHORITY TO AUTHORIZE WITHDRAWALS. THE
SAMPLES BELOW MAY BE USED FOR THIS PURPOSE OR YOU MAY USE YOUR OWN. IT IS
UNDERSTOOD THAT THE FUND(S) WADDELL & REED, INC. ITS AFFILIATES AND ITS
CUSTODIAN BANK, MAY RELY UPON THESE AUTHORIZATIONS UNTIL REVOKED OR AMENDED BY
WRITTEN NOTICE DELIVERED TO THE FUND(S) BY REGISTERED MAIL.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is duly elected (title)
_______________________ of (corporate name) ________________ a corporation
organized under the laws of (the State of) ________________________ and that the
following is a true and correct copy of a resolution adopted by the
corporation's Board of Directors at a meeting duly called and held on (date)
____________________.
RESOLVED, that any (enter number required to act) ____________ of the
corporation's following identified officers (enter titles only)
__________________________________________________ are authorized to execute
investment applications with the United Group/ W&R Funds and any Fund investment
accounts in the name of the corporation; to invest such funds of the corporation
in shares issued by one or more United Group/W&R Funds ("Fund Shares"), as they
deem appropriate; and to issue instructions (including the execution of money
fund drafts, if applicable) pertaining to the redemption, exchange or transfer
of Fund Shares.
FURTHER RESOLVED, that Waddell & Reed Inc, Waddell & Reed Services, Co., and the
United Group/Waddell & Reed Funds shall be held harmless and fully protected in
relying from time to time upon any certifications by the secretary or any
assistant secretary of the corporation as to the name of the individuals
occupying the above identified offices, and in acting in reliance upon the
foregoing resolutions, until actual receipt by them of a certified copy of a
resolution of the Board of Directors of the corporation modifying or revoking
any or all such resolutions.
The undersigned further certifies that the following individuals hold the title
designated. (Attach additional list if necessary.)
_______________________________________ x______________________________________
Name/Title (please print or type) (Signature)
_______________________________________ x______________________________________
Name/Title (please print or type) (Signature)
_______________________________________ x______________________________________
Name/Title (please print or type) (Signature)
_______________________________________ x______________________________________
Name/Title (please print or type) (Signature)
_______________________________________ _______________________
Corporate Name CORPORATE SEAL (Date)
Certified from Minutes: _______________________
Name and Title
- --------------------------------------------------------------------------------
CONFIDENTAL DATA (Must be completed on New Accounts/New Products)
1. Gross Income: $ ________________ 2. Total Investment Assets: $ ______________
3. Other Assets: _______________________ 4. Net Worth: _________________________
5. Investment Objectives (mark all that apply) |_| Growth |_| Income
|_| Reserves |_| Other needs/goals (specify in Special Remarks)
6. Special Remarks/Considerations: _____________________________________________
________________________________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
INITIAL INVESTMENT INSTRUCTIONS
HOW TO INVEST
By Federal Funds Wire By Mail
o Obtain account number from the Fund. o Complete Purchase Application
Telephone toll free: 1-800-366-2520 o Make check payable to Waddell &
o Instruct bank to transmit investment Reed, Inc.
by Federal funds wire to: o Mail application and check to:
United Missouri Bank Waddell & Reed Services Co.
Kansas City, Missouri 6300 Lamar
ABA Number: 101000695 Shawnee Mission, KS 66202
W&R Underwriter Account
#0007978
FBO _____________________
Fund Acct # _____________
FUND NAMES
737 - United Accumulative - Class Y
785 - United Asset Strategy - Class Y
738 - United Bond - Class Y
745 - United Continental Income - Class Y
744 - United Gold & Government - Class Y
754 - United Government Securities - Class Y
746 - United High Income - Class Y
749 - United High Income II - Class Y
735 - United Income - Class Y
739 - United International Growth - Class Y
761 - United Municipal Bond - Class Y
763 - United Municipal High Income - Class Y
748 - United New Concepts - Class Y
783 - United Retirement Shares - Class Y
736 - United Science and Technology - Class Y
747 - United Vanguard - Class Y
716 - W&R Asset Strategy - Class Y
715 - W&R International Growth - Class Y
712 - W&R Growth - Class Y
713 - W&R Limited-Term Bond - Class Y
714 - W&R Municipal Bond - Class Y
711 - W&R Total Return - Class Y
719 - W&R United High Income - Class Y
718 - W&R United Science and Technology - Class Y
EX-99.B(h)wrssacom
________________________, INC.
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class B Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class C Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
Effective June 30, 2000
<PAGE>
EX-99.B(h)wrssafid
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015199B ICI
Blanket Bond Form Mutual
Insurance
Company
Fidelity $20,400,000
Audit Expense 50,000
On Premises 20,400,000
In Transit 20,400,000
Forgery or Alteration 20,400,000
Securities 20,400,000
Counterfeit Currency 20,400,000
Uncollectible Items of
Deposit 25,000
Phone-Initiated Transactions 20,400,000
Total Limit 20,400,000
Directors and Officers/ 87015199D ICI
Errors and Omissions Liability Mutual
Insurance Form Insurance
Total Limit $10,000,000 Company
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna
Life &
casualty
Blanket Undertaking Lost Instrument
Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
EX-99.B(i)wrlegopn
April 17, 2000
Waddell & Reed Funds, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
RE: Waddell & Reed Funds, Inc.
Post-Effective Amendment No. 14
Dear Sir or Madam:
In connection with the public offering of shares of Capital Stock of Waddell &
Reed Funds, Inc. (the "Fund"), I have examined such corporate records and
documents and have made such further investigation and examination as I deemed
necessary for the purpose of this opinion.
It is my opinion that the indefinite number of shares of such Capital Stock
covered by the Fund's Registration Statement on Form N-1A, when issued and paid
for in accordance with the terms of the offering, as set forth in the Prospectus
and Statement of Additional Information forming a part of the Registration
Statement, will be, when such Registration shall have become effective, legally
issued, fully paid and non-assessable by the Fund.
I hereby consent to the filing of this opinion as an Exhibit to the said
Registration Statement and to the reference to me in such Statement of
Additional Information.
Yours truly,
/s/ Kristen A. Richards
- -----------------------
Vice President, Associate General Counsel
and Secretary
KAR/sw
EX-99.B(p)wrcode
CODE OF ETHICS
--------------
Waddell & Reed Financial, Inc.
Waddell & Reed, Inc.
Waddell & Reed Investment Management Company
Austin, Calvert & Flavin, Inc.
Fiduciary Trust Company of New Hampshire
United Group of Mutual Funds
Waddell & Reed Funds, Inc.
Target/United Funds, Inc.
As Revised: February 9, 2000
<PAGE>
1. Preface
-------
Rule 17j-1 of the Investment Company Act of 1940 (the "Act") requires
registered investment companies and their investment advisers and principal
underwriters to adopt codes of ethics and certain other requirements to
prevent fraudulent, deceptive and manipulative practices. Each investment
company in the United Group of Mutual Funds, Waddell & Reed Funds, Inc. and
Target/United Funds, Inc. (each a "Fund," and collectively the "Funds") is
registered as an open-end management investment company under the Act.
Waddell & Reed, Inc. ("W&R") is the principal underwriter of each of the
Funds. Waddell & Reed Investment Management Company ("WRIMCO") is the
investment adviser of the Funds and may also serve as investment adviser to
institutional clients other than the Funds. Austin, Calvert & Flavin, Inc.
("ACF") is a subsidiary of WRIMCO and serves as investment adviser to
individuals and institutional clients other than the Funds. Fiduciary Trust
Company of New Hampshire ("FTC"), is a trust company and a subsidiary of
W&R, Waddell & Reed Financial, Inc. ("WDR") is the public holding company.
Except as otherwise specified herein, this Code applies to all employees,
officers and directors of W&R, WRIMCO, ACF and the Funds, (collectively,
the "Companies").
This Code of Ethics (the "Code") is based on the principle that the
officers, directors and employees of the Companies have a fiduciary duty to
place the interests of their respective advisory clients first, to conduct
all personal securities transactions consistently with this Code and in
such a manner as to avoid any actual or potential conflict of interest or
any abuse of their position of trust and responsibility, and to conduct
their personal securities transactions in a manner which does not interfere
with the portfolio transactions of any advisory client or otherwise take
unfair advantage of their relationship to any advisory client. Persons
covered by this Code must adhere to this general principle as well as
comply with the specific provisions of this Code. Technical compliance with
this Code will not insulate from scrutiny trades which indicate an abuse of
an individual's fiduciary duties to any advisory client.
This Code has been approved, and any material change to it must be
approved, by each Fund's board of directors, including a majority of the
Fund's Disinterested directors.
2
<PAGE>
2. Definitions
-----------
"Access Person" means (i) any employee, director, officer or general
partner of a Fund, WRIMCO or ACF, (ii) any director or officer of W&R, FTC
or WDR or any employee of any company in a control relationship to the
Companies who, in the ordinary course of his or her business, makes,
participates in or obtains information regarding the purchase or sale of
securities for an advisory client or whose principal function or duties
relate to the making of any recommendation to an advisory client regarding
the purchase or sale of securities and (iii) any natural person in a
control relationship to the Companies who obtains information concerning
recommendations made to an advisory client with regard to the purchase or
sale of a security. A natural person in a control relationship or an
employee of a company in a control relationship does not become an "Access
Person" simply by virtue of the following: normally assisting in the
preparation of public reports, but not receiving information about current
recommendations or trading; or a single instance of obtaining knowledge of
current recommendations or trading activity, or infrequently and
inadvertently obtaining such knowledge. The Legal Department, in
cooperation with department heads, is responsible for determining who are
Access Persons.
"Advisory Client" means any client (including both investment companies and
managed accounts) for which WRIMCO or ACF serves as an investment adviser,
renders investment advice or makes investment decisions.
A security is "being considered for purchase or sale" when the order to
purchase or sell such security has been given to the trading room, or prior
thereto when, in the opinion of the portfolio manager or division head, a
decision, whether or not conditional, has been made (even though not yet
implemented) to make the purchase or sale, or when the decision-making
process has reached a point where such a decision is imminent.
"Beneficial Ownership" shall be interpreted in the same manner as it would
be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in
determining whether a person is the beneficial owner of a security for
purposes of Section 16 of the Securities Exchange Act of 1934. (See
Appendix A for a more complete description.)
"Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the Act.
3
<PAGE>
"De Minimis Transaction" is equal to or less than 300 shares, or is a
fixed-income security (or an equivalent security) which is equal to or less
than $15,000 principal amount. Purchases and sales, as the case may be, in
the same security or an equivalent security within 30 days will be
aggregated for purposes of determining if the transaction meets the
definition of a De Minimis Transaction.
"Disinterested Director" means a director who is not an "interested person"
within the meaning of Section 2(a)(19) of the Act.
"Equivalent Security" means any security issued by the same entity as the
issuer of a subject security, including options, rights, warrants,
preferred stock, restricted stock, phantom stock, bonds and other
obligations of that company, or security convertible into another security.
"Immediate Family" of an individual means any of the following persons who
reside in the same household as the individual:
<TABLE>
<S> <C> <C>
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
</TABLE>
Immediate Family includes adoptive relationships and any other relationship
(whether or not recognized by law) which the Legal Department determines
could lead to possible conflicts of interest, diversions of corporate
opportunity, or appearances of impropriety which this Code is intended to
prevent.
"Investment Personnel" means those employees who provide information and
advice to a portfolio manager or who help execute the portfolio manager's
decisions.
"Large Cap Transaction" means a purchase or sale of securities issued by
(or equivalent securities with respect to) companies with market
capitalization of at least $2.5 billion.
4
<PAGE>
"Non-Affiliated Director" is a Director that is not an affiliated person of
W&R.
"Portfolio Manager" means those employees entrusted with the direct
responsibility and authority to make investment decisions affecting an
Advisory Client.
"Purchase or sale of a security" includes, without limitation, the writing,
purchase or exercise of an option to purchase or sell a security,
conversions of convertible securities and short sales.
"Security" shall have the meaning set forth in Section 2(a)(36) of the Act,
except that it shall not include shares of registered open-end investment
companies, securities issued by the Government of the United States,
short-term debt securities which are "government securities" within the
meaning of Section 2(a)(16) of the Act, bankers' acceptances, bank
certificates of deposit, commercial paper, high quality short-term debt
instruments, including repurchase agreements, and such other money market
instruments as are designated by the boards of directors of the Companies.
Security does not include futures contracts or options on futures contracts
(provided these instruments are not used to indirectly acquire an interest
which would be prohibited under this Code), but the purchase and sale of
such instruments are nevertheless subject to the reporting requirements of
this Code.
"Security held or to be acquired" by an Advisory Client means (a) any
security which, within the most recent 15 days, (i) is or has been held by
an Advisory Client or (ii) is being or has been considered for purchase by
an Advisory Client, and (b) any option to purchase or sell, and any
security convertible into or exchangeable into, a security described in the
preceding clause (a).
3. Pre-Clearance Requirements
--------------------------
Except as otherwise specified in this Code, all Access Persons, except a
Non-Affiliated Director or a member of his or her Immediate Family, shall
clear in advance through the Legal Department any purchase or sale, direct
or indirect, of any Security in which such Access Person has, or by reason
of such transaction acquires, any direct or indirect Beneficial Ownership;
provided, however, that an Access Person shall not be required to clear
transactions effected for or securities held in any account over which such
Access
5
<PAGE>
Person does not have any direct or indirect influence or control. The Legal
Department shall retain written records of such clearance requests. For
accounts affiliated with Waddell & Reed, Inc. or any of its affiliates or
related companies ("affiliated accounts"), WRIMCO must clear in advance
purchases of equity securities in initial public offerings only.
Except as otherwise provided in Section 5, the Legal Department will not
grant clearance for any purchase by an Access Person if the Security is
currently being considered for purchase or being purchased by any Advisory
Client or for sale by an Access Person if currently being considered for
sale or being sold by any Advisory Client. If the Security proposed to be
purchased or sold by the Access Person is an option, clearance will not be
granted if the securities subject to the option are being considered for
purchase or sale as indicated above. If the Security proposed to be
purchased or sold is a convertible security, clearance will not be granted
if either that security or the securities into which it is convertible are
being considered for purchase or sale as indicated above. The Legal
Department will not grant clearance for any purchase by an affiliated
account of any security in an initial public offering if an Advisory Client
is considering the purchase or has submitted an indication of interest in
purchasing shares in such initial public offering. For all other purchases
and sales of securities for affiliated accounts, no clearance is necessary,
but such transactions are subject to WRIMCO's Procedures for Aggregation of
Orders for Advisory Clients, as amended from time to time.
The Legal Department may refuse to preclear a transaction if it deems the
transaction to involve a conflict of interest, possible diversion of
corporate opportunity, or an appearance of impropriety.
Clearance is effective, unless earlier revoked, until the earlier of (1)
the close of business on the fifth trading day, beginning on and including
the day on which such clearance was granted, or (2) such time as the Access
Person learns that the information provided to the Legal Department in such
Access Person's request for clearance is not accurate. If an Access Person
places an order for a transaction within the five trading days but such
order is not executed within the five trading days (e.g., a limit order),
clearance need not be reobtained unless the person who placed the original
order amends such order in any way. Clearance may be revoked at any time
and is deemed revoked if, subsequent to receipt of clearance, the Access
Person has knowledge that a Security to which the clearance relates is
being considered for purchase or sale by an Advisory Client.
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4. Exempted Transactions
---------------------
The pre-clearance requirements in Section 3 and the prohibited actions and
transactions in Section 5 of this Code shall not apply to:
(a) Purchases or sales which are non-volitional on the part of either the
Access Person or the Advisory Client.
(b) Purchases which are part of an automatic dividend reinvestment plan.
(c) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such
rights so acquired.
(d) Transactions in securities of WDR; however, individuals subject to the
Insider Trading Policy remain subject to such policy. (See Appendix
B).
(e) Purchases or sales by a Non-Affiliated Director or a member of his or
her Immediate Family.
5. Prohibited Actions and Transactions
-----------------------------------
Clearance will not be granted under Section 3 hereof with respect to the
following prohibited actions and transactions. Engaging in any such actions
or transactions by Access Persons will result in sanctions, including, but
not limited to, the sanctions expressly provided for in this Section.
(a) Except with respect to Large Cap Transactions, Investment Personnel
and Portfolio Managers shall not acquire any security for any account
in which such Investment Personnel or Portfolio Manager has a
beneficial interest, excluding the Funds, in an initial public
offering of that security.
(b) Except with respect to Large Cap Transactions, Access Persons shall
not execute a securities transaction on a day during which an Advisory
Client has a pending buy or sell order in that same security or an
equivalent security until that order is
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executed or withdrawn. An Access Person shall disgorge any profits
realized on trades within such period.
(c) Except for De Minimis Transactions and Large Cap Transactions, a
Portfolio Manager shall not buy or sell a Security within seven (7)
trading days before or after an Advisory Client that the Portfolio
Manager manages trades in that Security or an equivalent security. A
Portfolio Manager shall disgorge any profits realized on such trades
within such period.
(d) Except for De Minimis Transactions and Large Cap Transactions,
Investment Personnel and Portfolio Managers shall not profit in the
purchase or sale, or sale and purchase, of the same (or equivalent)
securities within sixty (60) calendar days. The Legal Department will
review all such short-term trading by Investment Personnel and
Portfolio Managers and may, in its sole discretion, allow exceptions
when it has determined that an exception would be equitable and that
no abuse is involved. Investment Personnel and Portfolio Managers
profiting from a transaction shall disgorge any profits realized on
such transaction. This section shall not apply to options on
securities used for hedging purposes for securities held longer than
sixty (60) days.
(e) Investment Personnel and Portfolio Managers shall not accept from any
person or entity that does or proposes to do business with or on
behalf of an Advisory Client a gift or other thing of more than de
minimis value or any other form of advantage. The solicitation or
giving of such gifts by Investment Personnel and Portfolio Managers is
also prohibited. For purposes of this subparagraph, "de minimis" means
$75 or less if received in the ordinary course of business.
(f) Investment Personnel and Portfolio Managers shall not serve on the
board of directors of publicly traded companies, absent prior
authorization from the Legal Department. The Legal Department will
grant authorization only if it is determined that the board service
would be consistent with the interests of any Advisory Client. In the
event board service is authorized, such individuals serving as
directors shall be isolated from those making investment decisions
through procedures designed to safeguard against potential conflicts
of interest, such as a Chinese Wall policy or investment restrictions.
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(g) Except with respect to Large Cap Transactions, Investment Personnel
and Portfolio Managers shall not acquire a security in a private
placement, absent prior authorization from the Legal Department. The
Legal Department will not grant clearance for the acquisition of a
security in a private placement if it is determined that the
investment opportunity should be reserved for an Advisory Client or
that the opportunity to acquire the security is being offered to the
individual requesting clearance by virtue of such individual's
position with the Companies. An individual who has been granted
clearance to acquire securities in a private placement shall disclose
such investment when participating in an Advisory Client's subsequent
consideration of an investment in the issuer. A subsequent decision by
an Advisory Client to purchase such a security shall be subject to
independent review by Investment Personnel with no personal interest
in the issuer.
(h) An Access Person shall not execute a securities transaction while in
possession of material non-public information regarding the security
or its issuer.
(i) An Access Person shall not execute a securities transaction which is
intended to result in market manipulation, including but not limited
to, a transaction intended to raise, lower, or maintain the price of
any security or to create a false appearance(s) of active trading.
(j) Except with respect to Large Cap Transactions, an Access Person shall
not execute a securities transaction involving the purchase or sale of
a security at a time when such Access Person intends, or knows of
another's intention, to purchase or sell that security (or an
equivalent security) on behalf of an Advisory Client. This prohibition
would apply whether the transaction is in the same (e.g., two
purchases) or the opposite (a purchase and sale) direction as the
transaction of the Advisory Client.
(k) An Access Person shall not cause or attempt to cause any Advisory
Client to purchase, sell, or hold any security in a manner calculated
to create any personal benefit to such Access Person or his or her
Immediate Family. If an Access Person or his or her Immediate Family
stands to materially benefit from an investment decision for an
Advisory Client that the Access Person is recommending or in which the
Access Person is participating, the Access Person
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shall disclose to the persons with authority to make investment
decisions for the Advisory Client, any beneficial interest that the
Access Person or his or her Immediate Family has in such security or
an equivalent security, or in the issuer thereof, where the decision
could create a material benefit to the Access Person or his or her
Immediate Family or result in the appearance of impropriety.
6. Reporting by Access Persons
---------------------------
(a) Each Access Person, except a Non-Affiliated Director or a member of
his or her Immediate Family, shall require a broker-dealer or bank
effecting a transaction in any security in which such Access Person
has, or by reason of such transaction acquires, any direct or indirect
Beneficial Ownership in the security to timely send duplicate copies
of each confirmation for each securities transaction and periodic
account statement for each brokerage account in which such Access
Person has a beneficial interest to Waddell & Reed, Inc., Attention:
Legal Department.
(b) Each Access Person, except a Non-Affiliated Director or a member of
his or her Immediate Family, shall report to the Legal Department no
later than 10 days after the end of each calendar quarter the
information described below with respect to transactions during the
quarter in any security in which such Access Person has, or by reason
of such transaction acquired, any direct or indirect Beneficial
Ownership in the security and with respect to any account established
by the Access Person in which securities were held during the quarter
for the direct or indirect benefit of the Access Person; provided,
however, that an Access Person shall not be required to make a report
with respect to transactions effected for or securities held in any
account over which such Access Person does not have any direct or
indirect influence or control:
(i) The date of the transaction, the name, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of the security;
(ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(iii) The price at which the transaction was effected;
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(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected and, with respect to an account
described above in this paragraph, with whom the Access Person
established the account;
(v) The date the account was established; and
(vi) The date the report is submitted.
(c) Upon commencement of employment, or, if later, at the time he or she
becomes an Access Person each such Access Person, except a
Non-Affiliated Director or a member of his or her Immediate Family,
shall provide the Legal Department with a report that discloses:
(i) The name, number of shares and principal amount of each security
in which the Access Person had any direct or indirect Beneficial
Ownership when he or she became an Access Person;
(ii) The name of any broker, dealer or bank with which the Access
Person maintained an account in which securities were held for
the direct or indirect benefit of the Access Person as of the
date he or she became an Access Person; and
(iii) The date of the report.
Annually thereafter, each Access Person, except a Non-Affiliated
Director or a member of his or her Immediate Family, shall provide the
Legal Department with a report that discloses the following
information (current as of a date no more than 30 days before the
report is submitted):
(i) The name, number of shares and principal amount of each security
in which the Access Person had any direct or indirect Beneficial
Ownership;
(ii) The name of any broker, dealer or bank with which the Access
Person maintains an account in which securities were held for the
direct or indirect benefit of the Access Person; and
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<PAGE>
(iii) The date the report is submitted.
However, an Access Person shall not be required to make a report with
respect to securities held in any account over which such Access
Person does not have any direct or indirect influence or control.
In addition, each Access Person, except a Non-Affiliated Director or a
member of his or her Immediate Family, shall annually certify in
writing that all transactions in any security in which such Access
Person has, or by reason of such transaction has acquired, any direct
or indirect Beneficial Ownership have been reported to the Legal
Department. If an Access Person had no transactions during the year,
such Access Person shall so advise the Legal Department.
(d) A Non-Affiliated Director or a member of his or her Immediate Family
need only report a transaction in a security if such director, at the
time of that transaction, knew or, in the ordinary course of
fulfilling his or her official duties as a director, should have known
that, during the 15-day period immediately preceding the date of the
transaction by the director, such security was purchased or sold by an
Advisory Client or was being considered for purchase or sale by an
Advisory Client.
(e) In connection with a report, recommendation or decision of an Access
Person to purchase or sell a security, the Companies may, in their
discretion, require such Access Person to disclose his or her direct
or indirect Beneficial Ownership of such security. Any such report may
contain a statement that the report shall not be construed as an
admission by the person making such report that he or she has any
direct or indirect Beneficial Ownership in the security to which the
report relates.
(f) The Legal Department shall identify all Access Persons who are
required to make reports under this section and shall notify those
persons of their reporting obligations hereunder. The Legal Department
shall review, or determine other appropriate personnel to review, the
reports submitted under this section.
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7. Reports to Board
----------------
At least annually, each Fund, WRIMCO and W&R shall provide the Fund's board
of directors, and the board of directors shall consider, a written report
that:
(a) Describes any issues arising under this Code or the related procedures
instituted to prevent violation of this Code since the last report to
the board of directors, including, but not limited to, information
about material violations of this Code or such procedures and
sanctions imposed in response to such violations; and
(b) Certifies that the Fund, WRIMCO and W&R, as applicable, has adopted
procedures reasonably necessary to prevent Access Persons from
violating this Code.
In addition to the written report otherwise required by this section,
all material violations of this Code and any sanctions imposed with
respect thereto shall be periodically reported to the board of
directors of the Fund with respect to whose securities the violation
occurred.
8. Confidentiality of Transactions and Information
-----------------------------------------------
Every Access Person shall treat as confidential information the fact that a
security is being considered for purchase or sale by an Advisory Client,
the contents of any research report, recommendation or decision, whether at
the preliminary or final level, and the holdings of an Advisory Client and
shall not disclose any such confidential information without prior consent
from the Legal Department. Notwithstanding the foregoing, with respect to a
Fund, the holdings of the Fund shall not be considered confidential after
such holdings by the Fund have been disclosed in a public report to
shareholders or to the Securities and Exchange Commission.
Access Persons shall not disclose any such confidential information to any
person except those employees and directors who need such information to
carry out the duties of their position with the Companies.
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9. Sanctions
---------
Upon discovering a violation of this Code, the Companies may impose such
sanctions as it deems appropriate, including, without limitation, a letter
of censure or suspension or termination of the employment of the violator.
10. Certification of Compliance
---------------------------
Each Access Person, except a Non-Affiliated Director and members of his or
her Immediate Family, shall annually certify that he or she has read and
understands this Code and recognizes that he or she is subject hereto.
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Appendix A to the Code of Ethics
"Beneficial Ownership"
For purposes of this Code, "Beneficial Ownership" is interpreted in the same
manner as it would be under Rule 16a-1(a)(2) of the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a security for
purposes of Section 16 of the Securities Exchange Act of 1934. In general, a
"beneficial owner" of a security is any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares any direct or indirect pecuniary interest in the security. The
Companies will interpret Beneficial Ownership in a broad sense.
The existence of Beneficial Ownership is clear in certain situations, such as:
securities held in street name by brokers for an Access Person's account, bearer
securities held by an Access Person, securities held by custodians, pledged
securities, and securities held by relatives or others for an Access Person. An
Access Person is also considered the beneficial owner of securities held by
certain family members. The SEC has indicated that an individual is considered
the beneficial owner of securities owned by such individual's Immediate Family.
The relative's ownership of the securities may be direct (i.e., in the name of
the relative) or indirect.
An Access Person is deemed to have Beneficial Ownership of securities owned by a
trust of which the Access Person is the settlor, trustee or beneficiary,
securities owned by an estate of which the Access Person is the executor or
administrator, legatee or beneficiary, securities owned by a partnership of
which the Access Person is a partner, and securities of a corporation of which
the Access Person is a director, officer or shareholder.
An Access Person must comply with the provisions of this Code with respect to
all securities in which such Access Person has a Beneficial Ownership. If an
Access Person is in doubt as to whether she or he has a Beneficial Ownership
interest in a security, the Access Person should report the ownership interest
to the Legal Department. An Access Person may disclaim Beneficial Ownership as
to any security on required reports.
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APPENDIX B
POLICY STATEMENT ON INSIDER TRADING
December 8, 1994
I. Prohibition on Insider Trading
------------------------------
All employees, officers, directors and other persons associated with
the Companies as a term of their employment or association are forbidden to
misuse in violation of Federal securities laws or other applicable laws material
nonpublic information.
This prohibition covers transactions for one's own benefit and also for
the benefit of or on behalf of others, including the investment
companies in the United Group of Mutual Funds, Waddell & Reed Funds,
Inc. and Target/United Funds, Inc. (the "Funds") or other
investment Advisory Clients. The prohibition also covers the unlawful
dissemination of such information to others. Such conduct is frequently
referred to as "insider trading". The policy of the Companies applies
to every officer, director, employee and associated person of the
Companies and extends to activities within and outside their duties at
the Companies. The prohibition is in addition to the other policies and
requirements under the Companies' Code of Ethics and other policies
issued from time to time. It applies to transactions in any securities,
including publicly traded securities of affiliated companies (e.g.,
Waddell & Reed Financial, Inc.(1))
This Policy Statement is intended to inform personnel of the issues so
as to enable them to avoid taking action that may be unlawful or to
seek clearance and guidance from the Legal Department when in doubt. It
is not the purpose of this Policy Statement to give precise and
definitive rules which will relate to every situation, but rather to
furnish enough information so that subject persons may avoid
unintentional violations and seek guidance when necessary.
- --------
(1)Reporting transactions in affiliated corporation securities is in addition to
and does not replace the obligation of certain senior officers to file reports
with the Securities and Exchange Commission.
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All employees, officers and directors of the Companies will be
furnished with or have access to a copy of this Policy Statement. Any
questions regarding the policies or procedures described herein should
be referred to the Legal Department. To the extent that inquiry of
employees reveals that this Policy Statement is not self-explanatory or
is likely to be substantively misunderstood, appropriate personnel will
conduct individual or group meetings from time to time to assure that
policies and procedures described herein are understood.
The term "insider trading" is not defined in the Federal securities
laws, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider")
or to communications of material nonpublic information to others. In
addition, there is no definitive and precise law as to what constitutes
material nonpublic information or its unlawful use. The law in these
areas has been developed through court decisions primarily interpreting
basic anti-fraud provisions of the Federal securities laws. There is no
statutory definition, only statutory sanctions and procedural
requirements.
While the law concerning insider trading is not static, it is generally
understood that the law is as follows:
(a) It is unlawful for any person, directly or indirectly, to
purchase, sell or cause the purchase or sale of any security,
either personally or on behalf of or for the benefit of others,
while in the possession of material, nonpublic information
relating thereto, if such person knows or recklessly disregards
that such information has been obtained wrongfully, or that such
purchase or sale would constitute a wrongful use of such
information. The law relates to trading by an insider while in
possession of material nonpublic information or trading by a
non-insider while in possession of material nonpublic
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it
confidential or was misappropriated.
(b) It is unlawful for any person involved in any transaction which
would violate the foregoing to communicate material nonpublic
information to others (or initiate a chain of communication to
others) who purchase or sell the subject security if such sale or
purchase is reasonably foreseeable.
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The major elements of insider trading and the penalties for such
unlawful conduct are discussed below. If, after reviewing this Policy
Statement, you have any questions, you should consult the Legal
Department.
1. Who is an Insider? The concept of "insider" is broad. It includes
officers, directors and employees of the company in possession of
nonpublic information. In addition, a person can be a "temporary
insider" if he or she enters into a special confidential
relationship in the conduct of the company's affairs and as a
result is given access to information solely for the company's
purposes. A temporary insider can include, among others, a
company's attorneys, accountants, consultants, bank lending
officers, and certain of the employees of such organizations. In
addition, the Companies may become a temporary insider of a
company it advises or for which it performs services.
2. What is Material Information? Trading on inside information is
not a basis for liability unless the information is material.
"Material information" includes information that a reasonable
investor would be likely to consider important in making an
investment decision, information that is reasonably certain to
have a substantial effect on the price of a company's securities
if publicly known, or information which would significantly alter
the total mix of information available to shareholders of a
company. Information that one may consider material includes
information regarding dividends, earnings, estimates of earnings,
changes in previously released earnings estimates, merger or
acquisition proposals or agreements, major litigation,
liquidation problems, new products or discoveries and
extraordinary management developments. Material information is
not just information that emanates from the issuer of the
security, but includes market information such as the intent of
someone to commence a tender offer for the securities, a
favorable or critical article in an important financial
publication or information relating to a Fund's buying program.
3. What is Nonpublic Information? Information is nonpublic until it
has been effectively communicated to the marketplace and is
available to investors generally. One must be able to point to
some fact to show that the
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<PAGE>
information is generally public. For example, information found
in a report filed with the SEC, or appearing in The Wall Street
Journal or other publications of general circulation would be
considered public.
4. When is a Person in Possession of Information? Once a person has
possession of material nonpublic information, he or she may not
buy or sell the subject security, even though the person is
prompted by entirely different reasons to make the transaction,
if such person knows or recklessly disregards that such
information was wrongfully obtained or will be wrongfully used.
Advisory personnel's normal analytical conclusions, no matter how
thorough and convincing, can temporarily be of no use if the
analyst has material nonpublic information, which he knows or
recklessly disregards is information which was wrongfully
obtained or would be wrongfully used.
5. When Is Information Wrongfully Obtained or Wrongfully Used?
Wrongfully obtained connotes the idea of gaining the information
from some unlawful activity such as theft, bribery or industrial
espionage. It is not necessary that the subject person gained the
information through his or her own actions. Wrongfully obtained
includes information gained from another person with knowledge
that the information was so obtained or with reckless disregard
that the information was so obtained. Wrongful use of information
concerns circumstances where the person gained the information
properly, often to be used properly, but instead using it in
violation of some express or implied duty of confidentiality. An
example would be the personal use of information concerning
Funds' trades. The employee may need to know a Fund's pending
transaction and may even have directed it, but it would be
unlawful to use this information in his or her own transaction or
to reveal it to someone he or she believes may personally use it.
6. When Is Communicating Information (Tipping) Unlawful? It is
unlawful for a person who, although not trading himself or
herself, communicates material nonpublic information to those who
make an unlawful transaction if the transaction is reasonably
foreseeable. The reason for tipping the information is not
relevant. The tipper's motivation is not of concern, but
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<PAGE>
it is relevant whether the tipper knew the information was
unlawfully obtained or was being unlawfully used. For example, if
an employee tips a friend about a large pending trade of a Fund,
why he or she did so is not relevant, but it is relevant that he
or she had a duty not to communicate such information. It is
unlawful for a tippee to trade while in possession of material
nonpublic information if he or she knew or recklessly ignored
that the information was wrongfully obtained or wrongfully
communicated to him or her directly or through a chain of
communicators.
II. Penalties for Insider Trading
-----------------------------
Penalties for unlawful trading or communication of material nonpublic
information are severe, both for individuals involved in such unlawful
conduct and their employers. A person can be subject to some or all the
penalties below even if he or she does not personally benefit from the
violation. Penalties include civil injunctions, treble damages,
disgorgement of profits, jail sentences, fines for the person who
committed the violation and fines for the employer or other controlling
person. In addition, any violation of this Policy Statement can be
expected to result in serious sanctions by any or all of the Companies,
including, but not limited to, dismissal of the persons involved.
III. Monitoring of Insider Trading
-----------------------------
The following are some of the procedures which have been established to
aid the officers, directors and employees of the Companies in avoiding
insider trading, and to aid the Companies in preventing, detecting and
imposing sanctions against insider trading. Every officer, director and
employee of the Companies must follow these procedures or risk serious
sanctions, including dismissal, substantial liability and criminal
penalties. If you have any questions about these procedures, you should
consult the Legal Department.
A. Identifying Inside Information
------------------------------
Before trading for yourself or others in the securities of a
company about which you may have potential inside information,
ask yourself the following questions:
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(1) Is the information material? Is this information that an
investor would consider important in making his or her
investment decisions? Is this information that would
substantially affect the market price of securities if
generally disclosed?
(2) Is the information nonpublic? To whom has this information
been provided? Has the information been effectively
communicated to the marketplace by being published in a
publication of general circulation?
(3) Do you know or have any reason to believe the information
was wrongfully obtained or may be wrongfully used?
If after consideration of the above, you believe that the
information is material and nonpublic and may have been
wrongfully obtained or may be wrongfully used, or if you have
questions as to whether the information is material or nonpublic
or may have been wrongfully obtained or may be wrongfully used,
you should take the following steps:
(1) Report the matter immediately to the Legal Department.
(2) Do not purchase or sell the securities on behalf of
yourself or others.
As Revised September 1, 1999, and
As Revised February 9, 2000
21
