WADDELL & REED
FUNDS, INC.
Asset Strategy Fund
Growth Fund
High Income Fund
International Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
Science and Technology Fund
Total Return Fund
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 2000
<PAGE>
WADDELL & REED ASSET STRATEGY FUND
MANAGERS' LETTER
-----------------------------------------------------------------
MARCH 31, 2000
Dear Shareholder:
This report relates to the operation of the Asset Strategy Fund for
the fiscal year ended March 31, 2000. The discussion, graphs and tables
contained in this report will provide you with information regarding the
Fund's performance during that period.
The past fiscal year was heavily influenced by strong U.S. economic
growth, the Federal Reserve becoming more concerned about economic growth
and its inflationary consequences, the booming market in technology
stocks at the end of the year, the buyback by the Treasury of long-term
bonds, the war in Kosovo and Y2K concerns. In late spring of 1999,
despite the Fed beginning to raise interest rates and Y2K fears mounting,
the stock market exhibited strong performance. By October, however, most
stock indexes had returned to the April levels. Strong economic reports,
coupled with an incipient attitude that Y2K would be a non-event,
resulted in a tremendous boom in technology stocks from October 1999 till
their recent peak in March of 2000. In the fixed-income market, the
strong economy kept the Fed in a tightening mode. However, the situation
was complicated by the U.S. Treasury's decision to begin buying back
long-term Treasury securities. This action contributed to an inverted
yield curve, where the price of the 30-year Treasury rose to a point
where the yield was lower than that of short-term Treasuries, making
properly judging the value of corporate credits difficult.
In early November, we dramatically increased the Fund's exposure to
stocks. This move was predicated on our assumptions that a move to raise
interest rates by the Fed was already discounted by the stock market,
that U.S. economic growth would remain moderate, with low inflation, and
that the economic outlook for Europe and Asia would continue to improve.
Based on these assumptions, we believed the outlook for the U.S. equity
market would be very positive going into 2000. Due to our heavy
concentration on equities during the year, the Fund's few fixed-income
investments were largely either defensive (short-term Treasuries) or
provided high yields (emerging market securities).
The strategies and techniques we applied resulted in the Fund
substantially outperforming the indexes charted on the following page.
Those indexes reflect the performance of securities that generally
represent the stock market (the S&P 500 Index), one-month certificates of
deposit (the Salomon Brothers Short-Term Index for 1 Month Certificates
of Deposit), the bond market (the Salomon Brothers Broad Investment Grade
Debt Index), and the universe of portfolios with similar investment
objectives (the Lipper Flexible Portfolio Funds Universe Average). A
variety of indexes is presented because the Fund invests in stocks, bonds
and other instruments. The equity portion of the Fund contributed
significantly to the Fund's overall performance, aided in large part by
the Fund's overweighting in technology and its reduced exposure to health
care.
The strength of the economy and the Fed's reaction should be the
most important factors affecting the financial markets over the next
twelve months. It has been a virtuous cycle thus far, with stronger
economic growth yielding higher incomes, greater confidence, and rising
stock prices. This led to more wealth, confidence, and spending, which
in turn drives the economy. The question is, how long can this continue?
We believe the Fed will keep tightening in an effort to slow the growth
of the economy and, indirectly, the stock market. We are preparing for
the anticipated transition from so-called "new era" companies, with high
stock prices and little or no earnings, to "old era" companies, with
solid earnings records and low stock valuations. For now, short-term
Treasuries will likely be the dominant fixed-income investment for the
Fund. Should the prospect of a recession materialize, a greater
portfolio allocation to cash and Treasuries in the one to ten-year range
is probable. We are prepared to shift assets dramatically away from
domestic equities for defensive purposes in the event we believe market
conditions warrant.
Thank you for your continued confidence.
Respectfully,
Michael L. Avery
Daniel J. Vrabac
Managers, Waddell & Reed Funds, Inc. Asset Strategy Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Asset Strategy Fund, Class C Shares,
The S&P 500 Index,
The Salomon Brothers Broad Investment Grade Debt Index,
The Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit
and The Lipper Flexible Portfolio Funds Universe Average
Salomon
Salomon Brothers Lipper
Asset BrothersShort-Term Flexible
Strategy Broad Index for Portfolio
Fund, Investment 1 month Funds
Class C S&P 500 GradeCertificatesUniverse
Shares IndexDebt Indexof Deposit Average
----------------------------------------------------------
04/30/95 Purchase10,000 10,000 10,000 10,000 10,000
03/31/96 10,300 12,832 10,936 10,541 11,318
03/31/97 10,212 15,366 11,473 11,122 12,443
03/31/98 12,758 22,748 12,848 11,760 16,018
03/31/99 12,987 26,963 13,682 12,406 17,008
03/31/00 18,129 31,862 13,930 13,097 19,480
==== Asset Strategy Fund, Class C Shares (1)(2) -- $18,129
++++ S&P 500 Index (1) -- $31,862
-+-+-+ Salomon Brothers Broad Investment Grade Debt Index (1) -- $13,930
*--*-- Salomon Brothers Short-Term Index for 1 Month Certificates of
Deposit (1) -- $13,097
---- Lipper Flexible Portfolio Funds Universe Average (1) -- $19,480
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of all the indexes
are not available, the investments were effected as of April 30, 1995.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return*
Class C** Class Y
-----------------------------
Year Ended
3/31/00 39.60% 40.85%
4+ Years Ended
3/31/00*** 12.77% N/A
Life of Class Y ****N/A 15.15%
*Total return for the Class Y shares may be greater than that of the Class C
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Performance data from
3/24/00 represents the actual performance of Class C shares. Performance
data prior to 3/24/00 represents the performance of Class B shares, but
reflects the deduction of sales charges that would apply to an investment in
Class C shares. Class B shares were combined with Class C shares effective
3/24/00 and were redesignated as Class C shares. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The maximum contingent
deferred sales charge (CDSC) is 1%, declining to zero at the end of the
first year after investment.
***4/20/95 (the initial offering date) through 3/31/00
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/00.
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
-----------------------------------------------------------------
ASSET STRATEGY FUND
Stocks 70% OBJECTIVE: To seek high total return
(can range from 0-100%) over the long term.
Bonds 25%
(can range from 0-100%) STRATEGY: Invests in stocks, bonds and
short-term instruments. Within
Short-Term Instruments 5% each of these classes, the Fund
(can range from 0-100%) may invest in both domestic and foreign
securities. The Fund selects an
allocation mix which represents the way
the Fund's investments will generally be
allocated over the long term as
indicated in the accompanying chart.
This mix will vary over shorter time
periods as Fund holdings change based on
the current outlook for the different
markets.
FOUNDED: 1995
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September and
December)
PERFORMANCE SUMMARY - Class C Shares
PER SHARE DATA
For the Fiscal Year ended March 31, 2000
----------------------------------------
DIVIDENDS PAID $0.05
=====
CAPITAL GAINS DISTRIBUTION $0.30
=====
NET ASSET VALUE ON
3/31/00 $15.21 adjusted to: $15.51(A)
3/31/99 11.20
------
CHANGE PER SHARE $ 4.31
======
(A)This number includes the capital gains distribution of $0.30 paid in December
1999 added to the actual net asset value on March 31, 2000.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Period Total Return*
------ --------------
1-year period ended 3-31-00 39.60%
Period from 4-20-95**
through 3-31-00 12.77%
*Performance data from 3/24/00 represents the actual performance of Class C
shares. Performance data prior to 3/24/00 represents the performance of Class
B shares, but reflects the deduction of sales charges that would apply to an
investment in Class C shares. Class B shares were combined with Class C
shares effective 3/24/00 and were redesignated as Class C shares. The maximum
contingent deferred sales charge (CDSC) is 1%, declining to zero at the end of
the first year after investment.
**Initial public offering of the Fund.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 2000, Asset Strategy Fund had net assets totaling $52,715,830
invested in a diversified portfolio of:
82.01% Common Stocks
7.71% Cash and Cash Equivalents and Options
7.55% United States Government Securities
1.69% Bullion
0.55% Corporate Debt Security
0.49% Other Government Security
As a shareholder of Asset Strategy Fund, for every $100 you had invested on
March 31, 2000, your Fund owned:
$82.01Common Stocks
7.71Cash and Cash Equivalents and Options
7.55United States Government Securities
1.69Bullion
0.55Corporate Debt Security
0.49Other Government Security
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Troy
Ounces Value
BULLION - 1.69%
Gold ................................... 3,204 $ 892,014
(Cost: $934,404)
Shares
COMMON STOCKS
Amusement and Recreation Services - 1.01%
Walt Disney Company (The) .............. 12,900 533,738
Business Services - 2.41%
Clear Channel Communications, Inc.* .... 10,800 745,875
Shared Medical Systems Corporation ..... 10,100 523,938
Total ................................. 1,269,813
Chemicals and Allied Products - 17.49%
American Home Products Corporation ..... 14,800 793,650
Biogen, Inc.* .......................... 6,900 481,706
Bristol-Myers Squibb Company ........... 9,600 554,400
Dial Corporation (The)* ................ 47,200 649,000
Forest Laboratories, Inc.* ............. 14,200 1,199,900
IntraBiotics Pharmaceuticals, Inc.* .... 17,700 266,053
Lilly (Eli) and Company ................ 10,800 680,400
Merck & Co., Inc. ...................... 7,200 447,300
Pharmacia Corporation ................. 17,100 880,650
Pharmacyclics, Inc.* ................... 11,200 623,350
Procter & Gamble Company (The) ......... 8,600 483,750
Schering-Plough Corporation ............ 19,100 701,925
Smith International, Inc.* ............. 8,400 651,000
Warner-Lambert Company ................. 8,300 809,250
Total ................................. 9,222,334
Coal Mining - 0.98%
CONSOL Energy Inc. ..................... 48,900 516,506
Communication - 1.47%
EchoStar Communications Corporation, Class A* 9,800 774,200
Depository Institutions - 2.12%
Bank of America Corporation ............ 10,800 566,325
U. S. Bancorp. ......................... 25,200 551,250
Total ................................. 1,117,575
Eating and Drinking Places - 2.87%
Papa John's International, Inc.* ....... 26,700 881,934
Wendy's International, Inc. ............ 31,300 631,869
Total ................................. 1,513,803
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 9.75%
Analog Devices, Inc.* .................. 7,460 $ 600,996
Intel Corporation ...................... 6,300 830,419
JDS Uniphase Corporation* .............. 4,300 518,284
LSI Logic Corporation* ................. 10,140 736,418
Maxim Integrated Products, Inc.* ....... 10,400 739,375
Nortel Networks Corporation ............ 6,150 774,900
Rambus Inc.* ........................... 1,400 411,031
Samsung Electronics (A) ................ 1,750 530,423
Total ................................. 5,141,846
Fabricated Metal Products - 0.97%
Parker Hannifin Corporation ............ 12,400 512,275
Food and Kindred Products - 1.30%
American Italian Pasta Company,
Class A* .............................. 27,900 687,037
Food Stores - 1.18%
Kroger Co. (The)* ...................... 35,500 623,469
General Merchandise Stores - 3.27%
BJ's Wholesale Club, Inc.* ............. 21,200 818,850
Target Corporation ..................... 12,100 904,475
Total ................................. 1,723,325
Health Services - 1.01%
Columbia/HCA Healthcare Corporation .... 21,100 534,094
Holding and Other Investment Offices - 1.28%
ABB Ltd. (A) ........................... 2,900 342,018
"Shell" Transport and Trading Company,
p.l.c. (The), ADR ..................... 6,800 333,625
Total ................................. 675,643
Industrial Machinery and Equipment - 3.48%
Cooper Cameron Corporation* ............ 9,000 601,875
Illinois Tool Works, Inc. .............. 8,900 491,725
Ingersoll-Rand Company ................. 11,400 504,450
Invensys plc (A) ....................... 53,000 236,253
Total ................................. 1,834,303
Instruments and Related Products - 2.32%
Beckman Coulter, Inc. .................. 11,200 718,900
PE Corporation - PE Biosystems Group ... 5,200 501,800
Total ................................. 1,220,700
Insurance Carriers - 2.35%
American International Group, Inc. ..... 5,775 632,363
CIGNA Corporation ...................... 8,000 606,000
Total ................................. 1,238,363
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Leather and Leather Products - 0.96%
Kenneth Cole Productions, Inc.,
Class A* .............................. 12,900 $ 506,325
Lumber and Wood Products - 0.98%
Weyerhaeuser Company ................... 9,100 518,700
Metal Mining - 2.94%
Homestake Mining Company ............... 123,400 740,400
Newmont Mining Corporation ............. 36,000 807,750
Total ................................. 1,548,150
Motion Pictures - 1.96%
AT&T Corp. - Liberty Media Group,
Class A* .............................. 17,400 1,030,950
Nondepository Institutions - 2.16%
Fannie Mae ............................. 9,800 553,087
Freddie Mac ............................ 13,300 587,694
Total ................................. 1,140,781
Oil and Gas Extraction - 4.01%
Burlington Resources Incorporated ...... 11,600 429,200
Schlumberger Limited ................... 7,300 558,450
Transocean Sedco Forex Inc. ............ 13,087 671,527
USX Corporation - Marathon Group ....... 17,400 453,487
Total ................................. 2,112,664
Paper and Allied Products - 3.30%
Bowater Incorporated ................... 11,300 603,137
International Paper Company ............ 13,500 577,125
Smurfit-Stone Container Corporation* ... 32,900 558,272
Total ................................. 1,738,534
Petroleum and Coal Products - 2.64%
Exxon Mobil Corporation ................ 5,300 412,406
Lyondell Chemical Company .............. 38,400 566,400
Texaco Inc. ............................ 7,700 412,913
Total ................................. 1,391,719
Prepackaged Software - 2.85%
Microsoft Corporation* ................. 7,200 767,025
Oracle Corporation* .................... 9,400 732,906
Total ................................. 1,499,931
Primary Metal Industries - 2.13%
AK Steel Holding Corporation ........... 52,300 542,613
Reynolds Metals Company ................ 8,700 581,812
Total ................................. 1,124,425
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 1.44%
Gentex Corporation* .................... 20,450 $ 757,289
Wholesale Trade -- Nondurable Goods - 1.38%
Cardinal Health, Inc. .................. 15,800 724,825
TOTAL COMMON STOCKS - 82.01% $43,233,317
(Cost: $35,318,434)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITY - 0.55%
Fabricated Metal Products
Crown Cork & Seal Company, Inc.,
7.125%, 9-1-02 ........................ $ 300 $ 289,716
(Cost: $299,560)
OTHER GOVERNMENT SECURITY - 0.49%
Argentina
Republic of Argentina (The),
0.0%, 10-15-01 ........................ 300 $ 256,500
(Cost: $261,014)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
5.625%, 12-31-02 ...................... 4,000 3,915,640
7.5%, 2-15-05 ......................... 60 62,737
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 7.55% $ 3,978,377
(Cost: $4,048,778)
Number of
Contracts
OPTIONS
AT&T Corp. - Liberty Media Group, Class A,
April 2000 Put Options,
Expires 4-22-00 ....................... 174 1,088
Analog Devices, Inc., June 2000 Put Options,
Expires 6-17-00 ....................... 160 2,500
Applied Materials, Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 84 1,050
Applied Micro Circuits Corporation, May 2000
Put Options, Expires 5-20-00 .......... 50 1,406
Clear Channel Communications, Inc., April 2000
Put Options, Expires 4-22-00 .......... 54 11,475
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Number of
Contracts Value
OPTIONS (Continued)
DoubleClick Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 38 $ 2,969
EchoStar Communications Corporation, Class A,
June 2000 Put Options, Expires 6-17-00. 98 612
JDS Uniphase Corporation, June 2000 Put Options,
Expires 6-17-00 ....................... 82 17,938
Maxim Integrated Products, Inc., May 2000
Put Options, Expires 5-20-00 .......... 104 650
Microsoft Corporation, April 2000 Put Options,
Expires 4-22-00 ....................... 72 2,250
Nortel Networks Corporation, June 2000 Put Options,
Expires 6-17-00 ....................... 61 3,431
Oracle Corporation, June 2000 Put Options,
Expires 6-17-00 ....................... 131 2,456
Rambus Inc., May 2000 Put Options,
Expires 5-20-00 ....................... 63 7,088
TMP Worldwide Inc., June 2000 Put Options,
Expires 6-17-00 ....................... 68 6,375
Teradyne, Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 111 4,856
Time Warner Incorporated, June 2000 Put Options,
Expires 6-17-00 ....................... 64 1,200
Yahoo! Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 22 2,750
TOTAL OPTIONS - 0.13% $ 70,094
(Cost: $453,881)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Fabricated Metal Products - 0.06%
Danaher Corporation,
6.1325%, Master Note .................. $ 29 29,000
Instruments and Related Products - 4.17%
Snap-On Inc.,
6.01%, 4-10-00 ........................ 2,200 2,196,695
Total Commercial Paper - 4.23% 2,225,695
Commercial Paper (backed by irrevocable bank
letter of credit) - 4.91%
Nondepository Institutions
ED&F Man Finance Inc. (Rabobank Nederland),
5.97%, 4-4-00 ......................... 2,600 $ 2,589,867
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 2000
Value
TOTAL SHORT-TERM SECURITIES - 9.14% $ 4,815,562
(Cost: $4,815,562)
TOTAL INVESTMENT SECURITIES - 101.56% $53,535,580
(Cost: $46,131,633)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.56%) (819,750)
NET ASSETS - 100.00% $52,715,830
See Notes to Schedules of Investments on page 73.
<PAGE>
WADDELL & REED GROWTH FUND
MANAGER'S LETTER
MARCH 31, 2000
-----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Growth Fund for the fiscal year
ended March 31, 2000. The following discussion, graphs and tables provide you
with information regarding the Fund's performance during that period.
Despite a strong and well-balanced economy, only a handful of market
sectors, namely technology, telecommunications, biotechnology and, to a lesser
extent, energy, contributed to a strong performance by the Fund during the past
fiscal year. Strong representations in those same areas allowed the Fund to
finish the fiscal year with a total return of 73.38%.
The recent poor performance of the stock market was somewhat reminiscent of
1978 and 1979. The stock market during those periods was similar to the current
stock market in that it was largely dominated by only a few sectors. During
that time, rising interest rates resulting from rising inflation created a bias
against slower growing energy-dependent and short-term capital users. Now,
similar biases have exhibited themselves in what is termed the "old economy"
stocks. Interestingly, the reversal of the old economy stocks and the new
economy stocks has been attributed to breaks in the upward marches of energy and
interest rates. If the two continue to retreat, we believe that a broader stock
market would ensue. In anticipation of such a broadening, we have spread the
Fund's investments across a broad risk spectrum and reallocated proceeds from
issues that have become too large a part of the Fund's portfolio.
The strategies and techniques we applied resulted in the Fund significantly
outperforming the Russell 2000 Growth Index and falling below the Lipper Mid-Cap
Growth Fund Universe Average, both as charted on the following page. The
Russell 2000 Growth Index reflects the performance of securities that generally
represent the small companies sector of the stock market. This index replaces
the Nasdaq Industrials Index in this year's report. We believe that the new
index provides a more accurate basis for comparing the Fund's performance to the
types of securities in which the Fund invests. Both indexes are presented in
this year's report for comparison purposes. The Lipper Index reflects the
performance of the universe of funds with similar investment objectives as the
Fund. The Lipper category assigned to the Fund has changed from last year's
report. The change was made by Lipper, Inc., and is a result of Lipper's new
fund classification system which now uses a fund's portfolio holdings as the
primary basis for its classification.
We anticipate that returns for the current year will be more evenly spread,
particularly if interest rates peak. Therefore, we believe that stock selection
will continue to be critical to the Fund's performance.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Respectfully,
Mark G. Seferovich
Grant P. Sarris
Managers, Waddell & Reed Funds, Inc. Growth Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Growth Fund, Class C Shares,
The Russell 2000 Growth Index,
The Nasdaq Industrials Index
and The Lipper Mid-Cap Growth Fund Universe Average,
Lipper
Mid-Cap
Growth Growth Russell
Fund, Nasdaq Fund 2000
Class C Industrials Universe Growth
Shares Index Average Index
------- ----------- -------- -------
09/30/92 Purchase 10,000 10,000 10,000 10,000
03/31/93 11,771 11,493 11,734 11,486
03/31/94 14,497 12,548 13,360 12,721
03/31/95 17,775 12,913 14,789 13,621
03/31/96 22,497 16,507 20,214 17,870
03/31/97 20,029 16,396 19,587 16,828
03/31/98 33,122 21,933 28,011 23,761
03/31/99 40,279 22,334 29,592 21,129
03/31/00 69,836 38,982 57,236 33,593
===== Growth Fund, Class C Shares (1) (2) -- $69,836
..... Russell 2000 Growth Index (1) -- $33,593
***** Nasdaq Industrials Index(1) - $38,982
----- Lipper Mid-Cap Growth Fund Universe Average (1) -- $
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of all the indexes
are not available, the investments were effected as of September 30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return*
Class C** Class Y
-----------------------------
Year Ended
3/31/00 73.38% 74.71%
5 Years Ended
3/31/00 31.48% N/A
7+ Years Ended
3/31/00*** 29.45% N/A
Life of
Class Y **** N/A 32.67%
*Total return for the Class Y shares may be greater than that of the Class C
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Performance data from
3/24/00 represents the actual performance of Class C shares. Performance
data prior to 3/24/00 represents the performance of Class B shares, but
reflects the deduction of sales charges that would apply to an investment in
Class C shares. Class B shares were combined with Class C shares effective
3/24/00 and were redesignated as Class C shares. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The maximum contingent
deferred sales charge (CDSC) is 1%, declining to zero at the end of the
first year after investment.
***9/21/92 (the initial offering date) through 3/31/00.
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/00.
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
-----------------------------------------------------------------
GROWTH FUND
PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: To seek capital appreciation.
securities convertible
into common stocks.
STRATEGY: Invests primarily in common stocks of
U.S. companies that offer above-average
growth potential, including stock of
relatively new or unseasoned companies.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
PERFORMANCE SUMMARY - Class C Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 2000
-------------------------------------------
CAPITAL GAINS DISTRIBUTION $3.14
=====
NET ASSET VALUE ON
3/31/00 $21.64 adjusted to: $24.78(A)
3/31/99 14.74
------
CHANGE PER SHARE $10.04
======
(A)This number includes the capital gains distribution of $3.14 paid in December
1999 added to the actual net asset value on March 31, 2000.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Period Total Return*
------ --------------
1-year period ended 3-31-00 73.38%
5-year period ended 3-31-00 31.48%
Period from 9-21-92**
through 3-31-00 29.45%
*Performance data from 3/24/00 represents the actual performance of Class C
shares. Performance data prior to 3/24/00 represents the performance of Class
B shares, but reflects the deduction of sales charges that would apply to an
investment in Class C shares. Class B shares were combined with Class C
shares effective 3/24/00 and were redesignated as Class C shares. The maximum
contingent deferred sales charge (CDSC) is 1%, declining to zero at the end of
the first year after investment.
**Initial public offering of the Fund.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 2000, Growth Fund had net assets totaling $817,345,984 invested in
a diversified portfolio of:
81.08% Common Stocks
18.92% Cash and Cash Equivalents
As a shareholder of Growth Fund, for every $100 you had invested on March 31,
2000, your Fund owned:
$37.04 Services Stocks
21.69 Manufacturing Stocks
18.92 Cash and Cash Equivalents
15.36 Transportation, Communication, Electric
and Sanitary Services Stocks
6.99 Wholesale and Retail Trade Stocks
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS
Automotive Dealers and Service Stations - 0.81%
O'Reilly Automotive, Inc.* ............. 460,000 $ 6,612,500
Business Services - 23.05%
Acxiom Corporation* .................... 920,000 30,963,750
Cerner Corporation* .................... 736,700 19,867,878
CheckFree Holdings Corporation* ........ 350,000 24,707,812
FactSet Research Systems, Inc. ......... 338,000 9,147,125
Fiserv, Inc.* .......................... 261,900 9,731,222
Getty Images, Inc.* .................... 576,500 20,735,984
GO.com* ................................ 615,000 12,838,125
MemberWorks Incorporated* .............. 465,000 18,643,594
Primark Corporation* ................... 590,000 14,233,750
Sanchez Computer Associates, Inc.* ..... 166,800 5,843,212
Shared Medical Systems Corporation ..... 417,600 21,663,000
Total ................................. 188,375,452
Chemicals and Allied Products - 2.38%
Pharmacyclics, Inc.* ................... 349,100 19,429,597
Communication - 5.96%
COLT Telecom Group plc, ADR* ........... 125,000 24,656,250
Emmis Communications Corporation,
Class A* .............................. 520,000 24,098,750
Total ................................. 48,755,000
Computer Programming Services - 2.42%
USINTERNETWORKING, Inc.* ............... 511,100 19,837,069
Eating and Drinking Places - 2.16%
Papa John's International, Inc.* ....... 535,200 17,678,325
Electronic and Other Electric Equipment - 10.96%
Advanced Fibre Communications, Inc.* ... 627,500 39,316,797
Glenayre Technologies, Inc.* ........... 620,000 10,850,000
Rambus Inc.* ........................... 134,100 39,370,922
Total ................................. 89,537,719
Engineering and Management Services - 3.58%
Gene Logic Inc.* ....................... 89,900 3,764,562
Incyte Pharmaceuticals, Inc.* .......... 128,000 11,188,000
MAXIMUS, Inc.* ......................... 470,000 14,335,000
Total ................................. 29,287,562
Food and Kindred Products - 1.98%
American Italian Pasta Company,
Class A* .............................. 656,300 16,161,388
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Health Services - 0.70%
American Healthcorp, Inc.* ............. 500,000 $ 1,984,375
Amsurg Corp., Class A* ................. 118,000 700,625
Amsurg Corp., Class B* ................. 484,509 3,028,181
Total ................................. 5,713,181
Instruments and Related Products - 2.94%
Lunar Corporation* ..................... 420,000 4,935,000
VISX, Incorporated* .................... 1,050,000 19,129,688
Total ................................. 24,064,688
Personal Services - 0.48%
Stewart Enterprises, Inc., Class A ..... 800,000 3,925,000
Prepackaged Software - 6.81%
Citrix Systems, Inc.* .................. 300,000 19,865,625
Dendrite International, Inc.* .......... 893,200 18,785,112
Transaction Systems Architects,
Inc., Class A* ........................ 590,000 17,036,250
Total ................................. 55,686,987
Radio Communication - 2.02%
Western Wireless Corporation, Class A* . 360,600 16,531,256
Stone, Clay and Glass Products - 0.44%
Department 56, Inc.* ................... 240,000 3,555,000
Telephone Communication - 5.74%
Illuminet Holdings, Inc.* .............. 200,200 9,853,594
Intermedia Communications Inc.* ........ 432,500 20,881,641
RCN Corporation* ....................... 300,000 16,153,125
Total ................................. 46,888,360
Transportation by Air - 1.64%
Midwest Express Holdings, Inc.* ........ 523,600 13,417,250
Transportation Equipment - 2.99%
Gentex Corporation* .................... 659,200 24,411,000
Wholesale Trade -- Durable Goods - 1.97%
MSC Industrial Direct Co., Inc., Class A* 893,800 16,088,400
Wholesale Trade -- Nondurable Goods - 2.05%
Allscripts, Inc.* ...................... 279,500 16,770,000
TOTAL COMMON STOCKS - 81.08% $662,725,734
(Cost: $432,812,149)
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 0.86%
Rohm and Haas Co.,
6.38%, 4-3-00 ......................... $ 7,000 $ 6,997,519
Electric, Gas and Sanitary Services - 2.88%
Bay State Gas Co.,
5.87%, 4-5-00 ......................... 10,000 9,993,478
Puget Sound Energy Inc.,
6.22%, 4-10-00 ........................ 3,600 3,594,402
Western Resources, Inc.,
6.3%, 4-14-00 ......................... 10,000 9,977,250
Total ................................. 23,565,130
Fabricated Metal Products - 0.08%
Danaher Corporation,
6.1325%, Master Note .................. 681 681,000
Food and Kindred Products - 0.69%
General Mills, Inc.,
5.9875%, Master Note .................. 5,678 5,678,000
Instruments and Related Products - 0.49%
Snap-On Inc.,
6.01%, 4-10-00 ........................ 4,000 3,993,990
Miscellaneous Retail - 2.74%
Toys "R" Us Inc.,
6.17%, 4-7-00 ......................... 22,434 22,410,930
Nondepository Institutions - 2.49%
PACCAR Financial Corp.,
6.0329%, Master Note .................. 3,047 3,047,000
Penney (J. C.) Funding Corp.,
6.05%, 4-3-00 ......................... 17,300 17,294,185
Total ................................. 20,341,185
Paper and Allied Products - 2.44%
International Paper Company,
6.19%, 4-18-00 ........................ 20,000 19,941,539
Printing and Publishing - 1.79%
American Greetings Corp.,
6.1%, 4-13-00 ......................... 14,675 14,645,161
Radio Communication - 2.69%
Dominion Resources Inc.,
6.1%, 4-13-00 ......................... 22,000 21,955,267
Total Commercial Paper - 17.15% 140,209,721
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (backed by irrevocable bank
letter of credit) - 1.22%
Oil and Gas Extraction
Louis Dreyfus Corp. (Dresdner Bank AG),
5.97%, 4-4-00 ......................... $10,000 $ 9,995,025
Municipal Obligations - 0.74%
Indiana
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project),
5.88%, 4-6-00 ......................... 6,000 6,000,000
TOTAL SHORT-TERM SECURITIES - 19.11% $156,204,746
(Cost: $156,204,746)
TOTAL INVESTMENT SECURITIES - 100.19% $818,930,480
(Cost: $589,016,895)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.19%) (1,584,496)
NET ASSETS - 100.00% $817,345,984
See Notes to Schedules of Investments on page 73.
<PAGE>
WADDELL & REED HIGH INCOME FUND
MANAGER'S LETTER
MARCH 31, 2000
----------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the High Income Fund for the fiscal
year ended March 31, 2000. The following discussion, graphs and tables provide
you with information regarding the Fund's performance during that period.
The Federal Reserve raised interest rates five times in the past year. In
August, after the second increase, investors became defensive, raising cash,
which widened out spreads to Treasuries. The default rate rose as well, which
added to investors' intolerance for risk. As a result of the high returns
achieved by many Nasdaq stocks, a significant amount of investor money went out
of high-yield mutual funds and into the equity market. Also, the main buyers in
the high-yield market last year were the structured products known as
collateralized bond obligations. By the end of 1999, the cash in these CBOs had
been invested, leaving very few large buyers to support the market. These
factors caused downward pressure on high-yield bond prices.
During the past year, we have attempted to upgrade the quality of the
Fund's portfolio by selling smaller issues and potential credit risks. We have
been redirecting the Fund's portfolio into shorter duration, higher coupon
callable securities. This has been done in anticipation of higher interest
rates.
The strategies and techniques we applied resulted in the Fund nearly
matching the Lipper High Current Yield Fund Universe Average for the fiscal year
and outperforming the Salomon Brothers High Yield Market Index, as charted on
the following page. The Lipper index reflects the universe of funds with
similar investment objectives. The Salomon Brothers High Yield Market Index
reflects the performance of securities that generally represent the high-yield
bond market. This index replaces the Salomon Brothers High Yield Composite
Index in this year's report. We believe that the new index provides a more
accurate basis for comparing the Fund's performance to the types of securities
in which the Fund invests. Both indexes are presented in this year's report for
comparison purposes.
As we begin a new fiscal year, we continue to see a lot of cash leaving the
high-yield market. Investors are nervous as they watch the correction in the
Nasdaq market and are continuing to buy defensive issues. On the other hand,
the CBO bid is starting to come back and yields available on high-yield bonds
have improved. Nevertheless, we believe that the market will continue to be
choppy until we see an end to the interest rate hikes by the Fed. We intend to
continue holding our defensive securities for the near term while monitoring the
economy for signs of slowing.
Thank you very much for your continued support and confidence.
Respectfully,
Louise D. Rieke
Manager, Waddell & Reed Funds, Inc. High Income Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
High Income Fund, Class C Shares,
The Salomon Brothers High Yield Market Index,
The Salomon Brothers High Yield Composite Index
and The Lipper High Current Yield Fund Universe Average
Salomon Lipper Salomon
Brothers High Brothers
High Current High
High Income YieldYield Fund Yield
Fund, ClassComposite Universe Market
C Shares Index Average Index
----------- ------ --------- --------
07/31/97 Purchase$10,000$10,000 $10,000 10,000
03/31/98 11,177 10,934 10,835 10,868
03/31/99 10,986 11,119 10,660 10,982
03/31/00 11,005 10,711 10,704 10,720
+++++ High Income Fund, Class C Shares(1) -- $11,005
===== Salomon Brothers High Yield Market Index -- $10,720
..... Salomon Brothers High Yield Composite Index -- $10,711
----- Lipper High Current Yield Fund Universe Average -- $10,704
(1) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return*
Class C** Class Y
-----------------------------
Year Ended
3/31/00 0.17% 0.94%
2+ Years Ended
3/31/00*** 3.65% N/A
Life of Class Y ****N/A 2.72%
*Total return for the Class Y shares may be greater than that of the Class C
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Performance data from
3/24/00 represents the actual performance of Class C shares. Performance
data prior to 3/24/00 represents the performance of Class B shares, but
reflects the deduction of sales charges that would apply to an investment in
Class C shares. Class B shares were combined with Class C shares effective
3/24/00 and were redesignated as Class C shares. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The maximum contingent
deferred sales charge (CDSC) is 1%, declining to zero at the end of the
first year after investment.
***7/31/97 (the initial offering date) through 3/31/00
****12/30/98 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/00.
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
--------------------------------------------------------------
HIGH INCOME FUND
PORTFOLIO STRATEGY:
Invests generally in OBJECTIVE: To seek a high level of current
High-Risk, High-Yield income as its primary goal and
Fixed Income Securities. capital growth as a secondary goal when
consistent with its primary goal.
Maximum 20% Common Stock
STRATEGY: Invests primarily in high-yield, high-
risk, fixed-income securities of U.S.
issuers. The Fund may invest up to 20%
of its total assets in common stock in
order to seek capital growth.
FOUNDED: 1997
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
PERFORMANCE SUMMARY -- Class C Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 2000
----------------------------------------
DIVIDENDS PAID $0.69
=====
NET ASSET VALUE ON
3/31/00 $ 9.27
3/31/99 9.94
------
CHANGE PER SHARE $(0.67)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Period Total Return*
------ ---------------
1-year period ended 3-31-00 0.17%
Period from 7-31-97**
through 3-31-00 3.65%
*Performance data from 3/24/00 represents the actual performance of Class C
shares. Performance data prior to 3/24/00 represents the performance of Class
B shares, but reflects the deduction of sales charges that would apply to an
investment in Class C shares. Class B shares were combined with Class C
shares effective 3/24/00 and were redesignated as Class C shares. The maximum
contingent deferred sales charge (CDSC) is 1%, declining to zero at the end of
the first year after investment.
**Initial public offering of the Fund.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 2000, High Income Fund had net assets totaling $22,883,448 invested
in a diversified portfolio of:
83.77% Corporate Debt Securities
9.37% Cash and Cash Equivalents
5.73% Common Stocks, Rights and Warrants
1.13% Other Government Security
As a shareholder of High Income Fund, for every $100 you had invested on March
31, 2000, your Fund owned:
$45.31 Transportation, Communication, Electric
and Sanitary Services Bonds
19.05 Services Bonds
12.19 Manufacturing Bonds
9.37 Cash and Cash Equivalents
7.00 Wholesale and Retail Trade Bonds
5.73 Common Stocks, Rights and Warrants
1.13 Other Government Security
0.22 Agriculture, Forestry and Fisheries Bonds
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS, RIGHTS AND WARRANTS
Business Services - 0.11%
Cybernet Internet Services International,
Inc., Warrants (B)* ................... 250 $ 25,000
Communication - 2.45%
Classic Communications, Inc., Class A* . 8,000 125,000
Crown Castle International Corp.* ...... 2,500 94,609
Infinity Broadcasting Corporation,
Class A* .............................. 10,500 339,937
Total ................................. 559,546
Electronic and Other Electric Equipment - 0.75%
Level 3 Communications, Inc.* .......... 1,500 158,578
Metricom, Inc., Warrants* .............. 250 12,500
Total ................................. 171,078
Engineering and Management Services - 0.10%
Harris Interactive Inc.* ............... 3,600 23,794
Food and Kindred Products - 1.25%
Keebler Foods Company .................. 10,000 286,875
Paper and Allied Products - 0.00%
SF Holdings Group, Inc., Class C (B)* .. 50 1
Telephone Communication - 1.07%
Allegiance Telecom, Inc., Warrants (B)* 250 37,500
ONO Finance Plc, Rights (B)* ........... 250 37,500
OnePoint Communications Corp., Warrants (B)* 100 2,000
Primus Telecommunications Group,
Incorporated, Warrants* ............... 300 18,600
VersaTel Telecom International N.V.,
Warrants (B)* ......................... 250 150,000
Total ................................. 245,600
TOTAL COMMON STOCKS, RIGHTS AND WARRANTS - 5.73% $1,311,894
(Cost: $1,072,036)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.22%
Hines Horticulture, Inc.,
11.75%, 10-15-05 .................... $ 49 49,245
Amusement and Recreation Services - 6.26%
Hollywood Park, Inc.,
9.25%, 2-15-07 ...................... 250 246,250
Mohegan Tribal Gaming Authority,
8.75%, 1-1-09 ....................... 250 234,375
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Amusement and Recreation Services (Continued)
Premier Parks Inc.:
9.75%, 6-15-07....................... $500 $ 471,250
0.0%, 4-1-08 (C) .................... 750 480,000
Total ............................... 1,431,875
Apparel and Other Textile Products - 1.02%
Tropical Sportswear Int'l Corporation,
11.0%, 6-15-08 ...................... 250 232,500
Auto Repair, Services and Parking - 1.08%
Avis Rent A Car, Inc.,
11.0%, 5-1-09 ....................... 250 246,250
Business Services - 6.13%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-06 ..................... 250 255,000
Cybernet Internet Services International, Inc.,
14.0%, 7-1-09 ....................... 250 200,000
Lamar Advertising Company,
8.625%, 9-15-07 ..................... 250 236,250
National Equipment Services, Inc.,
10.0%, 11-30-04 ..................... 500 474,500
PSINet Inc.,
10.0%, 2-15-05 ...................... 250 236,250
Total ............................... 1,402,000
Chemicals and Allied Products - 1.87%
Chattem, Inc.,
8.875%, 4-1-08 ...................... 500 427,500
Communication - 14.86%
ACME Television, LLC,
0.0%, 9-30-04 (C) ................... 100 89,000
Chancellor Media Corporation of
Los Angeles,
8.0%, 11-1-08 ....................... 250 246,250
Charter Communications Holdings, LLC
and Charter Communications Holdings
Capital Corporation,
8.625%, 4-1-09 ...................... 250 220,000
Classic Cable, Inc.,
9.375%, 8-1-09 ...................... 500 462,500
Crown Castle International Corp.,
0.0%, 5-15-11 (C) ................... 500 286,250
EchoStar DBS Corporation,
9.375%, 2-1-09 ...................... 500 482,500
ICG Services, Inc.,
0.0%, 5-1-08 (C) .................... 100 54,000
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
LIN Holdings Corp.,
0.0%, 3-1-08 (C) .................... $250 $ 154,375
MetroNet Communications Corp.,
0.0%, 6-15-08 (C) ................... 500 399,480
Salem Communications Corporation,
9.5%, 10-1-07 ....................... 75 69,750
Spanish Broadcasting System, Inc.,
9.625%, 11-1-09 ..................... 250 241,250
SpectraSite Holdings, Inc.,
0.0%, 3-15-10 (B)(C) ................ 250 123,750
Telewest Communications plc,
0.0%, 10-1-07 (C) ................... 250 233,750
United International Holdings, Inc.,
0.0%, 2-15-08 (C) ................... 500 337,500
Total ............................... 3,400,355
Eating and Drinking Places - 3.34%
Domino's Inc.,
10.375%, 1-15-09 .................... 100 91,500
Foodmaker, Inc.,
8.375%, 4-15-08 ..................... 500 458,125
NE Restaurant Company, Inc.,
10.75%, 7-15-08 ..................... 250 215,313
Total ............................... 764,938
Electronic and Other Electric Equipment - 1.58%
Elgar Holdings, Inc.,
9.875%, 2-1-08 ...................... 250 122,500
Level 3 Communications, Inc.,
11.0%, 3-15-08 (B) .................. 250 240,000
Total ............................... 362,500
Fabricated Metal Products - 0.50%
AXIA Incorporated,
10.75%, 7-15-08 ..................... 150 115,500
Furniture and Home Furnishings Stores - 0.47%
MTS, INCORPORATED,
9.375%, 5-1-05 ...................... 250 108,125
Health Services - 2.08%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-02 ....................... 250 240,625
Tenet Healthcare Corporation,
8.625%, 1-15-07 ..................... 250 235,625
Total ............................... 476,250
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Hotels and Other Lodging Places - 1.97%
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-09 ........................ $250 $ 230,000
Lodgian Financing Corp.,
12.25%, 7-15-09 ..................... 250 220,625
Total ............................... 450,625
Miscellaneous Retail - 1.04%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-08 ...................... 100 30,000
Michaels Stores, Inc.,
10.875%, 6-15-06 .................... 200 207,750
Total ............................... 237,750
Motion Pictures - 1.53%
AMC Entertainment Inc.,
9.5%, 3-15-09 ....................... 250 127,500
Regal Cinemas, Inc.,
9.5%, 6-1-08 ........................ 500 222,500
Total ............................... 350,000
Paper and Allied Products - 1.58%
Buckeye Technologies Inc.,
8.0%, 10-15-10 ...................... 250 226,250
SF Holdings Group, Inc.,
0.0%, 3-15-08 (C) ................... 250 134,375
Total ............................... 360,625
Primary Metal Industries - 1.84%
ISG Resources, Inc.,
10.0%, 4-15-08 ...................... 220 197,450
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-07 ..................... 250 223,750
Total ............................... 421,200
Radio Communication - 8.54%
Microcell Telecommunications Inc.,
0.0%, 6-1-06 (C) .................... 100 88,500
Nextel Communications, Inc.,
0.0%, 2-15-08 (C) ................... 100 67,500
Nextel International, Inc.,
0.0%, 4-15-08 (C) ................... 375 232,500
Nextel Partners, Inc.,
0.0%, 2-1-09 (C) .................... 500 320,000
Sprint Spectrum L.P.,
0.0%, 8-15-06 (C) ................... 600 574,254
Tritel PCS, Inc.,
0.0%, 5-15-09 (C) ................... 250 155,000
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Radio Communication (Continued)
US Unwired Inc.,
0.0%, 11-1-09 (B)(C) ................ $500 $ 267,500
VoiceStream Wireless Corporation,
10.375%, 11-15-09 (B) ............... 250 248,750
Total ............................... 1,954,004
Rubber and Miscellaneous Plastics Products - 0.99%
Home Products International, Inc.,
9.625%, 5-15-08 ..................... 250 227,500
Telephone Communication - 18.82%
Alestra, S. de R.L. de C.V.,
12.625%, 5-15-09 .................... 250 250,625
Allegiance Telecom, Inc.,
0.0%, 2-15-08 (C) ................... 250 177,500
Concentric Network Corporation,
12.75%, 12-15-07 .................... 250 261,250
Hyperion Telecommunications, Inc.:
0.0%, 4-15-03 (C) ................... 250 230,000
12.0%, 11-1-07 ...................... 250 251,250
ITC /\ DeltaCom, Inc.:
11.0%, 6-1-07 ....................... 250 253,750
8.875%, 3-1-08 ...................... 100 93,000
NEXTLINK Communications, Inc.,
9.625%, 10-1-07 ..................... 250 228,750
Nuevo Grupo Iusacell, S.A. de C.V.,
14.25%, 12-1-06 (B) ................. 150 162,750
ONO Finance Plc,
13.0%, 5-1-09 ....................... 250 260,000
OnePoint Communications Corp.,
14.5%, 6-1-08 ....................... 100 65,000
Primus Telecommunications Group, Incorporated:
11.75%, 8-1-04 ...................... 300 289,500
12.75% 10-15-09 ..................... 250 243,750
Qwest Communications International Inc.,
0.0%, 10-15-07 (C) .................. 250 210,260
RSL Communications, Ltd.,
10.5%, 11-15-08 ..................... 250 213,750
Time Warner Telecom LLC and Time
Warner Telecom Inc.,
9.75%, 7-15-08 ...................... 500 490,000
VersaTel Telecom International N.V.,
13.25%, 5-15-08 ..................... 250 255,625
Viatel, Inc.,
11.5%, 3-15-09 ...................... 250 225,000
Winstar Communications, Inc.,
12.75%, 4-15-10 (B) ................. 150 145,500
Total ............................... 4,307,260
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textile Mill Products - 1.45%
Anvil Knitwear, Inc.,
10.875%, 3-15-07 .................... $400 $ 332,000
Transportation by Air - 2.06%
Atlas Air, Inc.,
9.375%, 11-15-06 .................... 500 471,250
Transportation Equipment - 1.36%
Delco Remy International, Inc.,
8.625%, 12-15-07 .................... 250 230,000
Federal-Mogul Corporation,
7.875%, 7-1-10 ...................... 100 81,450
Total ............................... 311,450
Transportation Services - 1.03%
Railworks Corporation,
11.5%, 4-15-09 ...................... 250 236,250
Wholesale Trade -- Durable Goods - 1.78%
Heafner (J.H.) Company, Inc. (The),
10.0%, 5-15-08 ...................... 500 407,500
Wholesale Trade -- Nondurable Goods - 0.37%
Amscan Holdings, Inc.,
9.875%, 12-15-07 .................... 100 84,375
TOTAL CORPORATE DEBT SECURITIES - 83.77% $19,168,827
(Cost: $20,715,374)
OTHER GOVERNMENT SECURITY - 1.13%
Mexico
United Mexican States,
9.75%, 4-6-05 ....................... 250 $ 259,375
(Cost: $249,914)
SHORT-TERM SECURITIES
Fabricated Metal Products - 3.03%
Danaher Corporation,
6.1325%, Master Note .................. 693 693,000
Food and Kindred Products - 0.75%
General Mills, Inc.,
5.9875%, Master Note .................. 172 172,000
Nondepository Institutions - 1.76%
PACCAR Financial Corp.,
6.0329, Master Note ................... 403 403,000
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 2000
Value
TOTAL SHORT-TERM SECURITIES - 5.54% $ 1,268,000
(Cost: $1,268,000)
TOTAL INVESTMENT SECURITIES - 96.17% $22,008,096
(Cost: $23,305,324)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 3.83% 875,352
NET ASSETS - 100.00% $22,883,448
See Notes to Schedules of Investments on page 73.
<PAGE>
WADDELL & REED INTERNATIONAL GROWTH FUND
MANAGER'S LETTER
MARCH 31, 2000
-----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the International Growth Fund for
the fiscal year ended March 31, 2000. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
Global economic growth has continued to exceed forecasts. Most emerging
economies have recovered from the international financial crisis of the last
several years. European recoveries have broadened. Japan's progress remains
very slow, but corporate reform has begun. Y2K concerns diminished as the
calendar year-end approached and economic distortions proved to be much lower
than economists had feared. Global financial markets soon refocused on the
dynamic technology sector and the tremendous demand being created for those new
and innovative products. This sector was responsible for much of the tremendous
stock market gain seen in the second half of the Fund's fiscal year.
The Fund's portfolio remained concentrated in high-quality European growth
stocks best positioned for Europe's new single market. We also invested in
carefully selected Japanese companies where corporate reform was evident. Much
of this focus was in high-tech consumer and business services. We continued to
focus on the broad secular themes that have been so apparent and profitable over
the last few years, most notably the combination of a broad single European
market and the rapidly changing global technology scene. We believe that these
trends should continue to trigger mergers and acquisitions for many industries.
These broad changes should be able to continue to flourish in our global
environment of strong economic growth, low inflation and moderate interest
rates.
As charted on the following page, the strategies and techniques we applied
during the past fiscal year resulted in the Fund significantly outperforming the
securities index that reflects the performance of the securities market in
Europe, Australia and the Far East (the Morgan Stanley E.A.FE. Index), and the
universe of funds with similar investment objectives (the Lipper International
Fund Universe Average). The Fund benefited from its overweight position in
high-tech consumer and business services, most notably in Continental Europe and
Sweden.
Although inflation concerns remain minimal, we believe that major central
banks will continue to raise interest rates this year to slow economic growth to
a more manageable level. As a result, financial markets may react with periods
of high volatility before returning to a more stable profile, especially in the
technology sector. Long-term economic growth and moderate inflation should
continue to provide an ideal atmosphere for global investing. We believe that
the Fund's portfolio is well positioned for the scenario anticipated. However,
we will continue to closely monitor global developments to respond quickly to
any change in investment opportunities.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Thomas A. Mengel
Manager, Waddell & Reed Funds, Inc. International Growth Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
International Growth Fund, Class C Shares(1),
The Morgan Stanley Capital International E.A.FE. Index
and The Lipper International Fund Universe Average
Morgan
Stanley
Capital
International International Lipper
Growth E.A.FE. International
Fund, Index Fund
Class C (with net Universe
Shares dividends) Average
--------- ---------- ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 9,753 10,767 10,747
03/31/94 9,785 13,190 13,649
03/31/95 10,160 13,992 13,397
03/31/96 10,937 15,717 15,561
03/31/97 13,654 15,946 16,853
03/31/98 18,466 18,913 20,050
03/31/99 20,378 20,060 20,038
03/31/00 40,328 25,093 27,863
===== International Growth Fund, Class C (2) (3) -- $40,328
***** Morgan Stanley Capital International E.A.FE. Index (with net dividends)(2)
- $25,093
*-*-* Lipper International Fund Universe Average(2) - $27,863
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
Comparative performance of International Growth Fund, Class C Shares following
change in objective.
Morgan
Stanley
Capital
International International Lipper
Growth E.A.FE. International
Fund, Index Fund
Class C (with net Universe
Shares dividends) Average
--------- ---------- ----------
04/30/95 Purchase 10,000 10,000 10,000
03/31/96 10,625 10,826 11,257
03/31/97 13,265 10,983 12,192
03/31/98 17,939 13,027 14,505
03/31/99 19,797 13,817 14,496
03/31/00 39,178 17,284 20,157
===== International Growth Fund, Class C (3) (4) -- $39,178
***** Morgan Stanley Capital International E.A.FE. Index (with net dividends)(4)
- $17,284
*-*-* Lipper International Fund Universe Average(4) - $20,157
(1) Effective as of 4/20/95, the name of the Fund was changed to Waddell & Reed
International Growth Fund and its investment objective was changed to long-
term appreciation, with realization of income as a secondary objective.
(2) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of both the
indexes are not available, the investments were effected as of September
30, 1992.
(3) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
(4) Because the Fund's new investment objective became effective on a date
other than at the end of a month, and partial month calculations of the
performance of both the indexes are not available, the investments were
effected as of April 30, 1995.
Average Annual Total Return*
Class C** Class Y
-----------------------------
Year Ended
3/31/00 97.89% 99.74%
5 Years Ended
3/31/00 31.75% N/A
7+ Years Ended
3/31/00*** 20.54% N/A
Life of
Class Y **** N/A 37.79%
*Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Performance data from
3/24/00 represents the actual performance of Class C shares. Performance
data prior to 3/24/00 represents the performance of Class B shares, but
reflects the deduction of sales charges that would apply to an investment in
Class C shares. Class B shares were combined with Class C shares effective
3/24/00 and were redesignated as Class C shares. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The maximum contingent
deferred sales charge (CDSC) is 1%, declining to zero at the end of the
first year after investment.
***9/21/92 (the initial offering date) through 3/31/00
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/00.
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
-----------------------------------------------------------------
INTERNATIONAL GROWTH FUND
PORTFOLIO STRATEGY:
Normally at least 80% in OBJECTIVE: To seek long-term appreciation
foreign securities. Not of capital as its primary goal
more than 75% in securities and realization of current
in any one country. income as its secondary goal.
Maximum of 15% in currency STRATEGY: Invests primarily in common
exchange contracts. stocks of foreign companies
that have the potential to provide long-
term growth. The Fund typically invests
in growth stocks. International Growth
Fund (formerly Global Income Fund)
changed its name and investment
objective effective April 20, 1995.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
PERFORMANCE SUMMARY - Class C Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 2000
-------------------------------------------
CAPITAL GAINS DISTRIBUTION $1.80
=====
NET ASSET VALUE ON
3/31/00 $28.58 adjusted to: $30.38 (A)
3/31/99 15.58
------
CHANGE PER SHARE $14.80
======
(A)This number includes the capital gains distribution of $1.80 paid in December
1999 added to the actual net asset value on March 31, 2000.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Period Total Return*
------ --------------
1-year period ended 3-31-00 97.89%
5-year period ended 3-31-00 31.75%
Period from 9-21-92**
through 3-31-00 20.54%
*Performance data from 3/24/00 represents the actual performance of Class C
shares. Performance data prior to 3/24/00 represents the performance of Class
B shares, but reflects the deduction of sales charges that would apply to an
investment in Class C shares. Class B shares were combined with Class C
shares effective 3/24/00 and were redesignated as Class C shares. The maximum
contingent deferred sales charge (CDSC) is 1%, declining to zero at the end of
the first year after investment.
**Initial public offering of the Fund.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 2000, International Growth Fund had net assets totaling
$238,575,961 invested in a diversified portfolio of:
87.19% Common Stocks
8.07% Cash and Cash Equivalents
4.74% Preferred Stocks
As a shareholder of International Growth Fund, for every $100 you had invested
on March 31, 2000, your Fund owned:
$87.19 Common Stocks
8.07 Cash and Cash Equivalents
4.74 Preferred Stocks
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS
Australia - 1.97%
Novogen LTD (A)* ....................... 377,999 $ 1,146,471
Solution 6 Holdings Limited (A)(B)* .... 550,200 3,554,451
Total ................................. 4,700,922
Canada - 8.13%
AT&T Canada Inc.* ...................... 86,800 5,311,075
BCE Inc. (A) ........................... 23,000 2,863,924
Nortel Networks Corporation ............ 34,000 4,284,000
Research in Motion Limited* ............ 20,000 2,132,500
Rogers Communications Inc., Class B (A)* 48,500 1,434,714
724 Solutions Inc.* .................... 27,300 3,371,550
Total ................................. 19,397,763
China - 0.03%
Jinpan International Limited* .......... 27,900 76,725
Finland - 2.82%
Nokia, AB (A) .......................... 18,500 3,914,739
Perlos Oy (A)* ......................... 79,250 2,822,806
Total ................................. 6,737,545
France - 13.09%
AXA-UAP (A) ............................ 10,000 1,418,058
Alcatel Alsthom CGE, SA, ADR ........... 75,000 3,285,937
ALTEN (A)* ............................. 13,800 2,592,489
ALTRAN TECHNOLOGIES (A) ................ 10,000 2,441,625
Cross Systems (A)* ..................... 7,000 2,211,825
Fi System (A)* ......................... 30,000 2,800,687
Havas Advertising (A) .................. 5,000 2,704,938
Intercall (A)* ......................... 26,750 2,330,794
Suez Lyonnaise des Eaux (A) ............ 21,613 3,716,723
Total, S.A., B Shares (A) .............. 17,000 2,547,429
Unilog SA (A) .......................... 17,910 2,296,228
Vivendi (A) ............................ 25,000 2,884,469
Total ................................. 31,231,202
Germany - 8.13%
Biodata Information
Technology AG (A)* .................... 5,000 1,891,063
Biodata Information
Technology AG (A)(B)* ................. 2,500 945,531
EM.TV & Merchandising AG (A) ........... 25,000 2,053,837
Heyde AG (A)* ........................... 41,000 6,516,745
Intershop Communications GmbH (A)* ..... 3,886 1,960,885
Rhoen-Klinikum AG (A) .................. 32,319 1,299,709
Singulus Technologies AG (A)* .......... 34,400 3,376,145
Utimaco Safeware AG (A)* ............... 40,000 1,344,330
Total ................................. 19,388,245
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Hong Kong - 2.45%
China Telecom (Hong Kong) Limited (A)* . 400,000 $ 3,506,068
China.com Corporation, Class A* ........ 29,000 2,344,469
Total ................................. 5,850,537
Ireland - 0.42%
Partner Communications, ADR* ........... 60,000 997,500
Italy - 1.97%
TELECOM ITALIA S.p.A.,Ordinary
Shares (A) ............................ 150,000 2,240,550
UniCredito Italiano SpA (A) ............ 614,000 2,445,685
Total ................................. 4,686,235
Korea - 1.18%
Samsung Electronics (A) ................ 9,300 2,818,819
Japan - 14.13%
Alpha Systems, Inc. (A) ................ 12,100 2,652,216
Benesse Corporation (A) ................ 17,800 1,855,431
Benesse Corporation, New (A)* .......... 17,800 1,818,322
Keyence Corporation (A) ................ 5,500 2,196,785
Kyocera Corporation (A) ................ 14,900 2,490,833
NTT Mobile Communications Network,
Inc. (A) .............................. 120 4,921,578
Nippon Telegraph and Telephone
Corporation (A) ....................... 160 2,540,672
ROHM CO., LTD. (A) ..................... 4,400 1,530,248
SECOM Co., Ltd. (A) .................... 18,000 1,543,108
SOFTBANK CORP. (A) ..................... 3,000 2,674,135
Sony Corporation (A) ................... 13,000 1,836,337
Sony Corporation, New (A)* ............. 13,000 1,849,001
TransCosmos Inc. (A) ................... 8,850 2,500,243
Uni-Charm Corporation (A) .............. 50,000 3,287,871
Total ................................. 33,696,780
Luxembourg - 0.37%
Thiel Logistik AG (A)(B)* .............. 16,000 888,560
Netherlands - 7.35%
EQUANT N.V. (A)* ....................... 24,565 2,039,270
Ordina N.V. (A)* ....................... 58,406 2,069,178
Koninklijke Philips Electronics N.V.,
Ordinary Shares (A) ................... 16,860 2,834,790
QIAGEN N.V. (A)* ....................... 27,450 3,942,506
Royal Dutch Petroleum Company (A) ...... 43,200 2,523,618
United Pan-Europe
Communications N.V. (A)* .............. 87,975 4,113,247
Total ................................. 17,522,609
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Spain - 0.80%
Tele Pizza, S.A. (A)* .................. 217,080 $ 1,912,258
Sweden - 4.33%
A-Com AB (A)* .......................... 92,000 1,534,808
Entra Data AB (A) ...................... 60,000 1,842,047
Framtidsfabriken AB (A)* ............... 118,000 2,884,484
Information Highway AB (A)* ............ 444,250 4,065,914
Total ................................. 10,327,253
Switzerland - 3.49%
Clariant Limited, Registered Shares (A) 7,000 2,635,314
Phoenix Mecano AG (A) .................. 6,882 3,360,707
Roche Holdings AG (A) .................. 215 2,335,158
Total ................................. 8,331,179
United Kingdom - 15.29%
Allied Zurich p.l.c. (A) ............... 258,700 2,819,116
Baltimore Technologies plc (A)* ........ 16,500 2,261,675
Capita Group plc (The) (A) ............. 142,000 3,637,370
COLT Telecom Group plc, ADR* ........... 35,000 6,903,750
Computacenter plc (A)(B)* .............. 72,000 1,255,133
Energis (A)(B)* ........................ 30,500 1,425,119
Energis plc (A)* ....................... 40,025 1,870,176
Misys plc (A) .......................... 157,507 2,214,133
Reckitt Benckiser plc (A) .............. 136,690 1,294,782
Sage Group plc (The) (A) ............... 200,000 2,260,640
Sema Group plc (A) ..................... 117,572 2,322,837
Vodafone AirTouch Public Limited
Company (A) ........................... 1,474,115 8,213,769
Total ................................. 36,478,500
United States - 1.24%
Global TeleSystems Group, Inc.* ........ 75,200 1,541,600
Magic Software Enterprises Ltd.* ....... 75,000 1,420,313
Total ................................. 2,961,913
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 2000
Shares Value
TOTAL COMMON STOCKS - 87.19% $208,004,545
(Cost: $127,733,072)
PREFERRED STOCKS
Brazil - 1.26%
Petroleo Brasileiro S.A. - Petrobras (A) 4,720,000 1,278,898
Telebras S.A., ADR ..................... 11,500 1,721,406
Total ................................. 3,000,304
Germany - 3.48%
MLP AG (A) ............................. 14,000 8,311,100
TOTAL PREFERRED STOCKS - 4.74% $ 11,311,404
(Cost: $4,146,741)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 2.51%
Rohm and Haas Company,
6.38%, 4-3-00 ......................... $6,000 5,997,874
Food and Kindred Products - 1.43%
General Mills, Inc.,
5.9875%, Master Note .................. 3,409 3,409,000
Nondepository Institutions - 0.25%
PACCAR Financial Corp.,
6.0329%, Master Note .................. 595 595,000
Total Commercial Paper - 4.19% 10,001,874
Commercial Paper (backed by irrevocable bank
letter of credit)
Oil and Gas Extraction - 2.39%
Louis Dreyfus Corp. (Dresdner Bank AG),
5.97%, 4-4-00 ......................... 5,700 5,697,164
TOTAL SHORT-TERM SECURITIES - 6.58% $ 15,699,038
(Cost: $15,699,038)
TOTAL INVESTMENT SECURITIES - 98.51% $235,014,987
(Cost: $147,578,851)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.49% 3,560,974
NET ASSETS - 100.00% $238,575,961
See Notes to Schedules of Investments on page 73.
<PAGE>
WADDELL & REED LIMITED-TERM BOND FUND
MANAGER'S LETTER
MARCH 31, 2000
----------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Limited-Term Bond Fund for the
fiscal year ended March 31, 2000. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
The majority of recent economic indicators suggest that a slowdown in
growth is not yet imminent. Both business and consumer confidence still appear
to be extremely strong. The pace of growth actually accelerated after the
Federal Reserve began to periodically raise interest rates. Long-term Treasury
yields fell sharply during the last two months of the fiscal year, even in the
face of an ongoing economic boom and persistent pressures on labor and materials
prices. This development is largely the result of drastic reductions in both
actual and prospective issuance of Treasuries, plus the impending buybacks for
long-term issues. Most recently, the sharp sell off in the Nasdaq created a
"flight to quality" bid in Treasuries. The other sectors of the fixed-income
market, including mortgages, corporates and agencies, have lagged behind the
rally in the Treasury market during the first quarter of 2000. The Fed is
concerned that inflation will eventually increase unless the pace of growth
slows.
Our management style attempts to identify relative value opportunities
between sectors of the market. Those sectors include Treasuries, agencies,
corporates and mortgage-backed securities. Based on our determination that the
spread sectors of the market offered attractive yields over Treasuries, we
overweighted those sectors in the Fund's portfolio. Although Treasuries have
outperformed during the last several months, we still feel that corporates,
agencies and mortgages offer superior total return opportunities for the balance
of 2000.
The strategies and techniques we applied resulted in the Fund's performance
remaining modestly below that of the indexes charted on the following page.
Those indexes generally represent the limited-term sector of the bond market
(the Salomon Brothers 1-5 Years Treasury/Government Sponsored/Corporate Index)
and the universe of funds with similar investment objectives (the Lipper Short-
Intermediate Investment Grade Debt Fund Universe Average).
Faced with the prospects of continued strong growth, tight labor markets
and a cyclical pickup in inflation, we look for the Fed to continue to tighten.
Shorter-term securities would be most vulnerable to Fed interest rate hikes, so
we will be cautious going forward.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
W. Patrick Sterner
Manager, Waddell & Reed Funds, Inc. Limited-Term Bond Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Limited-Term Bond Fund, Class C Shares,
The Salomon Brothers 1-5 Years Treasury/Government Sponsored/Corporate Index
and The Lipper Short-Intermediate Investment Grade Debt Fund Universe Average
Salomon
Brothers Lipper Short-
Limited- 1-5 Years Intermediate
Term Treasury/ Investment
Bond Government Grade Debt
Fund, Sponsored/ Fund
Class C Corporate Universe
Shares Index Average
--------- ---------- --------------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 10,206 10,295 10,277
03/31/94 10,350 10,573 10,549
03/31/95 10,632 11,033 10,954
03/31/96 11,419 11,983 11,920
03/31/97 11,821 12,601 12,468
03/31/98 12,666 13,655 13,495
03/31/99 13,255 14,539 14,219
03/31/00 13,352 14,974 14,531
===== Limited-Term Bond Fund, Class C Shares (1) (2) -- $13,352
***** Salomon Brothers 1-5 Years Treasury/ Government Sponsored/ Corporate Index
(1) -- $14,974
----- Lipper Short-Intermediate Investment Grade Debt Fund Universe Average (1)
-- $14,531
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of both the
indexes are not available, the investments were effected as of September
30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return *
Class C** Class Y
-----------------------------
Year Ended
3/31/00 0.73% 1.69%
5 Years Ended
3/31/00 4.66% N/A
7+ Years Ended
3/31/00*** 3.96% N/A
Life of Class Y ****N/A 4.43%
*Total return for the Class Y shares may be greater than that of the Class C
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Performance data from
3/24/00 represents the actual performance of Class C shares. Performance
data prior to 3/24/00 represents the performance of Class B shares, but
reflects the deduction of sales charges that would apply to an investment in
Class C shares. Class B shares were combined with Class C shares effective
3/24/00 and were redesignated as Class C shares. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The maximum contingent
deferred sales charge (CDSC) is 1%, declining to zero at the end of the
first year after investment.
***9/21/92(the initial offering date) through 3/31/00
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/00.
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
-----------------------------------------------------------------
LIMITED-TERM BOND FUND
PORTFOLIO STRATEGY:
OBJECTIVE: To seek a high level of current
Dollar-weighted average income consistent with
maturity of portfolio is preservation of capital.
between two and five years.
STRATEGY: Invests primarily in
At least 65% investment-grade investment-grade debt
bonds. 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.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
PERFORMANCE SUMMARY - Class C Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 2000
----------------------------------------
DIVIDENDS PAID $0.47
=====
NET ASSET VALUE ON
3/31/00 $ 9.76
3/31/99 10.16
------
CHANGE PER SHARE $(0.40)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return*
----------------
1-year period ended 3-31-00 0.73%
5-year period ended 3-31-00 4.66%
Period from 9-21-92**
through 3-31-00 3.96%
*Performance data from 3/24/00 represents the actual performance of Class C
shares. Performance data prior to 3/24/00 represents the performance of Class
B shares, but reflects the deduction of sales charges that would apply to an
investment in Class C shares. Class B shares were combined with Class C
shares effective 3/24/00 and were redesignated as Class C shares. The maximum
contingent deferred sales charge (CDSC) is 1%, declining to zero at the end of
the first year after investment.
**Initial public offering of the Fund.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 2000, Limited-Term Bond Fund had net assets totaling $20,194,986
invested in a diversified portfolio of:
98.48% Bonds
1.52% Cash and Cash Equivalents
As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
March 31, 2000, your Fund owned:
$61.38Corporate Bonds
35.94U.S. Government Securities
1.52Cash and Cash Equivalents
1.16Municipal Bond
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Auto Repair, Services and Parking - 2.96%
Hertz Corporation (The),
7.375%, 6-15-01 ....................... $600 $ 598,476
Communication - 3.02%
Westinghouse Electric Corporation,
8.875%, 6-1-01 ........................ 600 610,956
Depository Institutions - 7.85%
Mercantile Bancorporation Inc.,
7.625%, 10-15-02 ...................... 600 601,932
Society National Bank,
6.75%, 6-15-03 ........................ 275 269,066
Wells Fargo & Company,
8.375%, 5-15-02 ....................... 700 714,364
Total ................................. 1,585,362
Electric, Gas and Sanitary Services - 5.63%
NorAm Energy Corp.,
6.375%, 11-1-03 ....................... 500 480,980
UtiliCorp United,
6.875%, 10-1-04 ....................... 500 477,450
WMX Technologies, Inc.,
7.0%, 5-15-05 ......................... 200 178,376
Total ................................. 1,136,806
Food and Kindred Products - 3.60%
Grand Metropolitan Investment Corp.,
7.125%, 9-15-04 ....................... 734 726,711
General Merchandise Stores - 2.53%
J.C. Penney Company, Inc.,
7.6%, 4-1-07 .......................... 600 510,864
Industrial Machinery and Equipment - 1.96%
Black & Decker Corp.,
7.5%, 4-1-03 .......................... 400 395,632
Instruments and Related Products - 4.05%
Baxter International Inc.,
8.125%, 11-15-01 ...................... 350 353,034
Raytheon Company,
6.75%, 8-15-07 ........................ 500 464,930
Total ................................. 817,964
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Insurance Carriers - 1.73%
Aon Corporation,
7.4%, 10-1-02 ......................... $350 $ 348,866
Nondepository Institutions - 16.23%
American General Finance Corporation,
6.2%, 3-15-03 ......................... 500 486,190
Aristar, Inc.,
5.85%, 1-27-04 ........................ 500 473,800
Avco Financial Services, Inc.,
7.375%, 8-15-01 ....................... 700 700,651
Ford Motor Credit Company,
6.7%, 7-16-04 ......................... 500 485,945
General Motors Acceptance Corporation,
7.0%, 9-15-02 ......................... 700 692,699
Household Finance Corporation,
9.0%, 9-28-01 ......................... 428 437,639
Total ................................. 3,276,924
Petroleum and Coal Products - 3.15%
Chevron Corporation Profit Sharing/Savings
Plan Trust Fund,
8.11%, 12-1-04 ........................ 374 380,791
USX Corporation,
9.8%, 7-1-01 .......................... 250 256,143
Total ................................. 636,934
Railroad Transportation - 5.82%
Norfolk Southern Corporation,
7.35%, 5-15-07 ........................ 588 573,976
Union Pacific Corporation,
7.875%, 2-15-02 ....................... 600 601,002
Total ................................. 1,174,978
Transportation Equipment - 2.85%
Lockheed Martin Corporation,
7.25%, 5-15-06 ........................ 600 574,998
TOTAL CORPORATE DEBT SECURITIES - 61.38% $12,395,471
(Cost: $12,785,169)
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BOND - 1.16%
Kansas
Kansas Development Finance Authority,
Health Facilities Revenue Bonds
(Stormont-Vail HealthCare, Inc.), Taxable,
7.25%, 11-15-02 ....................... $235 $ 235,000
(Cost: $235,000)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.05%, 9-15-20 ........................ 383 374,178
6.5%, 6-15-24 ......................... 631 614,631
Federal National Mortgage Association:
6.0%, 11-1-00 ......................... 128 121,392
7.95%, 3-7-05 ......................... 500 496,170
6.21%, 8-15-05 ........................ 500 473,830
7.5%, 11-15-06 ........................ 500 488,045
8.0%, 2-1-08 .......................... 87 87,950
6.5%, 12-1-10 ......................... 372 358,179
6.0%, 1-1-11 .......................... 304 286,098
6.5%, 2-1-11 .......................... 356 343,192
7.0%, 5-1-11 .......................... 226 221,532
7.0%, 7-1-11 .......................... 246 241,288
7.0%, 9-1-12 .......................... 295 289,892
6.0%, 11-1-13 ......................... 436 410,772
7.0%, 9-1-14 .......................... 481 472,837
7.0%, 4-1-26 .......................... 295 283,607
Government National Mortgage Association:
6.5%, 10-15-08 ........................ 131 126,941
7.0%, 7-15-10 ......................... 219 215,460
6.5%, 1-15-14 ......................... 426 411,450
7.0%, 4-15-29 ......................... 576 559,160
7.0%, 7-15-29 ......................... 394 382,122
TOTAL UNITED STATES GOVERNMENT SECURITIES - 35.94% $ 7,258,726
(Cost: $7,482,713)
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 2000
Value
TOTAL SHORT-TERM SECURITIES - 1.16% $ 234,000
(Cost: $234,000)
TOTAL INVESTMENT SECURITIES - 99.64% $20,123,197
(Cost: $20,736,882)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.36% 71,789
NET ASSETS - 100.00% $20,194,986
See Notes to Schedules of Investments on page 73.
<PAGE>
WADDELL & REED MUNICIPAL BOND FUND
MANAGER'S LETTER
MARCH 31, 2000
----------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Municipal Bond Fund for the
fiscal year ended March 31, 2000. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
Several powerful forces weighed on all fixed-income markets during the last
fiscal year. The Federal Reserve began raising short-term interest rates at the
end of June 1999, and has now raised interest rates five times. The Fed is
poised to raise interest rates even more to slow credit creation and the
economy, but we believe that the end of this process should be near. Tax-loss
selling and investor preference for equities over fixed-income securities placed
additional pressure on bonds.
As bond prices fell during the year, more bonds were priced to maturity
instead of to call. This repricing increased volatility of affected issues. We
have attempted to fight this drift to longer maturity and volatility by selling
some of our longer-term bonds, while still emphasizing high yields. However,
rising yields have reduced prices across the maturity spectrum.
The strategies and techniques we applied resulted in the Fund's performance
for the fiscal year falling below that of the Lehman Brothers Municipal Bond
Index (reflecting the performance of securities that generally represent the
municipal bond market) and the Lipper General Municipal Debt Funds Universe
Average (reflecting the universe of funds with similar investment objectives).
Both indexes are charted on the following page. Fund performance suffered last
year because of the lengthening duration of the Fund's portfolio and our desire
to emphasize current yield.
The preference for equity investments over the past year has been
particularly strong. This has caused constant shifting out of fixed-income
securities into equities, forcing us to maintain larger than usual cash
reserves. With the recent slowdown in the stock market, this trend has slowed,
but not reversed. The Fed is expected to raise interest rates further.
However, we believe that such hikes are nearing an end. As this occurs, we
would expect investors to return to more balanced portfolios and increase
diversification into bonds, which should provide both current income and price
appreciation opportunities for the Fund. The objective of the Fund remains the
same, to provide income that is not subject to Federal income taxes. To achieve
that objective, we plan to continue investing in intermediate and longer-term
investment grade municipal bonds that emphasize yield.
Thank you for your continued support and confidence in our organization.
Respectfully,
John M. Holliday
Manager, Waddell & Reed Funds, Inc. Municipal Bond Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Municipal Bond Fund, Class C Shares,
The Lehman Brothers Municipal Bond Index
and The Lipper General Municipal Debt Funds Universe Average
Lipper
Municipal Lehman General
Bond Brothers Municipal
Fund, Municipal Debt Funds
Class C Bond Universe
Shares Index Average
--------- --------- ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 10,700 10,560 10,576
03/31/94 10,782 10,805 10,759
03/31/95 11,469 11,608 11,432
03/31/96 12,327 12,581 12,242
03/31/97 12,983 13,269 12,831
03/31/98 14,397 14,846 14,181
03/31/99 15,065 15,767 14,874
03/31/00 14,129 15,754 14,514
===== Municipal Bond Fund, Class C Shares (1) (2)-- $14,129
+++++ Lehman Brothers Municipal Bond Index (1) -- $15,754
----- Lipper General Municipal Debt Funds Universe Average (1) -- $14,514
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of both the
indexes are not available, the investments were effected as of September
30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return*
Class C** Class Y
-----------------------------
Year Ended
3/31/00 -6.21% -5.69%
5 Years Ended
3/31/00 4.26% N/A
7+ Years Ended
3/31/00*** 4.75% N/A
Life of Class Y N/A -3.74%****
*Total return for the Class Y shares may be greater than that of the Class C
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Performance data from
3/24/00 represents the actual performance of Class C shares. Performance
data prior to 3/24/00 represents the performance of Class B shares, but
reflects the deduction of sales charges that would apply to an investment in
Class C shares. Class B shares were combined with Class C shares effective
3/24/00 and were redesignated as Class C shares. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The maximum contingent
deferred sales charge (CDSC) is 1%, declining to zero at the end of the
first year after investment.
***9/21/92 (the initial offering date) through 3/31/00.
****12/30/98 (the date on which Fund Class Y shares were first acquired and
continuously held by shareholders) through 3/31/00.
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
-----------------------------------------------------------------
MUNICIPAL BOND FUND
PORTFOLIO STRATEGY:
Minimum 80% investment- OBJECTIVE: To seek income which is not
grade Municipal Bonds.* subject to Federal income
taxation. (Income may be
Less than 25% of its assets subject to state and local
in securities of issuers taxes, and a portion may be
located in any single state. subject to Federal taxes, including
Federal alternative minimum tax.)
STRATEGY: Invests primarily in tax-exempt
municipal bonds, mainly of investment
grade (rated BBB or higher by Standard &
Poor's or Baa or higher by Moody's
Investors Service, Inc.).
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
*During normal market conditions.
PERFORMANCE SUMMARY - Class C Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 2000
----------------------------------------
DIVIDENDS PAID $0.42
=====
CAPITAL GAINS DISTRIBUTIONS $0.02
=====
NET ASSET VALUE ON
3/31/00 $10.11 adjusted to: $10.13(A)
3/31/99 11.24
------
CHANGE PER SHARE $(1.11)
======
(A) This number includes the capital gains distribution of $0.02 paid in
December 1999 added to the actual net asset value on March 31, 2000.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return*
---------------
1-year period ended 3-31-00 -6.21%
5-year period ended 3-31-00 4.26%
Period from 9-21-92**
through 3-31-00 4.75%
*Performance data from 3/24/00 represents the actual performance of Class C
shares. Performance data prior to 3/24/00 represents the performance of Class
B shares, but reflects the deduction of sales charges that would apply to an
investment in Class C shares. Class B shares were combined with Class C
shares effective 3/24/00 and were redesignated as Class C shares. The maximum
contingent deferred sales charge (CDSC) is 1%, declining to zero at the end of
the first year after investment.
**Initial public offering of the Fund.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 2000, Municipal Bond Fund had net assets totaling $28,363,179
invested in a diversified portfolio.
As a shareholder of Municipal Bond Fund, for every $100 you had invested on
March 31, 2000, your Fund owned:
$18.85Hospital Revenue Bonds
15.11Lifecare/Nursing Centers Revenue Bonds
12.77Housing Revenue Bonds
10.16Education Revenue Bonds
9.35Cash and Cash Equivalents
8.04Other Municipal Bonds
7.53Industrial Revenue Bonds
5.21Special Tax Bonds
3.57Leasing/Certificates of Participation Bonds
3.55Sales Revenue Bonds
3.17Resource Recovery Revenue Bonds
2.69Electric Utility Revenue Bonds
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ARIZONA - 0.97%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-13 .......................... $ 270 $ 275,062
ARKANSAS - 1.40%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-13 ......................... 400 396,500
COLORADO - 9.34%
City of Aspen, Colorado, Sales Tax Revenue Bonds,
Series 1999,
5.25%, 11-1-15 ........................ 1,050 1,006,687
Boulder County, Colorado, Hospital Development
Revenue Bonds (Longmont United Hospital
Project), Series 1997,
5.6%, 12-1-27 ......................... 1,000 836,250
Colorado Health Facilities Authority, Hospital
Revenue Bonds (Steamboat Springs Health Care
Association Project), Series 1997,
5.75%, 9-15-22 ........................ 1,000 805,000
Total ................................. 2,647,937
DISTRICT OF COLUMBIA - 1.39%
District of Columbia, Redevelopment Land
Agency (Washington, D.C.), Sports Arena
Special Tax Revenue Bonds (Series 1996),
5.625%, 11-1-10 ....................... 390 393,412
FLORIDA - 2.44%
Housing Finance Authority of Palm Beach
County, Florida, Multifamily Housing
Revenue Bonds (Windsor Park Apartments
Project), Series 1998A,
5.9%, 6-1-38 .......................... 750 691,875
ILLINOIS - 1.62%
School District Number 116, Champaign County,
Illinois (Urbana), General Obligation School
Building Bonds, Series 1999C,
0.0%, 1-1-11 .......................... 850 460,062
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
INDIANA - 6.57%
Dyer (Indiana) Redevelopment Authority,
Economic Development Lease Rental Bonds,
Series 1999,
6.5%, 1-15-24 ......................... $1,500 $ 1,477,500
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-16 ......................... 400 387,500
Total ................................. 1,865,000
IOWA - 1.22%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-13 .......................... 340 345,100
MARYLAND - 3.71%
Montgomery County Revenue Authority
(Maryland), Golf Course System Revenue
Bonds, Series 1996A,
6.125%, 10-1-22 ....................... 650 621,563
Maryland Health and Higher Educational
Facilities Authority, Project and
Refunding Revenue Bonds, Doctors Community
Hospital Issue, Series 1993,
5.75%, 7-1-13 ......................... 500 430,000
Total ................................. 1,051,563
MASSACHUSETTS - 6.66%
Massachusetts Health and Educational Facilities
Authority, Revenue Bonds, Caritas Christi
Obligated Group Issue, Series A,
5.625%, 7-1-20 ........................ 1,250 989,062
Massachusetts Industrial Finance Agency,
Resource Recovery Revenue Refunding Bonds
(Ogden Haverhill Project), Series 1998A,
5.5%, 12-1-13 ......................... 1,000 898,750
Total ................................. 1,887,812
MICHIGAN - 5.63%
Michigan Strategic Fund, Limited Obligation
Revenue Bonds (Porter Hills Presbyterian
Village, Inc. Project), Series 1998,
5.375%, 7-1-28 ........................ 1,000 823,750
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MICHIGAN (Continued)
City of Flint Hospital Building Authority,
Revenue Rental Bonds, Series 1998B (Hurley
Medical Center),
5.375%, 7-1-18 ........................ $1,000 $ 772,500
Total ................................. 1,596,250
MINNESOTA - 4.75%
City of Victoria, Minnesota, Private School Facility
Revenue Bonds (Holy Family Catholic High School
Project), Series 1999A,
5.6%, 9-1-19 .......................... 1,500 1,346,250
MISSOURI - 10.82%
The Industrial Development Authority of the
County of Taney, Missouri, Hospital Revenue
Bonds (The Skaggs Community Hospital
Association), Series 1998,
5.3%, 5-15-18 ......................... 1,860 1,513,575
Health and Educational Facilities Authority
of the State of Missouri, Educational Facilities
Revenue Bonds (Southwest Baptist University
Project), Series 1998,
5.375%, 10-1-23 ....................... 700 627,375
Tax Increment Financing Commission of Kansas City,
Missouri, Tax Increment Refunding and Improvement
Revenue Bonds (Briarcliff West Project), Series 1999,
6.1%, 8-1-14 .......................... 500 480,000
City of Fenton, Missouri, Public Facilities
Authority, Leasehold Revenue Bonds,
Series 1997 (City of Fenton, Missouri, Lessee),
5.25%, 1-1-18 ......................... 500 447,500
Total ................................. 3,068,450
NEBRASKA - 1.84%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, 1993-2
Series A-5A,
6.2%, 6-1-13 .......................... 500 522,500
OKLAHOMA - 4.40%
Oklahoma Housing Finance Agency, Single
Family Mortgage Revenue Bonds
(Homeownership Loan Program),
1996 Series A,
7.05%, 9-1-26 ......................... 925 974,719
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OKLAHOMA (Continued)
Tulsa Public Facilities Authority (Oklahoma):
Assembly Center Lease Payment Revenue
Bonds, Refunding Series 1985,
6.6%, 7-1-14 .......................... $ 200 $ 221,000
Recreational Facilities Revenue Bonds,
Series 1985,
6.2%, 11-1-12 ......................... 50 51,688
Total ................................. 1,247,407
PENNSYLVANIA - 5.88%
Montgomery County Industrial Development
Authority, Retirement Community Revenue Bonds
(Adult Communities Total Services, Inc.
Obligated Group), Series 1996B,
5.625%, 11-15-12 ...................... 1,750 1,669,063
TENNESSEE - 9.91%
The Health and Educational Facilities Board
of the Metropolitan Government of Nashville
and Davidson County, Tennessee, Multi-Modal
Interchangeable Rate Health Facility Revenue
Bonds (Richland Place, Inc. Project),
Series 1993,
5.5%, 5-1-23 .......................... 1,955 1,793,713
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-23 ........................ 1,000 1,017,500
Total ................................. 2,811,213
TEXAS - 5.97%
Texas Department of Housing and Community
Affairs, Single Family Mortgage Revenue
Bonds, 1997 Series D (AMT) TEAMS Structure,
5.7%, 9-1-29 .......................... 1,000 940,000
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B Bonds,
5.85%, 5-1-22 ......................... 800 754,000
Total ................................. 1,694,000
UTAH - 6.13%
Tooele County, Utah, Hazardous Waste Treatment
Revenue Bonds (Union Pacific Corporation/
USPCI, Inc. Project), Series A,
5.7%, 11-1-26 ......................... 2,000 1,740,000
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 2000
Principal
Amount in
Thousands Value
TOTAL MUNICIPAL BONDS - 90.65% $25,709,456
(Cost: $28,001,278)
SHORT-TERM SECURITIES
Food and Kindred Products - 9.08%
General Mills, Inc.,
5.9875%, Master Note .................. 2,575 2,575,000
Nondepository Institutions - 0.01%
PACCAR Financial Corp.,
6.0329%, Master Note .................. 4,000 4,000
TOTAL SHORT-TERM SECURITIES - 9.09% $ 2,579,000
(Cost: $2,579,000)
TOTAL INVESTMENT SECURITIES - 99.74% $28,288,456
(Cost: $30,580,278)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.26% 74,723
NET ASSETS - 100.00% $28,363,179
See Notes to Schedules of Investments on page 73.
<PAGE>
WADDELL & REED SCIENCE AND TECHNOLOGY FUND
MANAGER'S LETTER
MARCH 31, 2000
----------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Science and Technology Fund for
the fiscal year ended March 31, 2000. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
The economy, especially the technology sector, remained strong during the
past fiscal year, due in large measure to the continued growth of the Internet
creating higher technology-related capital spending. Large cap indexes again
outperformed small cap indexes, but the differential was not large.
Notwithstanding very strong fundamentals, Wall Street has become concerned about
the corporate profit outlook and excessive valuations in some areas of the
market. This more cautious sentiment and fears that the Federal Reserve would
raise interest rates more aggressively hurt the stocks late in the last quarter
of the Fund's fiscal year, especially technology stocks.
The Fund had a very successful year, with gains well in excess of 100%.
These larger-than-normal gains resulted from excellent stock investments and
opportunities in a hot initial public offering market. The Fund also benefited
from deregulation in telecommunications last year. We believe that as more
sectors are deregulated to increase competition, more companies may become
growth vehicles. Even older companies that fully embrace the Internet are
finding new opportunities. We have typically invested in companies and
industries that reinvent themselves to maintain their growth. This process
naturally led us to the Internet and companies that facilitate that process.
The strategies and techniques we applied resulted in the Fund significantly
outperforming the Lipper Science and Technology Fund Universe Average and the
Goldman Sachs Technology Industry Composite Index, both as charted on the
following page. The Lipper Index reflects the performance of the universe of
funds with similar investment objectives as the Fund. The Goldman Sachs Tech
Index reflects the performance of securities that generally represent the
technology sector of the stock market. The Goldman Sachs Tech Index replaces
the S&P 400 Index in this year's report. We believe that the new index provides
a more accurate basis for comparing the Fund's performance to the types of
securities in which the Fund invests. Both indexes are presented in this year's
report for comparison purposes. The Fund's performance was aided by large
advances in Internet and web-enabling stocks.
Despite recent pressures on science and technology stocks, we believe in
the long-term prospects of the sector. Technology permeates our lives and we
believe that the relevance of technology will only grow. We will continue to
try to identify companies that benefit the most from developments.
Thank you very much for your continued support and confidence.
Respectfully,
Henry J. Herrmann
Manager, Waddell & Reed Funds, Inc. Science and Technology Fund
Please Note: Effective April 17, 2000, Henry J. Herrmann replaced Abel Garcia
as the manager of the Waddell & Reed Funds, Inc. Science and Technology Fund.
Mr. Herrmann is Vice President of the Fund; 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 Waddell & Reed Investment Management Company ("WRIMCO");
and Vice President of each of the other investment companies for which WRIMCO
serves as investment manager. Mr. Herrmann has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since March 15, 1971.
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Science and Technology Fund, Class C Shares,
The Goldman Sachs Technology Industry Composite Index,
The S&P 400 Index
and the Lipper Science and Technology Fund Universe Average
Lipper Goldman
Science and Sachs
TechnologyTechnology
Science and S&P Fund Industry
Technology Fund 400 Universe Composite
Class C Shares Index Average Index
----------------------------------------
07/31/97 Purchase10,000 10,000 10,000 10,000
03/31/98 12,010 11,580 10,650 10,531
03/31/99 17,450 14,194 16,348 16,631
03/31/00 45,325 17,427 38,598 32,774
===== Science and Technology Fund, Class C Shares(1) - $45,325
..... Goldman Sachs Technology Industry Composite Index - $32,774
+++++ S&P 400 Index - $17,427
***** Lipper Science and Technology Fund Universe Average - $38,598
(1) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return*
Class C** Class Y
-----------------------------
Year Ended
3/31/00 159.75% 158.67%
2+ Years Ended
3/31/00*** 76.18% N/A
Life of Class Y ****N/A 107.24%
*Total return for the Class Y shares may be greater than that of the Class C
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Performance data from
3/24/00 represents the actual performance of Class C shares. Performance
data prior to 3/24/00 represents the performance of Class B shares, but
reflects the deduction of sales charges that would apply to an investment in
Class C shares. Class B shares were combined with Class C shares effective
3/24/00 and were redesignated as Class C shares. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The maximum contingent
deferred sales charge (CDSC) is 1%, declining to zero at the end of the
first year after investment.
***7/31/97 (the initial offering date) through 3/31/00
****6/9/98 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/00.
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
------------------------------------------------------------------------
SCIENCE AND TECHNOLOGY FUND
PORTFOLIO STRATEGY:
Technology-related OBJECTIVE: To seek long-term capital
stocks growth.
Generally at least 80% STRATEGY: Invests primarily in science
in science or technology and technology equity
securities.* securities of U.S. companies, typically
in common stock. The Fund emphasizes
growth potential in selecting
securities.
FOUNDED: 1997
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (DECEMBER)
*During normal market conditions.
PERFORMANCE SUMMARY -- Class C Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 2000
--------------------------------------
CAPITAL GAINS DISTRIBUTION $0.24
=====
NET ASSET VALUE ON
3/31/00 $45.03 adjusted to: $45.27(A)
3/31/99 17.45
------
CHANGE PER SHARE $27.82
======
(A)This number includes the capital gains distribution of $0.24 paid in December
1999 added to the actual net asset value on March 31, 2000.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Period Total Return*
------ --------------
1-year period ended 3-31-00 159.75%
Period from 7-31-97**
through 3-31-00 76.18%
*Performance data from 3/24/00 represents the actual performance of Class C
shares. Performance data prior to 3/24/00 represents the performance of Class
B shares, but reflects the deduction of sales charges that would apply to an
investment in Class C shares. Class B shares were combined with Class C
shares effective 3/24/00 and were redesignated as Class C shares. The maximum
contingent deferred sales charge (CDSC) is 1%, declining to zero at the end of
the first year after investment.
**Initial public offering of the Fund.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 2000, Science and Technology Fund had net assets totaling
$284,981,217 invested in a diversified portfolio of:
98.12% Common Stocks
1.88% Cash and Cash Equivalents
As a shareholder of Science and Technology Fund, for every $100 you had invested
on March 31, 2000, your Fund owned:
$54.40 Services Stocks
32.94 Manufacturing Stocks
7.00 Transportation, Communication, Electric, Gas
and Sanitary Services Stocks
2.82 Wholesale and Retail Trade Stocks
1.88 Cash and Cash Equivalents
0.96 Finance, Insurance and Real Estate Stocks
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS
Business Services - 23.20%
Acxiom Corporation* .................... 60,000 2,019,375
America Online, Inc.* .................. 48,000 3,228,000
Broadbase Software, Inc.* .............. 45,000 3,574,687
CacheFlow Inc.* ........................ 20,000 2,265,000
CheckFree Holdings Corporation* ........ 27,000 1,906,031
Clear Channel Communications, Inc.* .... 20,000 1,381,250
Critical Path, Inc.* ................... 28,000 2,379,125
DoubleClick Inc.* ...................... 40,000 3,746,250
eBay Inc.* ............................. 16,000 2,815,500
Getty Images, Inc.* .................... 66,600 2,395,519
Inktomi Corporation* ................... 26,000 5,069,188
InterNAP Network Services Corporation* . 50,000 2,307,812
MemberWorks Incorporated* .............. 22,000 882,062
NBC Internet, Inc., Class A* ........... 30,000 1,291,875
Netcentives Inc.* ...................... 50,000 1,509,375
Netopia, Inc.* ......................... 37,250 2,680,836
Redback Networks* ...................... 20,000 5,966,875
S1 Corporation* ........................ 45,000 3,857,344
Sanchez Computer Associates, Inc.* ..... 86,000 3,012,688
724 Solutions Inc.* .................... 19,000 $ 2,346,500
ShopNow.com Inc.* ...................... 100,000 1,468,750
TMP Worldwide Inc.* .................... 62,400 4,859,400
Yahoo! Inc.* ........................... 30,000 5,134,687
Total ................................. 66,098,129
Chemicals and Allied Products - 3.23%
Albany Molecular Research, Inc.* ..... 50,000 2,896,875
Forest Laboratories, Inc.* ........... 35,000 2,957,500
Pharmacyclics, Inc.* ................. 60,000 3,339,375
Total ............................... 9,193,750
Communication - 3.15%
COLT Telecom Group plc, ADR* ........... 8,000 1,578,000
EchoStar Communications Corporation,
Class A* .............................. 48,000 3,792,000
USA Networks, Inc.* .................... 160,000 3,605,000
Total ................................. 8,975,000
Computer Programming Services - 4.36%
Cysive, Inc.* .......................... 25,875 1,778,906
Portal Software, Inc.* ................. 77,000 4,386,594
VeriSign, Inc.* ........................ 20,000 2,988,750
webMethods, Inc.* ...................... 13,500 3,280,922
Total ................................. 12,435,172
Depository Institutions - 0.96%
Concord EFS, Inc.* ..................... 120,000 2,748,750
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 22.56%
Applied Micro Circuits Corporation* .... 30,000 $ 4,500,937
Broadcom Corporation, Class A* ......... 30,000 7,287,188
Data Critical Corporation* ............. 100,000 1,456,250
Finisar Corporation* ................... 19,500 2,856,750
Gemstar International Group Limited* ... 48,000 4,126,500
Inet Technologies, Inc.* ............... 50,000 2,648,437
JDS Uniphase Corporation* .............. 76,000 9,160,375
Kopin Corporation* ..................... 25,000 1,717,969
Micron Technology, Inc.* ............... 31,000 3,906,000
Nokia Corporation, Series A, ADR ....... 18,000 3,910,500
Nortel Networks Corporation ............ 25,000 3,150,000
Rambus Inc.* ........................... 45,000 13,211,719
Sycamore Networks, Inc.* ............... 30,000 3,866,250
Wink Communications, Inc.* ............. 75,000 2,493,750
Total ................................. 64,292,625
Engineering and Management Services - 3.16%
Gene Logic Inc.* ....................... 40,000 1,675,000
Incyte Pharmaceuticals, Inc.* .......... 26,100 2,281,303
MAXIMUS, Inc.* ......................... 30,000 915,000
Paychex, Inc. .......................... 45,000 2,355,469
Sequenom, Inc.* ........................ 45,000 1,788,750
Total ................................. 9,015,522
Industrial Machinery and Equipment - 6.60%
Apple Computer, Inc.* .................. 30,900 4,195,641
Crossroads Systems, Inc.* .............. 10,000 1,033,750
Foundry Networks, Inc.* ................ 30,000 4,249,687
Juniper Networks, Inc.* ................ 30,000 7,882,500
Palm, Inc.* ............................ 32,500 1,457,422
Total ................................. 18,819,000
Instruments and Related Products - 0.55%
PE Corporation - Celera Genomics Group* 17,000 1,556,562
Miscellaneous Retail - 1.18%
Amazon.com, Inc.* ...................... 50,000 3,348,438
Prepackaged Software - 23.68%
Allaire Corporation* ................... 39,000 2,946,937
Ariba, Inc.* ........................... 32,000 6,703,000
BindView Development Corporation* ...... 75,000 2,327,344
BroadVision, Inc.* ..................... 210,000 9,456,563
Citrix Systems, Inc.* .................. 70,000 4,635,312
E.piphany, Inc.* ....................... 11,100 1,482,197
eGain Communications Corporation* ...... 40,000 1,598,750
HNC Software Inc.* ..................... 20,000 1,439,375
Intuit Inc.* ........................... 90,000 4,890,937
Macromedia, Inc.* ...................... 41,000 3,704,094
MatrixOne, Inc.* ....................... 10,750 429,664
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Prepackaged Software (Continued)
NetIQ Corporation* ..................... 56,500 $ 3,790,797
Phone.com, Inc.* ....................... 41,500 6,768,391
Transaction Systems Architects, Inc.,
Class A*............................... 26,000 750,750
Veritas Software Corp.* ................ 60,000 7,760,625
Vignette Corporation* .................. 55,000 8,815,469
Total ................................. 67,500,205
Radio Communication - 1.82%
Nextel Communications, Inc.* ........... 35,000 5,187,656
Telephone Communication - 2.03%
Illuminet Holdings, Inc.* .............. 40,000 1,968,750
Next Level Communications, Inc.* ....... 35,000 3,815,000
Total ................................. 5,783,750
Wholesale Trade -- Nondurable Goods - 1.64%
Allscripts, Inc.* ...................... 40,000 2,400,000
Ventro Corporation* .................... 40,000 2,263,750
Total ................................. 4,663,750
TOTAL COMMON STOCKS - 98.12% $279,618,309
(Cost: $134,390,382)
TOTAL SHORT-TERM SECURITIES - 1.72% $ 4,902,925
(Cost: $4,902,925)
TOTAL INVESTMENT SECURITIES - 99.84% $284,521,234
(Cost: $139,293,307)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.16% 459,983
NET ASSETS - 100.00% $284,981,217
See Notes to Schedules of Investments on page 73.
<PAGE>
WADDELL & REED TOTAL RETURN FUND
MANAGER'S LETTER
MARCH 31, 2000
-----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Total Return Fund for the
fiscal year ended March 31, 2000. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
Three factors were critical to the performance of the stock market and the
Fund during the past fiscal year. First, interest rates in the U.S. rose
substantially. The Federal Reserve has increased the Fed Funds Rate on five
occasions since June 1999, from 4.75% to 6.00%. Second, technology stocks
exhibited tremendous performance, especially in the fourth quarter of 1999 and
the first two months of 2000. Valuations of Internet, wireless,
telecommunications, e-commerce and other Nasdaq securities reached levels never
before witnessed by the stock market. Finally, a huge divergence opened between
the valuations of many traditional companies and the tech sector. This
valuation gap was further widened by a surge of tech-related issues in the first
few months of 2000.
The most relevant change in the Fund's portfolio during the year was the
elimination of most of the Fund's fixed-income position in November. Also, we
have attempted to reduce the Fund's exposure to the most extremely valued
stocks. We have gradually added to sectors that we think reflect good value.
We have not made any significant changes in management style during the last
year. It appears that the extreme valuation divergence between technology
stocks and many traditional companies is unsustainable. Our focus for recent
new purchases has been on value. We have looked for reasonably priced stocks
with earnings stability.
The strategies and techniques we applied resulted in the Fund's performance
exceeding that of the S&P 500 Index and the Lipper Large-Cap Core Fund Universe
Average, both of which are charted on the following page. Those indexes reflect
the performance of securities that generally represent the stock market (the S&P
500 Index) and the universe of funds with similar investment objectives (the
Lipper Large-Cap Core Fund Universe Average). The category assigned to the Fund
has changed from last year's report. This change is a result of Lipper's new
fund classification system that was instituted in September 1999. The Fund's
performance last year was aided by its concentration on value as the market
began to rotate out of some of the more extremely priced sectors.
We think the U.S. economy will slow in the second half of 2000 as a
consequence of the Fed's efforts to raise interest rates and slow the growth of
money supply. We also expect price-to-earnings ratios of extremely priced
stocks to decline toward more normal levels. In this environment, we anticipate
meaningful amounts of money returning to traditional companies with solid
earnings, stable revenue streams and positive cash flow. We intend to continue
to purchase large-capitalization, high-quality stocks that we believe have
reasonable valuations, solid long-term growth prospects, and excellent global
presence.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
James D. Wineland
Manager, Waddell & Reed Funds, Inc. Total Return Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Total Return Fund, Class C Shares,
The S&P 500 Index
and The Lipper Large-Cap Core Fund Universe Average
Total Lipper
Return Large-Cap
Fund Core Fund
Class C S & P 500 Universe
Shares Index Average
--------- --------- ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 11,147 10,962 11,015
03/31/94 12,073 11,123 11,328
03/31/95 12,818 12,855 12,522
03/31/96 16,503 16,982 16,136
03/31/97 18,472 20,334 18,633
03/31/98 25,781 30,103 26,769
03/31/99 27,707 35,681 30,968
03/31/00 34,352 42,164 37,706
===== Total Return Fund, Class C Shares (1) (2) -- $34,352
+++++ S&P 500 Index (1) -- $42,164
----- Lipper Large-Cap Core Fund Universe Average (1) -- $37,706
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of both the
indexes are not available, the investments were effected as of September
30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return
Class C** Class Y
-----------------------------
Year Ended
3/31/00 23.98% 24.96%
5 Years Ended
3/31/00 21.79% N/A
7+ Years Ended
3/31/00*** 17.73% N/A
Life of
Class Y**** N/A 21.51%
*Total return for the Class Y shares may be greater than that of the Class C
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Performance data from
3/24/00 represents the actual performance of Class C shares. Performance
data prior to 3/24/00 represents the performance of Class B shares, but
reflects the deduction of sales charges that would apply to an investment in
Class C shares. Class B shares were combined with Class C shares effective
3/24/00 and were redesignated as Class C shares. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The maximum contingent
deferred sales charge (CDSC) is 1%, declining to zero at the end of the
first year after investment.
***9/21/92 (the initial offering date) through 3/31/00
****12/29/95 (the date on which Fund Class Y shares were first acquired by
investors) through 3/31/00.
Past performance is not necessarily indicative of future performance. Indexes
are unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
-----------------------------------------------------------------
TOTAL RETURN FUND
PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: To seek current income while
securities convertible into seeking capital growth.
common stocks.
STRATEGY: Invests primarily in common stocks of
U.S. companies with dominant market
positions in their industries and that
have a record of paying regular
dividends on common stock or have the
potential for capital appreciation.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
PERFORMANCE SUMMARY - Class C Shares
PER SHARE DATA
For the Fiscal Year ended March 31, 2000
-------------------------------------------
DIVIDEND PAID $0.03
=====
CAPITAL GAINS DISTRIBUTION $0.43
=====
NET ASSET VALUE ON
3/31/00 $13.76 adjusted to: $14.19(A)
3/31/99 11.52
------
CHANGE PER SHARE $ 2.67
======
(A)This number includes the capital gains distribution of $0.43 paid in December
1999 added to the actual net asset value on March 31, 2000.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return*
---------------
1-year period ended 3-31-00 23.98%
5-year period ended 3-31-00 21.79%
Period from 9-21-92**
through 3-31-00 17.73%
*Performance data from 3/24/00 represents the actual performance of Class C
shares. Performance data prior to 3/24/00 represents the performance of Class
B shares, but reflects the deduction of sales charges that would apply to an
investment in Class C shares. Class B shares were combined with Class C
shares effective 3/24/00 and were redesignated as Class C shares. The maximum
contingent deferred sales charge (CDSC) is 1%, declining to zero at the end of
the first year after investment.
**Initial public offering of the Fund.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 2000, Total Return Fund had net assets totaling $587,444,840
invested in a diversified portfolio of:
97.63% Common Stocks
1.98% Cash and Cash Equivalents
0.39% Preferred Stock
As a shareholder of Total Return Fund, for every $100 you had invested on March
31, 2000, your Fund owned:
$45.42 Manufacturing Stocks
13.71 Finance, Insurance and Real Estate Stocks
11.92 Wholesale and Retail Trade Stocks
9.90 Services Stocks
9.39 Transportation, Communication, Electric
and Sanitary Services Stocks
5.70 Mining Stocks
1.98 Cash and Cash Equivalents
1.59 Miscellaneous Investing Institutions Stocks
0.39 Preferred Stock
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 2.01%
Walt Disney Company (The) .............. 284,700 $11,779,463
Building Materials and Garden Supplies - 0.66%
Home Depot, Inc. (The) ................. 60,150 3,879,675
Business Services - 2.16%
Aether Systems, Inc. ................... 8,300 1,510,600
America Online, Inc.* .................. 67,600 4,546,100
Clear Channel Communications, Inc.* .... 95,800 6,616,187
Total ................................. 12,672,887
Chemicals and Allied Products - 18.53%
Air Products and Chemicals, Inc. ....... 139,200 3,958,500
American Home Products Corporation ..... 130,500 6,998,063
Biogen, Inc.* .......................... 36,400 2,541,175
Bristol-Myers Squibb Company ........... 45,400 2,621,850
Dow Chemical Company (The) ............. 55,200 6,292,800
du Pont (E.I.) de Nemours and Company .. 159,400 8,428,275
Forest Laboratories, Inc.* ............. 78,900 6,667,050
Johnson & Johnson ...................... 71,900 5,037,494
Lilly (Eli) and Company ................ 102,700 6,470,100
Merck & Co., Inc. ...................... 123,900 7,697,287
Pfizer Inc. ............................ 187,300 6,848,156
Pharmacia & Upjohn, Inc. ............... 156,700 9,284,475
Pharmacia Corporation .................. 232,100 11,953,150
Schering-Plough Corporation ............ 209,100 7,684,425
Warner-Lambert Company ................. 168,100 16,389,750
Total ................................. 108,872,550
Communication - 2.68%
Cox Communications, Inc., Class A* ..... 203,700 9,879,450
General Motors Corporation ............. 46,900 5,839,050
Total ................................. 15,718,500
Depository Institutions - 4.01%
Bank of America Corporation ............ 166,700 8,741,331
Chase Manhattan Corporation (The) ...... 71,200 6,207,750
Citigroup Inc. ......................... 144,675 8,581,036
Total ................................. 23,530,117
Electronic and Other Electric Equipment - 8.82%
Analog Devices, Inc.* .................. 109,400 8,813,537
General Electric Company ............... 83,500 12,958,156
Intel Corporation ...................... 125,300 16,516,106
Rambus Inc.* ........................... 46,100 13,534,672
Total ................................. 51,822,471
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Fabricated Metal Products - 0.68%
Gillette Company (The) ................. 106,550 $ 4,015,603
Food Stores - 3.97%
Kroger Co. (The)* ...................... 747,900 13,134,994
Safeway Inc.* .......................... 224,600 10,163,150
Total ................................. 23,298,144
Furniture and Fixtures - 0.52%
Lear Corporation* ...................... 107,500 3,023,437
Furniture and Home Furnishing Stores - 3.27%
Best Buy Co., Inc.* .................... 52,200 4,489,200
Circuit City Stores, Inc.
- Circuit City Group .................. 194,900 11,864,538
Tandy Corporation ...................... 56,300 2,857,225
Total ................................. 19,210,963
General Merchandise Stores - 1.68%
Target Corporation ..................... 68,400 5,112,900
Wal-Mart Stores, Inc. .................. 85,900 4,767,450
Total ................................. 9,880,350
Holding and Other Investment Offices - 1.59%
ABB Ltd. (A) ........................... 81,050 9,309,929
Industrial Machinery and Equipment - 8.10%
Baker Hughes Incorporated .............. 223,800 6,769,950
Cisco Systems, Inc.* ................... 122,000 9,432,125
Dell Computer Corporation* ............. 207,500 11,198,516
EMC Corporation* ....................... 84,700 10,587,500
International Business Machines Corporation 81,400 9,605,200
Total ................................. 47,593,291
Instruments and Related Products - 3.23%
Guidant Corporation* ................... 162,900 9,580,556
Medtronic, Inc. ........................ 131,900 6,784,606
Raytheon Company, Class A .............. 138,999 2,614,919
Total ................................. 18,980,081
Insurance Carriers - 3.11%
American International Group, Inc. ..... 73,500 8,048,250
Aon Corporation ........................ 71,900 2,318,775
Chubb Corporation (The) ................ 117,300 7,925,081
Total ................................. 18,292,106
Motion Pictures - 2.06%
Time Warner Incorporated ............... 121,200 12,120,000
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 5.97%
Associates First Capital Corporation,
Class A ............................... 586,842 $ 12,580,425
Fannie Mae ............................. 195,400 11,027,888
Freddie Mac ............................ 259,300 11,457,819
Total ................................. 35,066,132
Oil and Gas Extraction - 5.70%
Anadarko Petroleum Corporation ......... 176,700 6,836,081
Burlington Resources Incorporated ...... 249,400 9,227,800
Schlumberger Limited ................... 164,100 12,553,650
Transocean Sedco Forex Inc. ............ 95,146 4,882,179
Total ................................. 33,499,710
Paper and Allied Products - 1.16%
International Paper Company ............ 159,900 6,835,725
Petroleum and Coal Products - 2.83%
Exxon Mobil Corporation ................ 110,784 8,620,380
Royal Dutch Petroleum Company .......... 139,400 8,024,213
Total ................................. 16,644,593
Prepackaged Software - 3.67%
Microsoft Corporation* ................. 138,500 14,754,578
Oracle Corporation* .................... 87,400 6,814,469
Total ................................. 21,569,047
Primary Metal Industries - 0.97%
Alcoa Incorporated ..................... 81,400 5,718,350
Radio Communication - 1.44%
Vodafone Airtouch Public Limited
Company, ADR .......................... 152,700 8,484,394
Security and Commodity Brokers - 0.62%
Charles Schwab Corporation (The) ....... 63,700 3,618,956
Telephone Communication - 5.27%
MCI WORLDCOM, Inc.* .................... 96,000 4,359,000
Nippon Telegraph and
Telephone Corporation (A) ............. 330 5,240,136
SBC Communications Inc. ................ 265,200 11,138,400
Telefonaktiebolaget LM Ericsson,
ADR, Class B .......................... 109,000 10,218,750
Total ................................. 30,956,286
Transportation Equipment - 0.58%
Lockheed Martin Corporation ............ 165,200 3,376,275
See Notes to Schedules of Investments on page 73.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Wholesale Trade -- Nondurable Goods - 2.34%
Cardinal Health, Inc. .................. 180,700 $ 8,289,613
Enron Corp. ............................ 73,000 5,465,875
Total ................................. 13,755,488
TOTAL COMMON STOCKS - 97.63% $573,524,523
(Cost: $371,358,774)
PREFERRED STOCK - 0.39%
Communication
Cox Communications, Inc., 7.0% Convertible 35,700 $ 2,266,950
(Cost: $1,785,000)
TOTAL SHORT-TERM SECURITIES - 2.80% $ 16,452,444
(Cost: $16,452,444)
TOTAL INVESTMENT SECURITIES - 100.82% $592,243,917
(Cost: $389,596,218)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.82%) (4,799,077)
NET ASSETS - 100.00% $587,444,840
See Notes to Schedules of Investments on page 73.
<PAGE>
WADDELL & REED FUNDS, INC.
MARCH 31, 2000
Notes to Schedules of Investments
* No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At March 31, 2000, the value of these
securities amounted to $1,440,251 in High Income Fund, or 6.29% of net
assets and $10,413,263 in International Growth Fund, or 4.36% of net
assets.
(C) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2000
(In Thousands Except for Per Share Amounts)
Asset High
Strategy Growth Income
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 3).. $53,536 $818,930 $22,008
Cash ................... 1 2 1
Receivables:
Fund shares sold ...... 99 1,387 11
Investment securities sold 1,708 4,268 854
Dividends and interest. 83 153 519
Prepaid insurance premium --- 2 ---
------- -------- -------
Total assets ........ 55,427 824,742 23,393
Liabilities ------- -------- -------
Payable to Fund shareholders 57 3,697 231
Payable for investment
securities purchased .. 2,620 3,330 243
Accrued service fee -
Class C (Note 2)....... 10 172 5
Accrued transfer agency and
dividend disbursing -
Class C (Note 2)....... 9 130 7
Accrued distribution
fee - Class C (Note 2). 1 17 ---
Dividends payable ...... --- --- 20
Accrued accounting
services fee (Note 2).. 3 7 1
Accrued management fee (Note 2) 1 19 ---
Other .................. 10 24 3
------- -------- -------
Total liabilities ... 2711 7,396 510
------- -------- -------
Total net assets ... $52,716 $817,346 $22,883
Net Assets ======= ======== =======
$0.01 par value capital stock
Capital stock ......... $ 35 $ 377 $ 25
Additional paid-in capital 38,030 426,671
25,369
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment loss . (1) --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 7,248 160,384 (1,214)
Net unrealized appreciation
(depreciation) of
investments ......... 7,404 229,914 (1,297)
------- -------- -------
Net assets applicable to
outstanding units
of capital ......... $52,716 $817,346 $22,883
======= ======== =======
Net asset value, redemption and
offering price per share:
Class C shares ......... $15.21 $21.64 $9.27
Class Y shares ......... $15.26 $22.65 $9.27
Capital shares outstanding:
Class C shares ......... 3,432 37,004 2,466
Class Y shares ......... 33 740 1
Capital shares authorized 500,000 500,000 500,000
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2000
(In Thousands Except for Per Share Amounts)
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 3).. $235,015 $20,123 $28,288
Cash ................... 2 1 1
Receivables:
Fund shares sold ...... 784 6 1
Investment securities sold 15,119 --- ---
Dividends and interest. 252 322 456
Prepaid insurance premium --- --- ---
-------- ------- -------
Total assets ........ 251,172 20,452 28,746
Liabilities -------- ------- -------
Payable to Fund shareholders 1,057 227 348
Payable for investment
securities purchased .. 11,379 --- ---
Accrued service fee -
Class C (Note 2)....... 50 4 6
Accrued transfer agency and
dividend disbursing -
Class C (Note 2)....... 44 7 7
Accrued distribution
fee - Class C (Note 2). 5 --- 1
Dividends payable ...... --- 11 12
Accrued accounting
services fee (Note 2).. 4 1 2
Accrued management fee (Note 2) 6 --- ---
Other .................. 51 7 7
-------- ------- -------
Total liabilities ... 12,596 257 383
-------- ------- -------
Total net assets ... $238,576 $20,195 $28,363
Net Assets ======== ======= =======
$0.01 par value capital stock
Capital stock ......... $ 83 $ 21 $ 28
Additional paid-in capital 116,697 21,063
30,706
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment loss .. (252) --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 34,701 (275) (79)
Net unrealized appreciation
(depreciation) of
investments ......... 87,347 (614) (2,292)
-------- ------- -------
Net assets applicable to
outstanding units
of capital ......... $238,576 $20,195 $28,363
======== ======= =======
Net asset value, redemption and
offering price per share:
Class C shares ......... $28.58 $9.76 $10.11
Class Y shares ......... $29.86 $9.76 $10.11
Capital shares outstanding:
Class C shares ......... 8,163 1,944 2,805
Class Y shares ......... 177 126 ---*
Capital shares authorized 500,000 500,000 500,000
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2000
(In Thousands Except for Per Share Amounts)
Science and Total
Technology Return
Fund Fund
Assets ------------ ------------
Investment securities--at
value (Notes 1 and 3).. $284,521 $592,244
Cash ................... 2 1
Receivables:
Fund shares sold ...... 1,767 432
Investment securities sold --- 209
Dividends and interest. 37 408
Prepaid insurance premium --- 2
-------- --------
Total assets ........ 286,327 593,296
Liabilities -------- --------
Payable to Fund shareholders 832 4,121
Payable for investment
securities purchased .. 368 1,446
Accrued service fee -
Class C (Note 2)....... 63 119
Accrued transfer agency and
dividend disbursing -
Class C (Note 2)....... 51 114
Accrued distribution
fee - Class C (Note 2). 6 12
Dividends payable ...... --- ---
Accrued accounting
services fee (Note 2).. 4 6
Accrued management fee (Note 2) 7 11
Other .................. 15 22
-------- --------
Total liabilities ... 1,346 5,851
-------- --------
Total net assets ... $284,981 $587,445
Net Assets ======== ========
$0.01 par value capital stock
Capital stock ......... $ 63 $ 427
Additional paid-in capital 134,385 327,515
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment loss .. --- (27)
Accumulated undistributed
net realized gain (loss)
on investments ...... 5,305 56,885
Net unrealized appreciation
(depreciation) of
investments ......... 145,228 202,645
-------- --------
Net assets applicable to
outstanding units
of capital ......... $284,981 $587,445
======== ========
Net asset value, redemption and
offering price per share:
Class C shares ......... $45.03 $13.76
Class Y shares ......... $45.36 $14.08
Capital shares outstanding:
Class C shares ......... 6,282 42,548
Class Y shares ......... 46 153
Capital shares authorized 500,000 500,000
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Asset High
Strategy Growth Income
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 800 $ 6,820 $2,386
Dividends ............. 191 346 1
------- -------- ------
Total income ........ 991 7,166 2,387
------- -------- ------
Expenses (Note 2):
Distribution fee - Class C 298 4,387 192
Investment management fee 289 5,009 162
Service fee - Class C.. 99 1,451 64
Transfer agency and dividend
disbursing - Class C 114 1,247 82
Registration fees ..... 39 75 39
Accounting services fee 21 67 18
Custodian fees ........ 9 17 4
Audit fees ............ 11 15 10
Legal fees ............ 1 18 2
Shareholder servicing fee -
Class Y ............. 1 17 ---*
Distribution fee - Class Y 1 27 ---*
Other ................. 9 120 6
------- -------- ------
Total ............... 892 12,450 579
Less expenses in excess of
voluntary waiver of management
fee (Note 2) ....... --- --- (25)
------- -------- ------
Total expenses ..... 892 12,450 554
------- -------- ------
Net investment income (loss) 99 (5,284) 1,833
------- -------- ------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ......... 8,830 236,897 (453)
Realized net loss from foreign
currency transactions . (2) --- ---
Realized net gain on forward
currency contracts --- --- ---
Realized net loss on put options (63) --- ---
------- -------- ------
Realized net gain (loss)
on investments ...... 8,765 236,897 (453)
------- -------- ------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ 5,620 112,584 (1,279)
Unrealized appreciation on
.options during the period 70 --- ---
------- -------- ------
Unrealized appreciation
(depreciation) ...... 5,690 112,584 (1,279)
------- -------- ------
Net gain (loss) on investments 14,455 349,481 (1,732)
------- -------- ------
Net increase (decrease) in net
assets resulting from
operations ....... $14,554 $344,197 $ 101
======= ======== ======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 333 $1,480 $2,232
Dividends ............. 1,006 --- ---
-------- ------ ------
Total income ........ 1,339 1,480 2,232
-------- ------ ------
Expenses (Note 2):
Distribution fee - Class C 1,120 165 284
Investment management fee 1,275 116 202
Service fee - Class C.. 370 55 94
Transfer agency and dividend
disbursing - Class C 430 76 81
Registration fees ..... 57 42 41
Accounting services fee 42 10 20
Custodian fees ........ 203 3 3
Audit fees ............ 15 12 11
Legal fees ............ 5 1 2
Shareholder servicing fee -
Class Y ............. 3 1 ---*
Distribution fee - Class Y 5 1 ---*
Other ................. 35 5 7
-------- ------ ------
Total ............... 3,560 487 745
Less expenses in excess of
voluntary waiver of management
fee (Note 2) ....... --- (86) ---
-------- ------ ------
Total expenses ..... 3,560 401 745
-------- ------ ------
Net investment income (loss) (2,221) 1,079 1,487
-------- ------ ------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ......... 44,714 (122) 48
Realized net loss from foreign
currency transactions . (324) --- ---
Realized net gain on forward
currency contracts .... 28 --- ---
Realized net loss on put options --- --- ---
-------- ------ ------
Realized net gain (loss)
on investments ...... 44,418 (122) 48
-------- ------ ------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ 66,004 (799) (4,314)
Unrealized appreciation on
.options during the period --- --- ---
-------- ------ ------
Unrealized appreciation
(depreciation) ...... 66,004 (799) (4,314)
-------- ------ ------
Net gain (loss) on investments 110,422 (921) (4,266)
-------- ------ ------
Net increase (decrease) in net
assets resulting from
operations ....... $108,201 $ 158 $(2,779)
======== ====== =======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Science and Total
Technology Return
Fund Fund
Investment Income (Loss) ------------ -----------
Income (Note 1B):
Interest and amortization $ 729 $ 5,620
Dividends ............. 23 4,521
-------- --------
Total income ........ 752 10,141
-------- --------
Expenses (Note 2):
Distribution fee - Class C 1,086 4,079
Investment management fee 1,214 3,827
Service fee - Class C.. 343 1,361
Transfer agency and dividend
disbursing - Class C 377 1,182
Registration fees ..... 73 62
Accounting services fee 38 64
Custodian fees ........ 11 47
Audit fees ............ 11 18
Legal fees ............ 4 16
Shareholder servicing fee -
Class Y ............. 1 2
Distribution fee - Class Y ---* 4
Other ................. 34 114
-------- --------
Total ............... 3,192 10,776
Less expense in excess of
voluntary waiver of management
fee (Note 2) ....... --- ---
-------- --------
Total expenses ..... 3,192 10,776
-------- --------
Net investment income (loss) (2,440) (635)
-------- --------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ......... 9,123 67,686
Realized net loss from foreign
currency transactions . --- (45)
Realized net gain on forward
currency contracts .... --- ---
Realized net loss on put options --- ---
-------- --------
Realized net gain (loss)
on investments ...... 9,123 67,641
-------- --------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ 133,188 51,174
Unrealized appreciation on
.options during the period --- ---
-------- --------
Unrealized appreciation
(depreciation) ...... 133,188 51,174
-------- --------
Net gain (loss) on investments 142,311 118,815
-------- --------
Net increase (decrease) in net
assets resulting from
operations ....... $139,871 $118,180
======== ========
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Asset High
Strategy Growth Income
Fund Fund Fund
------------ ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ 99 $ (5,284) $ 1,833
Realized net gain (loss)
on investments ...... 8,765 236,897 (453)
Unrealized appreciation
(depreciation) ...... 5,690 112,584 (1,279)
------- -------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 14,554 344,197 101
------- -------- -------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class C ............. (151) --- (1,832)
Class Y ............. (4) --- (1)
Realized net gain on
investment transactions:
Class C ............. (981) (98,873) ---
Class Y ............. (9) (2,024) ---
------- -------- -------
(1,145) (100,897) (1,833)
------- -------- -------
Capital share transactions
(Note 5) .............. 8,527 141,492 (818)
------- -------- -------
Total increase (decrease) 21,936 384,792 (2,550)
Net Assets
Beginning of period .... 30,780 432,554 25,433
------- -------- -------
End of period .......... $52,716 $817,346 $22,883
======= ======== =======
Undistributed net
investment loss ....... $(1) $--- $---
=== ==== ====
*See "Financial Highlights" on pages 82 - 97.
**Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
------------ ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ (2,221) $ 1,079 $ 1,487
Realized net gain (loss)
on investments ...... 44,418 (122) 48
Unrealized appreciation
(depreciation) ...... 66,004 (799) (4,314)
-------- ------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 108,201 158 (2,779)
-------- ------- -------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class C ............. --- (1,045) (1,487)
Class Y ............. --- (34) ---**
Realized net gain on
investment transactions:
Class C ............. (12,763) --- (58)
Class Y ............. (188) --- ---**
-------- ------- -------
(12,951) (1,079) (1,545)
-------- ------- -------
Capital share transactions
(Note 5) .............. 42,933 (458) (10,221)
-------- ------- -------
Total increase (decrease) 138,183 (1,379) (14,545)
Net Assets
Beginning of period .... 100,393 21,574 42,908
-------- ------- -------
End of period .......... $238,576 $20,195 $28,363
======== ======= =======
Undistributed net
investment loss ....... $(252) $--- $---
===== ==== ====
*See "Financial Highlights" on pages 82 - 97.
**Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Science and Total
Technology Return
Fund Fund
------------ -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income
(loss) .............. $ (2,440) $ (635)
Realized net gain (loss)
on investments ...... 9,123 67,641
Unrealized appreciation
(depreciation) ...... 133,188 51,174
-------- --------
Net increase (decrease) in
net assets resulting from
operations ......... 139,871 118,180
-------- --------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class C ............. --- (1,151)
Class Y ............. --- (16)
Realized net gain on
investment transactions:
Class C ............. (1,295) (18,926)
Class Y ............. (9) (56)
-------- --------
(1,304) (20,149)
-------- --------
Capital share transactions
(Note 5) .............. 101,990 (20,177)
-------- --------
Total increase (decrease) 240,557 77,854
Net Assets
Beginning of period .... 44,424 509,591
-------- --------
End of period .......... $284,981 $587,445
======== ========
Undistributed net
investment loss ....... $--- $(27)
==== ====
*See "Financial Highlights" on pages 82 - 97.
**Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) Asset High
Strategy Growth Income
Fund Fund Fund
------------ ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ 347 $ (3,141) $1,188
Realized net gain (loss)
on investments ...... (425) 68,630 (761)
Unrealized appreciation
(depreciation) ...... 555 7,999 (524)
------- -------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 477 73,488 (97)
------- -------- -------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class B ............. (358) --- (1,188)
Class Y ............. (7) --- ---
Realized net gain on
investment transactions:
Class B ............. (628) (54,879) (57)
Class Y ............. (6) (130) ---
------- -------- -------
(999) (55,009) (1,245)
------- -------- -------
Capital share transactions
(Note 5) .............. 11,662 83,928 14,963
------- -------- -------
Total increase ........ 11,140 102,407 13,621
Net Assets
Beginning of period .... 19,640 330,147 11,812
------- -------- -------
End of period .......... $30,780 $432,554 $25,433
======= ======== =======
Undistributed net
investment income ..... $7 $--- $---
== ==== ====
*See "Financial Highlights" on pages 82 - 97.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (474) $ 836 $1,491
Realized net gain (loss)
on investments ...... 10,347 2 872
Unrealized appreciation
(depreciation) ...... (381) 2 (539)
-------- ------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 9,492 840 1,824
-------- ------- -------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class B ............. --- (824) (1,491)
Class Y ............. --- (12) ---
Realized net gain on
investment transactions:
Class B ............. (5,284) --- (1,114)
Class Y ............. (31) --- ---
-------- ------- -------
(5,315) (836) (2,605)
-------- ------- -------
Capital share transactions
(Note 5) .............. 8,756 3,238 3,666
-------- ------- -------
Total increase ........ 12,933 3,242 2,885
Net Assets
Beginning of period .... 87,460 18,332 40,023
-------- ------- -------
End of period .......... $100,393 $21,574 $42,908
======== ======= =======
Undistributed net
investment income ..... $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 82 - 97.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) Science and Total
Technology Return
Fund Fund
------------ -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (234) $ 1,435
Realized net gain (loss)
on investments ...... 148 58,725
Unrealized appreciation
(depreciation) ...... 10,801 (24,832)
------- --------
Net increase (decrease) in
net assets resulting from
operations ......... 10,715 35,328
------- --------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class B ............. --- (383)
Class Y ............. --- (8)
Realized net gain on
investment transactions:
Class B ............. --- (59,613)
Class Y ............. --- (148)
------- --------
--- (60,152)
------- --------
Capital share transactions
(Note 5) .............. 26,094 60,502
------- --------
Total increase ........ 36,809 35,678
Net Assets
Beginning of period .... 7,615 473,913
------- --------
End of period .......... $44,424 $509,591
======= ========
Undistributed net
investment income ..... $--- $1,039
==== ======
*See "Financial Highlights" on pages 82 - 97.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
period
For the fiscal from
year ended March 31, 4/20/95*
----------------------------------- to
2000 1999 1998 1997 3/31/96
-------------- -------------- -------
Net asset value,
beginning of period $11.20 $11.42 $9.73 $10.15 $10.00
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.03 0.15 0.21 0.23 0.16
Net realized and
unrealized gain (loss)
on investments .. 4.33 0.05 2.16 (0.30) 0.14
------ ------ ------ ------ ------
Total from investment
operations ....... 4.36 0.20 2.37 (0.07) 0.30
------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.05) (0.16) (0.22) (0.21) (0.15)
From capital gains (0.30) (0.26) (0.46) (0.14) (0.00)
------ ------ ------ ------ ------
Total distributions (0.35) (0.42) (0.68) (0.35) (0.15)
------ ------ ------ ------ ------
Net asset value,
end of period .... $15.21 $11.20 $11.42 $9.73 $10.15
====== ====== ====== ====== ======
Total return ....... 39.60% 1.79% 24.94% -0.86% 3.00%
Net assets, end of
period (000
omitted) ......... $52,208$30,473 $19,415$13,398 $13,221
Ratio of expenses
to average net
assets ........... 2.24% 2.32% 2.44% 2.52% 2.54%**
Ratio of net investment
income to average
net assets ....... 0.24% 1.38% 2.02% 2.21% 2.14%**
Portfolio turnover
rate ............. 204.12%168.17% 220.67%109.92% 75.02%
(A) See Note 5.
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, from
-----------------------------12/29/95*
2000 1999 1998 1997 to 3/31/96
-------------------------------------
Net asset value,
beginning of
period ........... $11.21 $11.43 $9.73 $10.16 $10.23
----- ----- ----- ------ ------
Income from investment
operations:
Net investment
income........... 0.15 0.26 0.31 0.27 0.07
Net realized and
unrealized gain (loss)
on investments .. 4.33 0.05 2.16 (0.26) (0.08)
----- ----- ----- ------ ------
Total from investment
operations ....... 4.48 0.31 2.47 0.01 (0.01)
----- ----- ----- ------ ------
Less distributions:
From net investment
income .......... (0.13) (0.27) (0.31) (0.30) (0.06)
From capital gains (0.30) (0.26) (0.46) (0.14) (0.00)
----- ----- ----- ------ ------
Total distributions (0.43) (0.53) (0.77) (0.44) (0.06)
----- ----- ----- ------ ------
Net asset value,
end of period .... $15.26 $11.21 $11.43 $9.73 $10.16
====== ====== ====== ====== ======
Total return ....... 40.85% 2.75% 26.06% 0.05% -0.25%
Net assets, end of
period (000
omitted) .......... $508 $307 $225 $116 $1
Ratio of expenses
to average net
assets ........... 1.33% 1.45% 1.58% 1.61% 1.95%**
Ratio of net investment
income to average
net assets ....... 1.14% 2.25% 2.90% 2.97% 2.34%**
Portfolio turnover
rate ............. 204.12%168.17% 220.67%109.92% 75.02%***
*Commencement of operations.
**Annualized.
***Portfolio turnover is for the period from April 20, 1995 to March 31, 1996.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $14.74 $14.29 $ 9.08 $10.50 $ 8.45
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
loss ............ (0.18) (0.11) (0.13) (0.03) (0.01)
Net realized and
unrealized gain (loss)
on investments .. 10.22 2.91 5.91 (1.09) 2.25
------ ------ ------ ------ ------
Total from investment
operations ....... 10.04 2.80 5.78 (1.12) 2.24
------ ------ ------ ------ ------
Less distribution
from capital gains (3.14) (2.35) (0.57) (0.30) (0.19)
------ ------ ------ ------ ------
Net asset value,
end of period .... $21.64 $14.74 $14.29 $ 9.08 $10.50
====== ====== ====== ====== ======
Total return ....... 73.38% 21.61% 65.37%-10.97% 26.57%
Net assets, end of
period (000
omitted) ......... $800,576$424,612$329,514$198,088$202,557
Ratio of expenses
to average net
assets ........... 2.11% 2.10% 2.13% 2.12% 2.14%
Ratio of net investment
loss to average
net assets ....... -0.90% -0.90% -1.12% -0.27% -0.25%
Portfolio turnover
rate .............. 82.24% 51.41% 33.46% 37.20% 31.84%
(A) See Note 5.
*Per-share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal For the
year ended March 31, period from
---------------------------------12/29/95**
2000 1999 1998 1997 to 3/31/96
------ ------ ------ --------------
Net asset value,
beginning of
period ........... $15.21 $14.55 $ 9.16 $10.52 $10.11
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.15) 0.00 (0.03) 0.01 0.02
Net realized and
unrealized gain (loss)
on investments .. 10.73 3.01 5.99 (1.07) 0.39
------ ------ ------ ------ ------
Total from investment
operations ....... 10.58 3.01 5.96 (1.06) 0.41
------ ------ ------ ------ ------
Less distribution
from capital gains (3.14) (2.35) (0.57) (0.30) (0.00)
------ ------ ------ ------ ------
Net asset value,
end of period .... $22.65 $15.21 $14.55 $ 9.16 $10.52
====== ====== ====== ====== ======
Total return ....... 74.71% 22.73% 66.78%-10.37% 4.11%
Net assets, end of
period (000
omitted) .......... $16,770 $7,942 $633 $264 $1
Ratio of expenses
to average net
assets ........... 1.30% 1.18% 1.30% 1.17% 1.17%***
Ratio of net investment
income (loss) to average
net assets ....... -0.09% 0.08% -0.30% 0.31% 0.78%***
Portfolio turnover
rate ............. 82.24% 51.41% 33.46% 37.20% 31.84%***
*Per-share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
HIGH INCOME FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal For the
year ended period from
ended March 31, 7/31/97*
--------------- to
2000 1999 3/31/98
------ ------ ---------
Net asset value,
beginning of period $9.94 $10.79 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.69 0.63 0.37
Net realized and
unrealized gain (loss)
on investments .. (0.67) (0.82) 0.79
------ ------ ------
Total from investment
operations ....... 0.02 (0.19) 1.16
------ ------ ------
Less distributions:
Declared from net
investment income (0.69) (0.63) (0.37)
From capital gains (0.00) (0.03) (0.00)
------ ------ ------
Total distributions (0.69) (0.66) (0.37)
------ ------ ------
Net asset value,
end of period .... $9.27 $9.94 $10.79
====== ====== ======
Total return ....... 0.17% -1.72% 11.77%
Net assets, end of
period (000
omitted) ......... $22,877$25,427 $11,812
Ratio of expenses
to average net
assets ........... 2.17% 2.20% 2.52%**
Ratio of net investment
income to average net
assets ........... 7.16% 6.29% 5.98%**
Portfolio
turnover rate .... 71.31% 50.98% 67.82%
(A) See Note 5.
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
HIGH INCOME FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the period
fiscal from
year 12/30/98*
ended to
3/31/00 3/31/99
--------- ---------
Net asset value,
beginning of period $9.94 $9.97
----- -----
Income from investment
operations:
Net investment
income .......... 0.77 0.20
Net realized and
unrealized gain (loss)
on investments... (0.67) 0.00
----- -----
Total from investment
operations ........ 0.10 0.20
----- -----
Less distributions:
Declared from net
investment income (0.77) (0.20)
From capital gains (0.00) (0.03)
----- -----
Total distributions (0.77) (0.23)
----- -----
Net asset value,
end of period ..... $9.27 $9.94
===== =====
Total return ....... 0.94% 2.45%
Net assets, end of
period (000
omitted) ......... $6 $6
Ratio of expenses
to average net
assets ............ 1.40% 0.26%**
Ratio of net investment
income to average net
assets ............ 7.85% 8.55%**
Portfolio
turnover rate ..... 71.31% 50.98%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended March 31,
------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $15.58 $15.04 $12.40 $9.94 $9.36
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.34) (0.07) (0.10) (0.03) 0.08
Net realized and
unrealized gain
on investments .. 15.14 1.55 4.12 2.50 0.63
------ ------ ------ ------ ------
Total from investment
operations ....... 14.80 1.48 4.02 2.47 0.71
------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.00) (0.01) (0.11)
In excess of net
investment income (0.00) (0.00) (0.00) (0.00) (0.02)
From capital gains (1.80) (0.94) (1.38) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (1.80) (0.94) (1.38) (0.01) (0.13)
------ ------ ------ ------ ------
Net asset value,
end of period .... $28.58 $15.58 $15.04 $12.40 $9.94
====== ====== ====== ====== ======
Total return ....... 97.89% 10.36% 35.24% 24.85% 7.64%
Net assets, end of
period (000
omitted) ......... $233,280$99,764 $87,041$50,472 $20,874
Ratio of expenses
to average net
assets ........... 2.37% 2.35% 2.35% 2.46% 2.50%
Ratio of net investment
income (loss) to average
net assets ....... -1.48% -0.53% -0.82% -0.52% 0.63%
Portfolio turnover
rate ............. 125.71%116.25% 105.11% 94.76% 88.55%
(A) See Note 5.
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal For the
year ended March 31, period from
----------------------------12/29/95*
2000 1999 1998 1997 to 3/31/96
------ ------ ------ ------ -------
Net asset value,
beginning of
period ........... $16.08 $15.35 $12.52 $9.95 $9.70
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (1.41) 0.05 0.01 0.02 0.02
Net realized and
unrealized gain
on investments .. 16.99 1.62 4.20 2.56 0.23
------ ------ ------ ------ ------
Total from investment
operations ....... 15.58 1.67 4.21 2.58 0.25
------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.00) (0.01) (0.00)
From capital gains (1.80) (0.94) (1.38) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (1.80) (0.94) (1.38) (0.01) (0.00)
------ ------ ------ ------ ------
Net asset value,
end of period .... $29.86 $16.08 $15.35 $12.52 $9.95
====== ====== ====== ====== ======
Total return ....... 99.74% 11.41% 36.45% 25.93% 2.58%
Net assets, end of
period (000
omitted) .......... $5,296 $629 $419 $227 $7
Ratio of expenses
to average net
assets ........... 1.48% 1.44% 1.51% 1.59% 1.84%**
Ratio of net investment
income (loss) to average
net assets ....... -0.80% 0.36% 0.07% 0.05% 1.07%**
Portfolio turnover
rate ............. 125.71%116.25% 105.11% 94.76% 88.55%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.16 $10.14 $9.90 $10.00 $ 9.70
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.47 0.44 0.45 0.44 0.41
Net realized and
unrealized gain
(loss) on
investments ..... (0.40) 0.02 0.24 (0.09) 0.30
------ ------ ------ ------ ------
Total from investment
operations ....... 0.07 0.46 0.69 0.35 0.71
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.47) (0.44) (0.45) (0.44) (0.41)
From capital gains (0.00) (0.00) (0.00) (0.01) (0.00)
------ ------ ------ ------ ------
Total distributions (0.47) (0.44) (0.45) (0.45) (0.41)
------ ------ ------ ------ ------
Net asset value,
end of period .... $9.76 $10.16 $10.14 $9.90 $10.00
====== ====== ====== ====== ======
Total return ....... 0.73% 4.65% 7.15% 3.52% 7.41%
Net assets, end of
period (000
omitted) ......... $18,966$21,311 $18,148$17,770 $23,682
Ratio of expenses
to average net
assets ........... 1.81% 2.11% 2.12% 2.07% 2.10%
Ratio of net investment
income to average
net assets ........ 4.75% 4.34% 4.52% 4.40% 4.14%
Portfolio turnover
rate ............. 37.02% 32.11% 27.37% 23.05% 22.08%
(A) See Note 5.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, from
---------------------------------12/29/95*
2000 1999 1998 1997 to 3/31/96
------ ------ ------ ------ -------
Net asset value,
beginning of
period ........... $10.16 $10.14 $9.90 $10.00 $10.16
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.57 0.53 0.53 0.52 0.11
Net realized and
unrealized gain
(loss) on
investments ..... (0.40) 0.02 0.24 (0.09) (0.16)
------ ------ ------ ------ ------
Total from investment
operations ....... 0.17 0.55 0.77 0.43 (0.05)
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.57) (0.53) (0.53) (0.52) (0.11)
From capital gains (0.00) (0.00) (0.00) (0.01) (0.00)
------ ------ ------ ------ ------
Total distributions (0.57) (0.53) (0.53) (0.53) (0.11)
------ ------ ------ ------ ------
Net asset value,
end of period .... $9.76 $10.16 $10.14 $9.90 $10.00
====== ====== ====== ====== ======
Total return ....... 1.69% 5.60% 7.91% 4.33% -0.49%
Net assets, end of
period (000
omitted) ......... $1,229 $263 $184 $105 $1
Ratio of expenses
to average net
assets ........... 0.69% 1.20% 1.32% 1.04% 1.18%**
Ratio of net investment
income to average
net assets ....... 6.03% 5.25% 5.32% 5.62% 4.70%**
Portfolio turnover
rate ............. 37.02% 32.11% 27.37% 23.05% 22.08%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended March 31,
------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $11.24 $11.45 $10.74 $10.63 $10.30
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.42 0.42 0.44 0.45 0.43
Net realized and
unrealized gain
(loss) on
investments ..... (1.11) 0.10 0.71 0.11 0.33
------ ------ ------ ------ ------
Total from investment
operations ....... (0.69) 0.52 1.15 0.56 0.76
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.42) (0.42) (0.44) (0.45) (0.43)
From capital gains (0.02) (0.31) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (0.44) (0.73) (0.44) (0.45) (0.43)
------ ------ ------ ------ ------
Net asset value,
end of period .... $10.11 $11.24 $11.45 $10.74 $10.63
====== ====== ====== ====== ======
Total return ....... -6.21% 4.64% 10.89% 5.32% 7.48%
Net assets, end of
period (000
omitted) ......... $28,361$42,906 $40,023$36,618 $33,869
Ratio of expenses
to average net
assets ........... 1.98% 1.88% 1.89% 1.92% 1.93%
Ratio of net investment
income to average
net assets ....... 3.94% 3.68% 3.94% 4.18% 4.05%
Portfolio turnover
rate ............. 16.95% 41.53% 27.86% 34.72% 42.02%
(A) See Note 5.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For
For the the For For the
fiscal period the fiscal For the
year from period year period from
ended12/30/98*** ended ended 12/29/95*
3/31/00to 3/31/996/23/97** 3/31/97 to 3/31/96
--------------------------- -------- ------------
Net asset value,
beginning of
period ........... $11.24 $11.58 $10.74 $10.63 $10.94
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income........... 0.48 0.13 0.10 0.52 0.12
Net realized and
unrealized gain
(loss) on
investments ..... (1.11) (0.03) 0.29 0.11 (0.31)
------ ------ ------ ------ ------
Total from investment
operations ....... (0.63) 0.10 0.39 0.63 (0.19)
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.48) (0.13) (0.10) (0.52) (0.12)
From capital gains (0.02) (0.31) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (0.50) (0.44) (0.10) (0.52) (0.12)
------ ------ ------ ------ ------
Net asset value,
end of period .... $10.11 $11.24 $11.03 $10.74 $10.63
====== ====== ====== ====== ======
Total return ....... -5.69% 0.80% 3.22% 5.96% -1.80%
Net assets, end of
period (000
omitted) .......... $2 $2 $0 $1 $1
Ratio of expenses
to average net
assets ........... 1.40% 1.00%****4.95%**** 1.28% 1.18%****
Ratio of net investment
income to average
net assets ....... 4.52% 4.40%****4.12%**** 4.83% 4.33%****
Portfolio turnover
rate ............. 16.95% 41.53%****27.86%****34.72% 42.02%****
*Initial commencement of operations.
**All outstanding shares were redeemed on June 23, 1997 at the ending net
asset value shown in the table.
***Recommencement of operations.
****Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
SCIENCE AND TECHNOLOGY FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period from
ended March 31, 7/31/97*
--------------- to
2000 1999 3/31/98
------ ------ --------------
Net asset value,
beginning of period $17.45 $12.01 $10.00
------ ------ ------
Income from investment
operations:
Net investment
loss ............ (0.95) (0.09) (0.07)
Net realized and
unrealized gain
on investments .. 28.77 5.53 2.08
------ ------ ------
Total from investment
operations ....... 27.82 5.44 2.01
Less distributions from
capital gains .... (0.24) (0.00) (0.00)
------ ------ ------
Net asset value,
end of period .... $45.03 $17.45 $12.01
====== ====== ======
Total return ....... 159.75% 45.30% 20.10%
Net assets, end of
period (000
omitted) ......... $282,873$44,371 $7,615
Ratio of expenses
to average net
assets ........... 2.20% 2.57% 3.20%**
Ratio of net investment
loss to average net
assets ........... -1.68% -1.26% -1.66%**
Portfolio
turnover rate .... 44.19% 51.00% 26.64%
*Commencement of operations.
**Annualized.
(A) See Note 5.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
SCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal period from
year 6/9/98*
ended to
3/31/00 3/31/99
--------- -----------
Net asset value,
beginning of period $17.65 $12.20
------ ------
Income from investment
operations:
Net investment
income (loss) ... (6.09) 0.01
Net realized and
unrealized gain
on investments .. 34.04 5.44
------ ------
Total from investment
operations ....... 27.95 5.45
------ ------
Less distributions from
capital gains .... (0.24) (0.00)
------ ------
Net asset value,
end of period .... $45.36 $17.65
====== ======
Total return ....... 158.67% 44.67%
Net assets, end of
period (000
omitted) ......... $2,108 $53
Ratio of expenses
to average net
assets ........... 1.36% 0.62%**
Ratio of net investment
income (loss) to average net
assets ........... -0.96% 0.54%**
Portfolio
turnover rate .... 44.19% 51.00%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class C Shares (A)
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $11.52 $12.24 $ 9.09 $8.17 $6.37
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income (loss).... (0.01) 0.03 (0.02) (0.01) (0.01)
Net realized and
unrealized gain
on investments .. 2.71 0.82 3.56 0.98 1.84
----- ----- ----- ----- -----
Total from investment
operations ....... 2.70 0.85 3.54 0.97 1.83
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.03) (0.01) (0.00) (0.00) (0.00)
From capital gains (0.43) (1.56) (0.39) (0.05) (0.03)
----- ----- ----- ----- -----
Total distributions (0.46) (1.57) (0.39) (0.05) (0.03)
----- ----- ----- ----- -----
Net asset value,
end of period .... $13.76 $11.52 $12.24 $9.09 $8.17
====== ====== ====== ===== ======
Total return ....... 23.98% 7.47% 39.57% 11.93% 28.75%
Net assets, end of
period (000
omitted) ......... $585,293$508,210$472,970$317,453$208,233
Ratio of expenses
to average net
assets ........... 1.98% 1.93% 1.92% 1.95% 1.99%
Ratio of net investment
income (loss) to average
net assets ....... -0.12% 0.30% -0.23% -0.17% -0.11%
Portfolio turnover
rate ............. 75.64% 54.73% 36.94% 26.23% 16.78%
(A) See Note 5.
*Per-share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year For the
year ended March 31, period from
-------------------------------12/29/95**
2000 1999 1998 1997to 3/31/96
------ ------ ------ --------------
Net asset value,
beginning of
period ........... $11.78 $12.46 $ 9.18 $8.19 $7.66
------ ------ ------ ----- -----
Income from investment
operations:
Net investment
income........... 0.06 0.12 0.05 0.02 0.02
Net realized and
unrealized gain
on investments .. 2.80 0.84 3.62 1.02 0.51
------ ------ ------ ----- -----
Total from investment
operations ....... 2.86 0.96 3.67 1.04 0.53
------ ------ ------ ----- -----
Less distributions:
From net investment
income .......... (0.13) (0.08) (0.00) (0.00) (0.00)
From capital gains (0.43) (1.56) (0.39) (0.05) (0.00)
------ ------ ------ ----- -----
Total distributions (0.56) (1.64) (0.39) (0.05) (0.00)
------ ------ ------ ----- -----
Net asset value,
end of period .... $14.08 $11.78 $12.46 $9.18 $8.19
====== ====== ====== ===== =====
Total return ....... 24.96% 8.37% 40.63% 12.69% 6.92%
Net assets, end of
period (000
omitted) .......... $2,152 $1,381 $943 $504 $87
Ratio of expenses
to average net
assets ........... 1.16% 1.15% 1.20% 1.18% 0.96%***
Ratio of net investment
income to average
net assets ....... 0.67% 1.10% 0.50% 0.65% 1.04%***
Portfolio turnover
rate ............. 75.64% 54.73% 36.94% 26.23% 16.78%***
*Per-share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
Note 1 - Significant Accounting Policies
Waddell & Reed Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Corporation issues eight series of capital shares; each series
represents ownership of a separate mutual fund. The assets belonging to each
Fund are held separately by the custodian. The capital shares of each Fund
represent a pro rata beneficial interest in the principal, net income and
realized and unrealized capital gains or losses of its respective investments
and other assets. The following is a summary of significant accounting policies
consistently followed by the Corporation in the preparation of its financial
statements. The policies are in conformity with accounting principles generally
accepted in the United States of America.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using the Nasdaq Stock Market, which provides information on bid and
asked prices quoted by major dealers in such stocks. Restricted
securities and securities for which quotations are not readily available
are valued as determined in good faith in accordance with procedures
established by and under the general supervision of the Corporation's Board
of Directors. Short-term debt securities are valued at amortized cost,
which approximates market. Short-term debt securities denominated in
foreign currencies are valued at amortized cost in that currency.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums and post-1984 market discount on the purchase of
bonds are amortized for both financial and tax reporting purposes over the
remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date except that certain dividends from foreign securities are
recorded as soon as the Fund is informed of the ex-dividend date. Dividend
income is net of foreign withholding taxes of $1,271, $43,762, $544 and
$73,867 for Asset Strategy Fund, International Growth Fund, Science and
Technology Fund and Total Return Fund, respectively. Interest income is
recorded on the accrual basis. See Note 3 -- Investment Securities
Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translation arise from changes in currency exchange rates. The
Corporation combines fluctuations from currency exchange rates and
fluctuations in market value when computing net realized and unrealized
gain or loss from investments.
D. Federal income taxes -- It is the Corporation's policy to distribute all of
its taxable income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code. In addition, the Corporation intends to pay
distributions as required to avoid imposition of excise tax. Accordingly,
provision has not been made for Federal income taxes. See Note 4 --
Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by each Fund on the business day following record date. Net
investment income dividends and capital gains distributions are determined
in accordance with income tax regulations which may differ from accounting
principles generally accepted in the United States of America. These
differences are due to differing treatments for items such as deferral of
wash sales and post-October losses, foreign currency transactions, net
operating losses and expiring capital loss carryovers. At March 31, 2000,
the following amounts were reclassified:
Increase Increase
(Decrease) (Decrease)
Accumulated Accumulated
Undistributed Undistributed
Net Investment Net Realized
Income Capital Gains
-------------- -------------
Asset Strategy Fund $ 49,571 $ (49,571)
Growth Fund 5,284,323 (5,284,323)
International Growth
Fund 2,335,534 (2,335,534)
Science and Technology
Fund 2,440,287 (2,440,287)
Total Return Fund 781,086 (781,086)
Net investment income, net realized gains and net assets were not affected
by these changes.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
NOTE 2 -- Investment Management And Payments To Affiliated Persons
Waddell & Reed Investment Management Company ("WRIMCO"), a wholly owned
subsidiary of W&R, serves as the Corporation's investment manager. WRIMCO
provides advice and supervises investments for which services it is paid a fee.
The fee is payable by each Fund at the following annual rates:
Annual
Fund Net Assets Breakpoints Rate
-----------------------------------------------------------------
W&R Asset Strategy Fund Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
W&R Growth Fund Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
W&R High Income Fund Up to $500 Million .625%
Over $500 Million up to $1 Billion .600%
Over $1 Billion up to $1.5 Billion .550%
Over $1.5 Billion .500%
W&R International Up to $1 Billion .850%
Growth Fund Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
W&R Limited-Term Up to $500 Million .500%
Bond Fund Over $500 Million up to $1 Billion .450%
Over $1 Billion up to $1.5 Billion .400%
Over $1.5 Billion .350%
W&R Municipal Bond Fund Up to $500 Million .525%
Over $500 Million up to $1 Billion .500%
Over $1 Billion up to $1.5 Billion .450%
Over $1.5 Billion .400%
W&R Science and Up to $1 Billion .850%
Technology Fund Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
W&R Total Return Fund Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
The fee is accrued and paid daily. However, Waddell & Reed Investment
Management Company ("WRIMCO"), the Corporation's investment manager, has agreed
to waive a Fund's management fee on any day that the Fund's net assets are less
than $25 million, subject to WRIMCO's right to change or modify this waiver.
The Corporation has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Corporation and pricing daily the value of shares of the
Corporation. For these services, each of the Funds pays WARSCO a monthly fee of
one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class C shares, each Fund pays WARSCO a monthly per account charge for
transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month,
plus $0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. For Class Y shares, each Fund pays
WARSCO a monthly fee equal to one-twelfth of 0.15 of 1% of the average daily net
assets of that Class for the preceding month. Each Fund also reimburses W&R,
WRIMCO and WARSCO for certain out-of-pocket costs.
The Corporation has adopted a 12b-1 plan for both Class C and Class Y
shares. Under the Distribution and Service Plan for the Class C shares, W&R,
principal underwriter and sole distributor of the Corporation's shares, is
compensated in an amount calculated and payable daily up to 1% annually of each
of the Fund's Class C average daily net assets. This fee consists of two
elements: (i) up to 0.75% of the particular Fund's Class C net asset value for
distribution services and distribution expenses including commissions paid by
the Distributor to its sales representatives and managers and (ii) up to 0.25%
of the particular Fund's Class C net asset value may be paid to reimburse the
Distributor for continuing payments made to the Distributor's representatives
and managers, its administrative costs in overseeing these payments, and the
expenses of WARSCO in providing certain personal services to shareholders.
During the period ended March 31, 2000, the Distributor received $3,838,573 in
distribution fees and $11,611,936 in service fees. During this same period W&R
paid sales commissions of $2,467,632.
Under a Distribution and Service Plan for Class Y shares adopted by the
Corporation pursuant to Rule 12b-1, with respect to each Fund, the Corporation
pays W&R daily a distribution and/or service fee not to exceed, on an annual
basis, 0.25% of the particular Fund's Class Y net asset value. During the period
ended March 31, 2000, the Distributor received $38,140 in 12b-1 payments on
Class Y shares.
For Class C shares, a contingent deferred sales charge may be assessed
against a shareholder's redemption amount and paid to the Distributor, W&R. The
purpose of the deferred sales charge is to compensate the Distributor for the
costs incurred by the Distributor in connection with the sale of a Fund's
shares. A 1% deferred sales charge will be applied to shares that are sold
within twelve months of purchase. The deferred sales charge will not be imposed
on shares representing payment of dividends or distributions or on amounts which
represent an increase in the value of the shareholder's account resulting from
capital appreciation above the amount paid for shares purchased during the
deferred sales charge period. During the period ended March 31, 2000, the
Distributor received $980,440 in deferred sales charges.
The Corporation paid Directors' fees of $49,822, which are included in
other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 3 -- Investment Securities Transactions
Investment securities transactions for the period ended March 31, 2000 are
summarized as follows:
Asset High
Strategy Growth Income
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ............... $68,526,297 $ 388,188,616 $16,945,968
Purchases of bullion ....... 934,404 --- ---
Purchases of U.S. Government
securities ............... 10,985,391 --- ---
Purchases of short-term
securities ............... 86,729,688 3,688,404,136 36,696,255
Purchases of options ....... 586,676 --- ---
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 55,578,544 409,806,773 18,672,062
Proceeds from maturities
and sales of U.S.
Government securities .... 19,751,199 --- ---
Proceeds from maturities
and sales of short-term
securities ............... 83,611,818 3,634,448,278 36,666,000
Proceeds from options ...... 69,835 --- ---
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ...............$192,218,024 $ 5,824,927 $ 6,130,162
Purchases of bullion ....... --- --- ---
Purchases of U.S. Government
securities ............... --- 2,186,035 ---
Purchases of short-term
securities ............... 354,082,969 15,227,911 32,414,982
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 180,898,770 5,822,324 17,703,501
Proceeds from maturities
and sales of U.S.
Government securities .... --- 2,136,880 ---
Proceeds from maturities
and sales of short-term
securities ............... 342,351,590 15,325,319 30,881,177
Science and Total
Technology Return
Fund Fund
----------- ----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ...............$161,290,476 $ 295,282,012
Purchases of bullion ....... --- ---
Purchases of U.S. Government
securities ............... --- 82,734,801
Purchases of short-term
securities ............... 380,415,262 1,463,419,572
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 58,215,503 245,561,638
Proceeds from maturities
and sales of U.S.
Government securities .... --- 155,766,670
Proceeds from maturities
and sales of short-term
securities ............... 385,191,149 1,476,587,696
For Federal income tax purposes, cost of investments owned at March 31,
2000 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Asset Strategy Fund $ 46,131,633 $ 9,064,833 $ 1,660,886 $ 7,403,947
Growth Fund 589,016,895 267,889,249 37,975,664 229,913,585
High Income Fund 23,305,324 705,949 2,003,177 (1,297,228)
International Growth
Fund 147,578,851 93,939,400 6,503,264 87,436,136
Limited-Term Bond Fund20,736,882 4,727 618,412 (613,685)
Municipal Bond Fund 30,580,278 89,625 2,381,447 (2,291,822)
Science and Technology
Fund 139,293,307 155,542,603 10,314,676 145,227,927
Total Return Fund 389,598,527 218,411,698 15,766,308 202,645,390
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, Asset Strategy Fund and Science and
Technology Fund realized capital gain net income of $8,669,418 and $6,575,181,
respectively, during the fiscal year ended March 31, 2000, which included the
effect of certain losses recognized from the prior year (see discussion below).
For Federal income tax purposes, Growth Fund, International Growth Fund and
Total Return Fund realized capital gain net income of $231,612,570, $42,405,551
and $66,904,750, respectively, during the year ended March 31, 2000. For Federal
income tax purposes, High Income Fund realized capital losses of $472,930 during
the year ended March 31, 2000, which included the effect of certain losses
deferred into the next fiscal year as well as the effect of losses recognized
from the prior year (see discussion below). Capital loss carryovers aggregated
$974,622 at March 31, 2000 and are available to offset future realized capital
gain net income for Federal income tax purposes but will expire if not utilized
as follows: $501,692 at March 31, 2007; and $472,930 at March 31, 2008. For
Federal income tax purposes, Limited-Term Bond Fund realized no net capital
gains or losses for the year ended March 31, 2000, because of the utilization of
capital loss carryovers and the effect of certain losses deferred into the next
fiscal year as well as the effect of losses recognized from the prior year (see
discussion below). Remaining capital loss carryovers aggregated $147,952 at
March 31, 2000, and are available to offset future realized capital gain net
income for Federal income tax purposes but will expire if not utilized as
follows: $83,452 at March 31, 2005; and $64,500 at March 31, 2006. For Federal
income tax purposes, Municipal Bond Fund realized capital gain net income of
$41,809 during the year ended March 31, 2000, which included the effect of
certain losses deferred into the next fiscal year (see discussion below). A
portion of the capital gain net income of Asset Strategy Fund, Science and
Technology Fund, Growth Fund, International Growth Fund, Total Return Fund and
Municipal Bond Fund was paid to shareholders during the year ended March 31,
2000. Remaining capital gain net income for Asset Strategy Fund, Science and
Technology Fund, Growth Fund, International Growth Fund and Total Return Fund
will be distributed to shareholders.
Internal Revenue Code regulations permit each Fund to defer into its next
fiscal year net capital losses or net long-term capital losses incurred between
each November 1 and the end of its fiscal year ("post-October losses"). From
November 1, 1999 through March 31, 2000, High Income Fund, Limited-Term Bond
Fund and Municipal Bond Fund incurred net capital losses of $239,041, $127,534
and $79,105, respectively, which have been deferred to the fiscal year ending
March 31, 2001. In addition, during the year ended March 31, 2000, Asset
Strategy Fund, Science and Technology Fund, High Income Fund and Limited-Term
Bond Fund recognized post-October losses of $477,952, $108,105, $259,064 and
$3,090, respectively, that had been deferred from the year ended March 31, 1999.
NOTE 5 -- Multiclass Operations
Each Fund within the Corporation is authorized to offer two classes of
shares, Class C and Class Y, each of which have equal rights as to assets and
voting privileges. Class Y shares are not subject to a deferred sales charge
and are subject to separate Rule 12b-1 Distribution and Service Plans and
transfer agency and dividend disbursement services fee structures. A
comprehensive discussion of the terms under which shares of either class are
offered is contained in the Prospectus and the Statement of Additional
Information for the Corporation.
Income, non-class specific expenses, and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of their
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
Class B shares were combined with Class C shares effective March 24, 2000
and were redesignated Class C shares.
Transactions in capital stock for the fiscal year ended March 31, 2000 are
summarized below. Amounts are in thousands.
Asset High
Strategy Growth Income
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 1,088 5,238 713
Class C ............ 3,465 37,161 2,520
Class Y ............ 7 865 ---*
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 90 5,558 165
Class C ............ 1 84 6
Class Y ............ 1 112 ---*
Shares redeemed:
Class B ............ (3,899) (39,601) (3,436)
Class C ............ (34) (241) (59)
Class Y ............ (2) (759) ---*
----- ------ -----
Increase (decrease) in
outstanding capital shares
717 8,417 (91)
===== ====== =====
Value issued from sale
of shares:
Class B ............ $13,016 $ 85,891 $ 6,880
Class C ............ 52,539 853,837 23,848
Class Y ............ 86 15,504 3
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 1,107 96,442 1,580
Class C ............ 17 1,449 55
Class Y ............ 13 2,024 ---*
Value redeemed:
Class B ............ (57,701) (895,114) (32,608)
Class C ............ (524) (5,366) (573)
Class Y ............ (26) (13,175) (3)
------- -------- -------
Increase (decrease)in
outstanding capital
$ 8,527 $141,492 $ (818)
======= ======== =======
*Not shown due to rounding.
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 1,553 786 451
Class C ............ 8,221 1,991 2,850
Class Y ............ 218 105 ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 542 95 124
Class C ............ 12 3 3
Class Y ............ 8 3 ---*
Shares redeemed:
Class B ............ (8,498) (2,979) (4,391)
Class C ............ (71) (50) (48)
Class Y ............ (88) (8) ---
----- ----- -----
Increase (decrease) in
outstanding capital shares
1,897 (54) (1,011)
===== ===== =====
Value issued from sale
of shares:
Class B ............ $ 29,238 $ 7,845 $ 4,958
Class C ............ 246,818 19,380 28,818
Class Y ............ 5,494 1,033 ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 12,373 937 1,305
Class C ............ 280 25 26
Class Y ............ 188 32 ---*
Value redeemed:
Class B ............ (247,001) (29,147) (44,833)
Class C ............ (2,133) (486) (495)
Class Y ............ (2,324) (77) ---
-------- ------ --------
Increase (decrease)in
outstanding capital
$ 42,933 $ (458) $(10,221)
======== ====== ========
*Not shown due to rounding.
Science and Total
Technology Return
Fund Fund
----------- ------------
Shares issued from sale
of shares:
Class B ............ 3,257 6,120
Class C ............ 6,359 42,965
Class Y ............ 148 58
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 33 1,649
Class C ............ 2 18
Class Y ............ ---* 6
Shares redeemed:
Class B ............ (5,834) (51,879)
Class C ............ (79) (435)
Class Y ............ (105) (28)
----- ------
Increase (decrease) in
outstanding capital shares
3,781 (1,526)
===== ======
Value issued from sale
of shares:
Class B ............ $ 77,915 $ 72,977
Class C ............ 317,906 593,357
Class Y ............ 4,519 719
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 1,221 19,693
Class C ............ 64 212
Class Y ............ 9 72
Value redeemed:
Class B ............ (292,678) (700,957)
Class C ............ (3,731) (5,907)
Class Y ............ (3,235) (343)
-------- --------
Increase (decrease) in
outstanding capital
$101,990 $(20,177)
======== ========
*Not shown due to rounding.
Transactions in capital stock for the fiscal year ended March 31, 1999 are
summarized below. Dollar amounts are in thousands.
Asset High
Strategy Growth Income
Fund Fund* Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 1,487,385 6,727,339 1,990,704
Class Y ............ 8,363 471,624 630
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............. 88,597 4,145,013 121,122
Class Y ............ 1,139 9,589 10
Shares redeemed:
Class B ............ (554,869) (5,132,051) (649,483)
Class Y ............ (1,755) (2,501) ---
--------- --------- ---------
Increase in outstanding
capital shares ..... 1,028,860 6,219,013 1,462,983
========= ========= =========
Value issued from sale
of shares:
Class B ............ $16,872 $95,835 $20,234
Class Y ............ 95 6,879 6
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 981 54,503 1,217
Class Y ............ 13 130 ---**
Value redeemed:
Class B ............ (6,279) (73,381) (6,494)
Class Y ............ (20) (38) ---
------- ------- -------
Increase in outstanding
capital ............ $11,662 $83,928 $14,963
======= ======= =======
*Share transactions prior to June 27, 1998 have been adjusted to effect the 100%
stock dividend of June 26, 1998.
**Not shown due to rounding.
International Limited- Municipal
Growth Term Bond Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 2,459,922 1,154,374 1,111,959
Class Y ............ 11,890 8,190 172
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 366,149 79,341 212,992
Class Y ............ 2,124 1,036 7
Shares redeemed:
Class B ............ (2,210,705) (925,409) (1,003,930)
Class Y ............ (2,188) (1,468) ---
--------- --------- ---------
Increase in outstanding
capital shares ..... 627,192 316,064 321,200
========= ========= =========
Value issued from sale
of shares:
Class B ............ $38,406 $11,778 $12,733
Class Y ............ 192 83 2
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 5,261 808 2,420
Class Y ............ 31 11 ---**
Value redeemed:
Class B ............ (35,100) (9,427) (11,489)
Class Y ............ (34) (15) ---
------- ------- -------
Increase in outstanding
capital ............ $ 8,756 $ 3,238 $ 3,666
======= ======= =======
**Not shown due to rounding.
Science and Total
Technology Return
Fund Fund*
----------- ------------
Shares issued from sale
of shares:
Class B ............ 2,150,217 10,022,490
Class Y ............ 2,993 32,620
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............. --- 5,395,830
Class Y ............ --- 13,872
Shares redeemed:
Class B ............ (240,714) (9,956,039)
Class Y ............ --- (4,907)
--------- ---------
Increase in outstanding
capital shares ..... 1,912,496 5,503,866
========= =========
Value issued from sale
of shares:
Class B ............ $29,323 $119,057
Class Y ............ 47 401
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ --- 59,624
Class Y ............ --- 156
Value redeemed:
Class B ............ (3,276) (118,675)
Class Y ............ --- (61)
------- --------
Increase in outstanding
capital ............ $26,094 $ 60,502
======= ========
* Share transactions prior to June 27, 1998 have been adjusted to effect
the 100% stock dividend of June 26, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedules of investments, of Asset Strategy Fund, Growth Fund, High Income
Fund, International Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund,
Science and Technology Fund, and Total Return Fund (collectively the "Funds")
comprising Waddell & Reed Funds, Inc. as of March 31, 2000, and the related
statements of operations for the fiscal year then ended, the statements of
changes in net assets for each of the two fiscal years in the period then ended,
and the financial highlights for each of the five fiscal years in the period
then ended. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of March 31, 2000 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of each
of the respective Funds comprising Waddell & Reed Funds, Inc. as of March 31,
2000, the results of their operations for the fiscal year then ended, the
changes in their net assets for each of the two fiscal years in the period then
ended, and the financial highlights for each of the five fiscal years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
May 5, 2000
<PAGE>
INCOME TAX INFORMATION
The amounts of the dividends and long-term capital gains below, multiplied by
the number of shares owned by you in Asset Strategy Fund, Growth Fund,
International Growth Fund, Science and Technology Fund or Total Return Fund,
respectively, on the record dates, will give you the total amounts to be
reported in your Federal income tax return for the years in which they were
received or reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
--------------------------------------------------------------------
For Individuals For Corporations
----------------------------------------------------
Record OrdinaryLong-Term Non-Long-Term
Date Total IncomeCapital Gain QualifyingQualifyingCapital Gain
-------- ----- ----------------- ----------------------------
Asset Strategy Fund
Class B
06-09-99 $0.0200 $0.0200 $ --- $0.0145 $0.0055 $ ---
09-15-99 0.0200 0.0200 --- 0.0157 0.0043 ---
12-15-99 0.3035 0.2476 0.0559 0.0063 0.2413 0.0559
------- ------- ------- ------- ------- -------
$0.3435 $0.2876 $0.0559 $0.0365 $0.2511 $0.0559
======= ======= ======= ======= ======= =======
Asset Strategy Fund
Class C
12-15-99 $0.3035 $0.2476 $0.0559 $0.0063 $0.2413 $0.0559
======= ======= ======= ======= ======= =======
Asset Strategy Fund
Class Y
06-09-99 $0.0460 $0.0460 $ --- $0.0334 $0.0126 $ ---
09-15-99 0.0500 0.0500 --- 0.0393 0.0107 ---
12-15-99 0.3255 0.2696 0.0559 0.0236 0.2460 0.0559
------- ------- ------- ------- ------- -------
$0.4215 $0.3656 $0.0559 $0.0963 $0.2693 $0.0559
======= ======= ======= ======= ======= =======
Growth Fund
Class B, Class C and Class Y
12-15-99 $3.1400 $0.6628 $2.4772 $ --- $0.6628 $2.4772
======= ======= ======= ======= ======= =======
International Growth Fund
Class B, Class C and Class Y
12-15-99 $1.8000 $0.5956 $1.2044 $ --- $0.5956 $1.2044
======= ======= ======= ======= ======= =======
Science and Technology Fund
Class B, Class C and Class Y
12-15-99 $0.2400 $0.2337 $0.0063 $ --- $0.2337 $0.0063
======= ======= ======= ======= ======= =======
Total Return Fund
Class B
12-15-99 $0.4537 $0.0260 $0.4277 $0.0260 $ --- $0.4277
======= ======= ======= ======= ======= =======
Total Return Fund
Class C
12-15-99 $0.4537 $0.0260 $0.4277 $0.0260 $ --- $0.4277
======= ======= ======= ======= ======= =======
Total Return Fund
Class Y
12-15-99 $0.5537 $0.1260 $0.4277 $0.1260 $ --- $0.4277
======= ======= ======= ======= ======= =======
Dividends are declared and recorded by each Fund on each day the New York Stock
Exchange is open for business. Dividends are paid monthly usually on the 27th
of the month or on the preceding business day if the 27th is a weekend or
holiday.
Exempt Interest Dividends - The exempt interest portion of dividends paid
represents the distribution of state and municipal bond interest and is exempt
from Federal income taxation.
The table below shows the taxability of dividends and long-term capital gains
paid during the fiscal year ended March 31, 2000:
PER-SHARE AMOUNTS REPORTABLE AS:
--------------------------------------------------------------------
For Individuals For Corporations
--------------------------------------------------------------
-
Record Ordinary Long-Term Non- Long-Term
Date Total Income Capital Gain QualifyingQualifyingCapital Gain
----------- ------------- --------------- ----------------------------
High Income Fund
Class B, Class C and Class Y
April 1999
through Dec-
ember 1999 100.0000% 100.0000% ---- ---- 100.0000%
----
January 2000
through
March 2000 100.0000% 100.0000% ---- 0.2334% 99.7666%
----
Limited-Term Bond Fund
Class B, Class C and Class Y
April 1999
through Dec-
ember 1999 100.0000% 100.0000% ---- ---- 100.0000%
----
January 2000
through
March 2000 100.0000% 100.0000% ---- ---- 100.0000%
----
Municipal Bond Fund
Class B, Class C and Class Y
For Individuals For Corporations
--------------------------------------------------------------------
Record OrdinaryLong-TermExempt Non-Long-Term Exempt
Date Total IncomeCapital GainInterestQualifyingCapital GainInterest
------------- ------------------------------------------------------
April 1999
through
December
1999 100.0000%2.8054%----97.1946% 2.8054% ----97.1946%
December
1999 100.0000%----100.0000% ---- ---100.0000% ----
January 2000
through
March
2000 100.0000%3.1200 --- 96.8800 3.1200 ---- 96.8800
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Income from Municipal Bond may be subject to the alternative minimum tax.
Shareholders are advised to consult with their tax advisors concerning the tax
treatment of dividends and distributions from all the Fund.
<PAGE>
Shareholder Meeting Results
A special meeting of Waddell & Reed Funds, Inc. was held on June 22, 1999. The
matters voted upon by the shareholders and the resulting votes for each matter
are presented below.
Item 1. To elect the Board of Directors:
Broker
For Withhold Non-Votes*
J. Concannon 42,388,448 4,430,588 0
J. Dillingham 42,407,564 4,411,472 0
D. Gardner 42,379,766 4,439,270 0
L. Graves 42,362,538 4,456,498 0
J. Harroz Jr. 42,343,391 4,475,645 0
J. Hayes 42,336,292 4,482,744 0
R. Hechler 42,377,128 4,441,908 0
H. Herrmann 42,375,876 4,443,160 0
G. Johnson 42,341,135 4,477,901 0
W. Morgan 42,398,841 4,420,195 0
R. Reimer 42,356,739 4,462,297 0
F. Ross 42,406,695 4,412,341 0
E. Schwartz 42,376,747 4,442,289 0
K. Tucker 42,396,023 4,423,013 0
F. Vogel 42,384,521 4,434,515 0
Item 2. To ratify the selection of Deloitte & Touche LLP as the Funds'
independent accountants for its current fiscal year:
Broker
For Against Abstain Non-Votes*
41,810,901 374,728 4,633,407 0
Item 3. To approve or disapprove the amendment to the Funds' investment
management agreement with Waddell & Reed Investment Management Company:
Broker
For Against AbstainNon-Votes*
Asset Strategy Fund 1,275,265 20,746 71,955 0
Growth Fund 11,978,168 527,306 2,082,801 18,533
High Income Fund 1,045,982 42,604 169,226 0
International Growth
Fund 2,657,538 111,495 446,329 61
Limited-Term Bond Fund 975,829 54,390 29,064 0
Municipal Bond Fund 1,890,271 38,967 123,008 0
Science and
Technology Fund 974,611 38,559 223,890 0
Total Return Fund 19,490,423 755,093 1,776,922 0
Item 4. To approve or disapprove the amendment of the Funds' policy
regarding securities lending:
Broker
For Against AbstainNon-Votes*
Asset Strategy Fund 1,269,313 23,212 75,442 0
Growth Fund 11,975,126 371,476 2,241,673 18,533
High Income Fund 1,070,554 12,933 174,325 0
International Growth Fund 2,641,795 96,050 477,516 61
Limited-Term Bond Fund 992,314 32,237 34,732 0
Municipal Bond Fund 0 0 0 0
Science and Technology Fund975,807 22,716 238,537 0
Total Return Fund 19,435,429 567,557 2,019,452 0
Item 5. To approve or disapprove the Funds' Articles of Incorporation to
change the par value of Fund shares to $0.001:
Broker
For Against Abstain Non-Votes*
39,643,495 1,159,005 6,016,536 0
*Broker Non-Votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter.
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, San Mateo, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Michael L. Avery, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Thomas A. Mengel, Vice President
Kristen A. Richards, Vice President and Secretary
Louise D. Rieke, Vice President
Grant P. Sarris, Vice President
Daniel C. Schulte, Vice President
Mark G. Seferovich, Vice President
W. Patrick Sterner, Vice President
Daniel J. Vrabac, Vice President
James D. Wineland, Vice President
This report is submitted for the general information of the shareholders of
Waddell & Reed Funds, Inc. It is not authorized for distribution to prospective
investors unless accompanied with or preceded by the Waddell & Reed Funds, Inc.
current prospectus.
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
WADDELL & REED FUNDS, INC.
Asset Strategy Fund
Growth Fund
High Income Fund
International Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
Science and Technology Fund
Total Return Fund
------------------------------------
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(888) WADDELL
(888) 923-3355
Our INTERNET address is:
http://www.waddell.com
WRR3000A(3-00)
printed on recycled paper
