News + Publications: 2004 ORP/TDA Analysis
2004 ORP/TDA Analysis of Possibilities
Product Descriptions and Contact Information
Below are the narrative descriptions of products provided by companies responding to the survey. They are listed alphabetically. Contact information is also provided when available.
American Fund Distributors Inc.
Contact: Nance Naish at Nance_Naish at capgroup.com
The Capital Group Companies, Inc. (CG) (parent of American Funds Distributors, distributor of the American Funds) is one of the country's oldest major financial services organizations, tracing its roots back to 1931. The American Funds group is a family of 29 mutual funds, 22 of which are appropriate options for retirement plans. American Funds now offers several share classes (among them A, B, C and retirement ("R") shares). Your plan is invested in A shares, which typically offers break points at certain levels of investment. The maximum sales charge for stock and stock-bond funds is 5.75%. The maximum sales charge for bond funds is 3.75%, while money market funds have no sales load. Before March 31, 2004, the American Funds A shares were sold to eligible retirement plans without a sales charge and without a contingent deferred sales charge. As of March 31, 2004, new employer-sponsored retirement plans (including certain 403(b) plans) not currently invested in Class A shares and wishing to invest without sales charges are no longer eligible to purchase A shares at NAV. New employer-sponsored retiremet plans wishing to invest must invest in the new R retirement shares. Since your plan was already invested in NAV A shares, that is not an issue; if your employer-sponsored plan was invested in no-sales-charge A shares before March 31, '04, your plan would continue to be invested in them. For more information on the varying share classes, visit our website, www.americanfunds.com. Expense Ratios: total operating expense ratios range from 0.23% (Money Market CMTA) to 1.31% (New World Fund). This family's investment choices include: 2-Money Market; 5-Bond; 1-Balanced; 7-Growth (1-smallcap global growth; 2-domestic growth; 3-global growth; 1 international growth); 5-Growth and Income; 2- Equity Income. Phone:1-800-421-0180. Web: www.americanfunds.com
Annuity Investors Life Insurance Co.
Contact: Kathy Mason at kmason at gafri.com
Annuity Investors Life Insurance Company has 2 fixed products available in the state of Texas including the Commodore Distinction and the Commodore Distinction II. There are no policy fees assessed against any of these contracts and all offer 10% "free-out" withdrawals. All contracts use a banding method of interest crediting. There are differences in the rate of interest credited and the surrender charges assessed. Annuity Investors Life Insurance Company has three variable annuity products available in the state of Texas including the Commodore Spirit, the Commodore Advantage and the Commodore Helmsman. 1. The Commodore Distinction, available since 2002, offers a minimum guaranteed rate of interest of 2%. This policy earned an average rate of interest of 3.91% in 2003. The contract has a declining surrender charge based upon contract year that starts at 12% in year 1, declines 1% annually to 0% in year 8 and thereafter. After the 10th contract anniversary, no early withdrawal charges will be applied. For each purchase payment received in the first contract year, an additional 2%interest will be added to the current (base) interest rate for a period of one year from the date of receipt. 2. The Commodore Distinction II, first offered in 2002 has a minimum guaranteed interest rate of 2.0%. The average interest rate in 2003 was 3.26%. The contract has a declining surrender charge based upon contract year that starts at 9% in year 1, declines 1% annually to 0% in year 11 and thereafter. After the 10th contract anniversary, no early withdrawal charges will be applied. 3. The Commodore Spirit variable annuity, first offered in 1997, has a purchase payment based surrender charge, with each purchase payment having its own seven year surrender charge period. The surrender charge is based on the number of full years that have elapsed since the date on which the purchase payment is received, is expressed as a percentage of each purchase payment and does not include the earnings on each purchase payment. The surrender charge for each purchase payment starts at 7.00% for the first duration year and reduced by 1.00% per duration year until year eight. After the 10th contract year all remaining surrender charges are waived. The Commodore Spirit has a total Separate Account Annual Expense of 1.40%. The Mortality and Expense Risk Charge is 1.25% and the Administrative Charge is .15%. The Annual Maintenance fee is $30 and is waived at $40,000. 4. The Commodore Advantage variable annuity, first offered in 1997, has a purchase payment based surrender charge, with each purchase payment having its own eight year surrender charge period. The surrender charge is based on the number of full years that have elapsed since the date on which the purchase payment is received, is expressed as a percentage of each purchase payment and does not include the earnings on each purchase payment. The surrender charge for each purchase payment starts at 8.00% for the first duration year and reduced by 1.00% in year two until year nine. After the 10th contract year all remaining surrender charges are waived. The Commodore Advantage has a total Separate Account Annual Expense of 1.40%. The Mortality and Expense Risk Charge is 1.25% and the Administrative Charge is .15%. The Annual Maintenance fee is $30 and is waived at $40,000. 5. The Commodore Helmsman variable annuity, first offered in 1997, has a purchase payment based surrender charge, with each purchase payment having its own seven year surrender charge period. The surrender charge is based on the number of full years that have elapsed since the date on which the purchase payment is received, is expressed as a percentage of each purchase payment and does not include the earnings on each purchase payment. The surrender charge for each purchase payment starts at 7.00% for the first duration year and reduced by 1.00% in year four until year eight. After the 10th contract year all remaining surrender charges are waived. The Commodore Advantage has a total Separate Account Annual Expense of 1.40%. The Mortality and Expense Risk Charge is 1.25% and the Administrative Charge is .15%. The Annual Maintenance fee is $30 and is waived at $40,000.
Citistreet
Contact: wschwartz at citistreetonline.com
Travelers Life & Annuity, represented by CitiStreet, offers three investment options: Gold Track Select, Universal Annuity, and T-Flex. Gold Track Select, a group variable annuity contract tailored for the Texas Optional Retirement Program only, offers 22 investment alternatives and a fixed rate account. Investment advisors include Alliance, CitiStreet, Delaware, Dreyfus, Federated, Janus, Smith Barney and Travelers. There is no front-end charge, administrative charge or surrender charge. The annual mortality and expense risk charge is 0.80%. Universal Annuity, a variable annuity contract issued by Travelers Life & Annuity, offers a comprehensive package of investment options, including a fixed rate account. Investment professionals include Alliance, CitiStreet, Dreyfus, Fidelity, Franklin, Janus, MFS, Putnam, Smith Barney, Templeton and Travelers. There is no front-end charge, although a contingent deferred sales charge of 5% may be assessed on contributions withdrawn within 5 years of deposit. There is a $15 semi-annual contract administrative charge. The annual mortality and expense risk charge is 1.25%. T-Flex is a fixed rate annuity contract which offers a new money interest rate declared each month and guaranteed for one year. The minimum guaranteed interest rate is 3.50%. There is no front-end charge, although a contingent deferred sales charge of 7% may be assessed on contributions withdrawn within 5 years of deposit. Additionally, CitiStreet offers 13 mutual funds as part of its Mutual Fund Select Portfolios, a 403(b)(7) mutual fund custodial account that draws from a universe of over 300 no-load or load-waived mutual funds. These funds, from such well known fund managers as Salomon Brothers, Smith Barney and State Street Global Advisors, span a wide range of asset classes to help address each participant’s individual level of investment risk tolerance. CitiStreet/Dallas: 1-800-521-7503
First Investors Corp.
Contact: John Dirik at (800) 248-3863 or Jack.Cline at firstinvestors.com
First Investors Corporation has been successfully providing services to 403(b) programs for over two decades, with each client receiving ongoing, face-to-face personal advice. First Investors has made an extensive and strong commitment to the 403(b) business. First Investors offers a family of mutual funds with 13 investment options. This family makes both class A shares (front-end load) and B shares (back-end load) of mutual funds available to clients. This allows each individual the freedom to choose the pricing structure that best suits his or her situation. For A-shares, the maximum sales charge is 5.75%. On Class A shares, there are breakpoint discounts available at certain levels of investment. There are no fees or charges on distributions from A-shares. Loans are available (see below). For B-shares, there is no initial sales charge. Distributions from class B shares may be subject to a Contingent Deferred Sales Charge (CDSC) which is reduced from a maximum of 4%. Class B shares are also subject to higher Rule 12b-1 fees than Class A shares. Waiver of the funds’ CDSC may be requested under certain limited circumstances. FIC funds encompass the following 13 investment choices: 4-Growth Funds, 1-International Equity Funds, 1-Equity Income Funds, 1-Balanced Funds, 2-Growth & Income Funds, 3-Fixed Income Funds and 1-Money Market Fund. Additional educational information including prospectuses can be found on their website, www.firstinvestors.com. Their Regional Office in Fort Worth maintains a toll-free number, (800) 248-3863, which is available to individual investors. Their local sales representatives are readily available to: -- Make presentations to employees, acquainting them with the 403(b) program, First Investors' products and providing them with investment and retirement planning information. -- Meet individually with each employee, as requested, to answer questions about products, and complete enrollment and salary reduction forms as well as the annual Maximum Contribution Calculation (MCC).
Great American Life Insurance Co.
Contact Kathy M. Mason at 1-800-438-3398 or kmason at gafri.com
Great American Life Insurance Company (GALIC) has three products offered for purposes of this survey, including the TSA III, TSA VIII and American Freedom 10-ST. There are no policy fees assessed against any of these contracts and all offer 10% "free-out" withdrawals. All contracts use a banding method of interest crediting. There are differences in the rate of interest credited and the surrender charges assessed. 1. TSA III (A109), available since 1987, offers a minimum guaranteed rate of interest of 3%. This policy earned an average rate of interest of 3.8% in 2003. The contract has a declining surrender charge based upon contract year that starts at 5% in year 1, declines 1% annually to 0% in year 6 and thereafter. 2. TSA VIII (A108), first offered in 1994, has a guaranteed minimum interest rate of 3.0%. The average interest rate in 2003 was 3.15%. This contract has a declining surrender charge based upon contract year and the age of the policyholder. A persistency bonus equal to 1% of the Account Value is available during policy years ten through fourteen, subject to qualifications. 3. American Freedom 10-ST first offered in 2003, has a guaranteed minimum interest rate of 2.0%. The average interest rate in 2003 was 4.32%. This contract has a declining surrender charge based upon contract year that starts at 9% in year one, declines 1% in year three, declines 1% annually to 0% in year eleven. In addition to the current base rate, the American Freedom 10-ST may earn additional interest during the first contract year. Presently the additional interest is at 1.50%. Phone: 1-800-438-3398 Web: www.galic.com
Jefferson Pilot Financial
Contact Annuity Marketing at 888-895-4830, ext. 2, or annuitymarketing at jpfinancial.com
Jefferson-Pilot Life Insurance Company is currently focusing our Fixed Annuity initiatives on the Indexed Annuity market place. The Jefferson Pilot OptiPoint annuity series (JPF Opti 8 and JPF Opti 10) have certain features that may be appealing to ORP/TDA participants. These indexed annuities provide a choice between a Fixed Account and three Indexed Accounts. The Fixed Account is credited daily at a declared fixed interest rate. The Indexed Accounts provide the potential for participating in some of the market gains while protecting your downside exposure. You can allocate your premium and the annuity account value between the Fixed Account and the three Indexed Accounts. Each annuity policy provides a guaranteed minimum return. The minimum guaranteed cash surrender value is based on 100% of premiums and assumes no withdrawals. Surrenders may be subject to a surrender charge schedule (8 years for JPF Opti 8 and 10 years for JPF Opti 10) and a Market Value Adjustment, and if made prior to age 591⁄2 may also be subject to a 10% Federal penalty tax. You can receive up to 10%, surrender charge free, withdrawal annually. There are no annual administrative fees, front-end sales charges or loads. Other features include a premium bonus. If you would like to learn more about these annuity policies and the operation of each of the three Indexed Accounts, please contact your licensed Jefferson Pilot sales representative. The Jefferson Pilot OptiPoint Flexible Premium Deferred Annuities (JPF Opti 8 and JPF Opti 10) (Policy form 94-526) are issued by Jefferson-Pilot Life Insurance Company, Greensboro, NC. This is a summary description of the JPF Opti 8 and JPF Opti 10 annuities. The exact terms of the annuities are contained in the policy and any attached riders, which will control Jefferson-Pilot’s contractual obligations.
The Legend Group, Inc.
Contact Andrew J. Takach at 1-800-749-4221 or atakach at legendgroup.com
Legend Equities Corporation is a full service independent Broker/Dealer which focuses primarily on providing comprehensive retirement programs. For close to 40 years, The Legend Group has been helping employees of educational systems, governmental agencies, hospitals, and other non-profit organizations prepare for their retirement. Legend’s custodial account offers fifteen underlying mutual fund families with over 650 mutual fund options for both ORP and TDA plans. Fund families include Evergreen, Federated, Fidelity, Franklin Templeton, Ivy, MFS, Mutual Series, One Group, Oppenheimer, Pioneer, Security, Van Kampen and Waddell and Reed. In addition to our custodial account, Legend has access to over thirty different mutual fund custodial accounts for ORP and TDA. This gives Legend true objective investment options offering over 6,000 mutual fund alternatives. Legend also offers multiple ORP and TDA variable annuity options and many fixed annuity options. For employees looking for investment advice, Legend offers multiple dynamic Investment Advisory Programs through Legend Advisory Corporation, a registered Investment Advisor.
Lincoln National Life Insurance Company
Contact Mike Sollberger at 1-800-454-6265 or msollberger at lnc.com
Lincoln National Life Insurance (LNL) is offering the Multi-Fund® Individual Variable Annuity for the 403(b) plans and ORP plans. The Multi-Fund® annuity has 1 fixed option and 30 variable separate accounts. Four new variable separate accounts will be added in May of 2004. The product uses the multi-manager approach that offers outside sub advisors such as: Janus, Fidelity Investments, Putnam Investments, Delaware Investments, Neuberger Berman, MFS Investment Management, and Vantage Investment Advisors. There are no surrender/withdrawal charges for the following reasons: *Partial withdrawals of up to 15% of your account value in any contract year *Death *Total and permanent disability *Annuitization of 36 months or more *Hardship *Termination of employment *Retirement Withdrawals taken for any other reason will be subject to the following surrender charge schedule: Year Surrender Charge 1–5 6% 6–7 4% 8+ 0%
One Life (Federal Kemper Life Assurance)
Contact Murray Brown at 866-735-5872 or murray.brown at bankone.com.
One Life specializes in marketing and distributing tax-qualified and non-qualified retirement funding for both private and public sector employers throughout the United States. Our staff is comprised of experienced and highly qualified investment, legal and accounting professionals who are dedicated to providing quality service in contract administration and investment funding. For over 25 years One Life has been a retirement plan provider for numerous educational institutions throughout the United States. During this time we have become one of the premier retirement plan providers in the industry. One Life, Headquartered in Elgin, IL, is a business unit of Bank One Insurance Holdings, Inc., part of Bank One Corporation, the nation's sixth-largest bank holding company, with assets of nearly $300 billion. The One Life companies have been recognized leaders in providing customers financial solutions via variable and fixed annuities for long-term accumulation, low-cost term life insurance and universal life. One Life distributes its products directly to consumers and through a variety of distribution channels, including independent broker/dealers, life insurance agencies, and financial planners. One Life is comprised of Federal Kemper Life Assurance Company, Zurich Life Insurance Company of America, and Zurich Life Insurance Company of New York. One Life has a dedicated staff of plan specialists to provide fast and quality service to meet your needs. We also provide value-added services such as an interactive voice response system and a web site that allows customers to access account information, change investment mix of future contributions, view daily unit value updates, and utilize an asset allocation service. Participants can access this information 24 hours a day via a toll-free phone number or the internet at www.zurichlifeus.com. One Life also provides plan participants with an educational newsletter, Retirement Focus, which is mailed to participants with their quarterly account statements. To fortify our commitment to, and a focus on, delivering financial solutions to specific customer markets, One Life focuses its attention and resources on meeting the needs of those target customers. We develop products and services best suited to certain markets. Based on those strategies, we then establish key relationships with distribution channels that can most effectively deliver those solutions to our target customers. One Life is an official member of the Insurance Marketplace Standards Association (IMSA). IMSA is an independent association created by the life insurance industry to promote high standards of ethical conduct in advertising, sales and service for individual life insurance and annuity products. IMSA companies must demonstrate that they have met these standards and are assessed by an independent examiner. The Advantage III is a variable annuity with 51 diverse subaccount Investment options and a fixed account that allow clients to take advantage of changing markets to maximize their investment returns regardless of goals, time frame and comfort level with investments. The 51 subaccounts investment options in the Advantage III annuity are offered through ten experienced investment management companies. The Preferred Plus is a premium bonus variable annuity that provides investors a 4% bonus, which is immediately vested, for all premiums deposited during the first 15 contract years. Preferred Plus allows participants to select from 51 variable subaccounts, and a general account (fixed account) to allocate their contributions. The Classic II is a flexible premium fixed annuity. It provides participants an opportunity to lock in the current interest rate for a 1-year, 3-year or 6-year period. This allows them to make the most of the current interest rate.
One Life (Kemper Investors Life Insurance Company)
Contact Kenneth Gutshall Agency at 866-735-5872 or murray.brown at bankone.com.
One Life specializes in marketing and distributing tax-qualified and non-qualified retirement funding for both private and public sector employers throughout the United States. Our staff is comprised of experienced and highly qualified investment, legal and accounting professionals who are dedicated to providing quality service in contract administration and investment funding. For over 25 years One Life has been a retirement plan provider for numerous educational institutions throughout the United States. During this time we have become one of the premier retirement plan providers in the industry. One Life, Headquartered in Elgin, IL, is a business unit of Bank One Insurance Holdings, Inc., part of Bank One Corporation, the nation's sixth-largest bank holding company, with assets of nearly $300 billion. The One Life companies have been recognized leaders in providing customers financial solutions via variable and fixed annuities for long-term accumulation, low-cost term life insurance and universal life. One Life distributes its products directly to consumers and through a variety of distribution channels, including independent broker/dealers, life insurance agencies, and financial planners. One Life is comprised of Federal Kemper Life Assurance Company, Zurich Life Insurance Company of America, and Zurich Life Insurance Company of New York. One Life has a dedicated staff of plan specialists to provide fast and quality service to meet your needs. We also provide value-added services such as an interactive voice response system and a web site that allows customers to access account information, change investment mix of future contributions, view daily unit value updates, and utilize an asset allocation service. Participants can access this information 24 hours a day via a toll-free phone number or the internet at www.zurichlifeus.com. One Life also provides plan participants with an educational newsletter, Retirement Focus, which is mailed to participants with their quarterly account statements. To fortify our commitment to, and a focus on, delivering financial solutions to specific customer markets, One Life focuses its attention and resources on meeting the needs of those target customers. We develop products and services best suited to certain markets. Based on those strategies, we then establish key relationships with distribution channels that can most effectively deliver those solutions to our target customers. One Life is an official member of the Insurance Marketplace Standards Association (IMSA). IMSA is an independent association created by the life insurance industry to promote high standards of ethical conduct in advertising, sales and service for individual life insurance and annuity products. IMSA companies must demonstrate that they have met these standards and are assessed by an independent examiner. The Advantage III is a variable annuity with 64 diverse subaccount investment options and a fixed account that allow clients to take advantage of changing markets to maximize their investment returns regardless of goals, time frame and comfort level with investments. The 64 subaccounts investment options in the Advantage III annuity are offered through ten experienced investment management companies. The Preferred Plus is a premium bonus variable annuity that provides investors a 4% bonus, which is immediately vested, for all premiums deposited during the first 15 contract years. Preferred Plus allows participants to select from 62 variable subaccounts, and a general account (fixed account) to allocate their contributions. The Classic II is a flexible premium fixed annuity. It provides participants an opportunity to lock in the current interest rate for a 1-year, 3-year or 6-year period. This allows them to make the most of the current interest rate.
PIONEER
Contact Kelly Robertie at 800-821-1239 or Kelly.Robertie at pioneerinvest.com
Pioneer Investments offers 26 mutual fund alternatives. This mutual fund family offers A-Shares (front-loaded), B-Shares (back-loaded), and C-shares (1% front-loaded). The maximum load (A-shares) varies depending upon the fund and the amount invested. The load ranges between 0% and 5.75%. There is also a 12b-1 fee associated with this investment. There is no front-load on B-shares, although a contingent deferred sales charge of up to 4% may be assessed on contributions withdrawn within six years of the purchase date. The custodial account assesses a fee of $10 annually for a single fund, up to a maximum of $20 for two or more funds, or an investor may pay a one-time fee of $100 to waive any further annual custodial fees. The choices of investment options include: Money Market, Stock, Bond, Balanced, Aggressive Growth, Growth and Income, International/Global, and Specialty Funds. The custodial account offers a loan provision for TSA accounts. This provision allows a participant to request a minimum loan of $1,000 up to IRS maximum allowable amounts. The interest rate charged for each loan is the Prime Rate on the business date prior to the loan’s approval. All interest is paid directly back into the investor’s TSA account. There is a $75 loan initiation charge. Phone: 1-800-622-0176. Website: www.pioneerfunds.com
Prudential Retirement
Contact Jim Tweedy, Account Executive. 1-800-458-6333. https://www.retirement.prudential.com
Please call 800-458-6333 for a prospectus or program information.
Security Benefit Life Insurance Company
Contact Chris DeGrassi at 1-785-331-2142 or chris.degrassi at securitybenefit.com for program information.
State Farm Life Insurance Company/State Farm VP
Contact Steve Kleist at 1-309-735-4884 or steve.kleist.i74q at statefarm.com for program information.
Texas Retirement Trust
Contact John R. Miller at 1-281-358-0047 or info at trtfunds.com for program information.
TIAA-CREF
Contact Margaret Hons at 1-800-842-2006 or mhons at tiaa-cref.org for program information.
VALIC
Contact Orlando Batturaro at 1-713-831-1189 or orlando_batturaro at aigvalic.com
AIG VALIC offers participants an enhanced version of its Portfolio Director product, featuring a competitive current interst rate on the long-term fixed account, no policy fee, no surrender charge, and a liberal transfer provision. Portfolio Director is a combination of fixed and variable annuity featuring a selection of 66 investment options that includes two fixed sub-accounts (long-term and short-term) and a full range of variable fund options. The variety of fund options provides participants with the flexibility to create an investment portfolio based upon personal objectives and goals. Phone: 1-800-448-2542 Web: www.aigvalic.com Table 4, Short Term Fixed Account Credit Method: The current interest rate is established on a "portfolio" basis, with the same rate applicable to all fixed account values for the period such current rate is in effect. The rate is declared January 1 of each year and guaranteed through December 31 of each year. All interest is credited on a daily basis at an annual effective rate. Table 4, Fixed Account Plus Credit Method: We employ a modified new money interest crediting policy. Under this policy, VALIC declares a "current" interest rate at the beginning of each month applicable to contributions received during that month. The current rate declared is guaranteed until the end of that calendar year for contributions received that month. It is our intent to continue to credit interest at that same rate for such contributions for an additional calendar year. At the beginning of the third calendar year, such contributions will earn interest at a new declared pool rate. This rate is established January 1 of each calendar year and guaranteed for that entire calendar year.
* Caveats for Portfolio Director Fund Performance Tables 12-18: Since Inception returns are provided for certain funds with less than a ten year history. Performance figure is not available due to the inception date of the fund. The expense ratio equals the Investment Advisory Fee plus other variable fund fees. The Separate Account Fees range from .80% to 1.05%.
VAN KAMPEN Funds Inc.
Contact Charles Grant at 1-630-684-6836 or grantc at vankampen.com
With roots extending back to 1927, Van Kampen Investments brings financial advisors and investors nearly four generations of experience managing money through bull and bear markets, and economic peaks and valleys. Van Kampen offers one of the broadest mutual fund product lines in the industry, with more than 50 individual portfolios covering almost every investment class and management style. Financial advisors and their clients turn to Van Kampen not only for quality investment options, but for things that are even more important—like the freedom to enjoy the true wealth life has to offer. It’s a responsibility we don’t take lightly. And it’s why Van Kampen favors long-term performance over short-term gain. We also continue to expand and improve our line of investment products, giving advisors and investors an array of quality tools to help build a sound, successful financial future. Of course, we at Van Kampen are proud of a track record of investment excellence dating back some 75 years and our stature as one of the industry’s largest investment firms. But we’re even more pleased that millions of investors continue to count on our Generations of Experience to help them enjoy life’s TRUE WEALTH. Phone: 1-800-341-2911 www.vankampen.com
Waddell & Reed Inc.
Contact Debra Schmidt at 1-913-236-1517 or dschmidt at waddell.com
Waddell & Reed, Inc. offers two fund families. The Waddell & Reed Advisors Funds offer 18 mutual fund alternatives to retirement plan investors. This mutual fund family offers multiple classes of shares with varying pricing structures, including A, B, and C shares. The Ivy Funds offer 24 mutual fund alternatives to retirement plan investors. This fund family also offers multiple classes of shares, including class A, B, and C shares. On July 1, 2003, the Ivy Funds merged with the W&R Funds. Through this merger, the number of mutual fund offerings within the fund family has increased to 17. The combined W&R Funds and Ivy Funds will retain the Ivy Fund name. Information on the new Ivy Fund family is included in this proposal. W&R Fund Profiles have been included with this proposal to illustrate past investment history. In December 2003,the Advantus Funds merged into many of the Ivy Funds, a retail fund family for which Waddell & Reed Ivy Investment Company, and affiliate of Waddell & Reed serves as investment adviser. As a result of the mergers, 7 new funds and asset classes were added to the Ivy Fund family,inlcudeing: Ivy Bond Fund; Ivy Mortgage Securities Fund; Ivy Real Estate Securities Fund; Ivy International Balanced Fund; Ivy Small Cap Value Fund; Ivy Balanced Fund and Ivy Value Fund. In addition, 4 Advantus Funds merged into existing Ivy Funds. Class A shares are front-loaded. The maximum load varies depending on the fund and the amount invested. The load ranges from 0.00% to 5.75%. There is also an annual 12b-1 fee associated with this investment of up to 0.25%. Class B shares do not have a front-end load, however a contingent deferred sales charge (CDSC) of up to 5% may be assessed on shares redeemed within 6 calendar years of the purchase date. There is also an annual 12b-1 fee associated with this investment of up to 1.00%. Class B shares convert to Class A shares during the 8th calendar year after the purchase date. Class C shares do not have a front-end load, however a contingent deferred sales charge (CDSC) of 1% may be assessed on contributions withdrawn within 12 months of the purchase date. There is also an annual 12b-1 fee associated with this investment of up to 1.00%. For more information about Waddell & Reed and our mutual funds please visit our website at www.waddell.com.