Waddell & Reed

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    Quarterly Fund Commentary


    WRA Accumulative Fund (prospectus)
    June 30, 2016


    Manager(s):
    Barry M. Ogden, CFA , CPA

    Market Sector Update

    • The 2Q 2016 return for the S&P 500 Index, the Fund’s benchmark, showed a slight improvement over the 1Q 2016 return.
    • The 10 year Treasury yield dropped over the course of the quarter as the Federal Reserve (Fed) retreated from its previous (more aggressive) interest rate forecast.
    • U.K. voters surprised the world and world markets with a majority vote in late June to leave the European Union (EU) – the so-called Brexit. It is likely to take many months for all aspects of this issue to be resolved between the U.K. and EU member countries.

    Portfolio Strategy

    • The Fund underperformed its benchmark for the period with the majority of underperformance stemming from its relative overweight allocation to health care. Stock selection in the sector hurt performance as well, with Allergan plc and Alexion Pharmaceuticals among the Fund’s top detractors.
    • The Fund’s consumer discretionary allocation hurt performance. Apple, Inc. was the Fund’s largest holding and detractor.
    • The Fund’s overweight position and strong selection within consumer staples were top contributors to Fund performance. Notably, Hershey Foods was the best performing holding during the quarter.

    Outlook

    • The sell-off from Brexit has appeared to prove temporary and the broader markets are setting new all-time highs, something many investors wouldn’t have believed the day following the Brexit vote.
    • Our outlook for the stock market remains cautiously constructive, as it has been for much of the year. The U.S. economy is in a growth mode, albeit slow growth. Economies elsewhere in the world remain challenged, which restricts the ultimate strength of U.S. companies and the economy.
    • Clearly, one of the most important variables we have been watching and will continue to monitor is the Federal Reserve (Fed) and how it will handle interest rates for the remainder of 2016. If the economy is strong enough that the Fed has to raise rates, then that could be seen as a positive over the near-term since there is much uncertainty around the world about the underlying health of the global economy.
    • We feel positive about the U.S. economic backdrop, especially relative to other parts of the globe and the reach for safety and yield is driving flows into domestic markets. This should result in money seeking out higher quality investments here in the U.S. and we would hope to capitalize on this pendulum swinging in the Fund’s favor.

    The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2016. The manager’s view is subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is not a guarantee of future results.

    The S&P 500 Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. It is not possible to invest directly in an index.

    Top 10 holdings (%) as of 06/30/2016: Apple, Inc. 2.6, Microsoft Corp. 2.5, Allergan plc 1.8, Walt Disney Co. (The) 1.7, Comcast Corp. 1.7, General Electric Co. 1.7, Union Pacific Corp. 1.6, Wells Fargo & Co. 1.6, Costco Wholesale Corp. 1.6 and JPMorgan Chase & Co. 1.6.

    Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. These and other risks are more fully described in the Fund’s prospectus.

    Waddell & Reed Investments refers to the investment management services offered by Waddell & Reed Investment Management Company, the investment manager of the Waddell & Reed Advisors Funds, distributed by Waddell & Reed, Inc.

    Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which may be obtained at www.waddell.com or from a financial advisor. Read it carefully before investing.

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