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    Quarterly Fund Commentary

    WRA Science and Technology Fund (prospectus)
    June 30, 2016

    Zachary H. Shafran

    Market Sector Update

    • U.S. technology stocks were rather volatile and posted a modest decline for the quarter. Semiconductors and semiconductor equipment performed well, while technology hardware storage and peripherals detracted. Health care stocks rebounded after a slow start to the year.
    • In rather shocking display, the U.K. voted to leave the European Union (EU) by a 52% to 48% margin. The global market place had been fairly nervous about a “Brexit,” though we feel it is best for investors to keep things in context. The upcoming formal legal process of withdrawing from the EU – an approximate two year negotiation process – should provide a clearer impact of the “yes” referendum vote.
    • U.S. Federal Reserve policy remained unclear regarding future rate hikes due to heightened risks to the global economy. The results of the Brexit vote raised new questions about whether the Fed will take any action in 2016.
    • The U.S. dollar resumed its rise versus developed market currencies during the quarter.

    Portfolio Strategy

    • The Fund underperformed its benchmark primarily due to an underweight allocation and poor stock selection in the consumer discretionary sector. Stock selection in health care, a sector not included in the benchmark, also contributed to the relative decline.
    • Allocations to industrials, financials, information technology, telecommunications and utilities all benefitted performance. The allocation to industrials was the top contributor to performance, with Pentair Ltd. and Advance Drainage performing well.
    • Top individual contributors to performance included Micron Technology Inc., Universal Display Corp. and Aspen Technology.
    • At quarter end, the Fund had approximately 79% of assets in U.S. equities, 15% of assets in international stocks and the residual in cash.


    • While we ride out the near-term volatility, our outlook regarding global growth this year remains modest, though the Brexit vote has created market uncertainty. That said, in mixed economic environments, we believe there are many potential investment opportunities – especially in biotechnology, data, mobility and health care – around the world.
    • We believe the Fund’s investment philosophy of seeking innovation as a catalyst for change across the market cap spectrum will create growth opportunities over the long run. As such, we maintain our high conviction in portfolio holdings.
    • We believe there will be a modest improvement in capital spending trends, and we are looking for a continuation of an active mergers-and-acquisition environment.
    • Our focus remains primarily on securityspecific fundamental research. Going forward, we believe this attention to bottom-up research, coupled with the innovation and transformation under way across the globe, will continue to provide investment opportunities for the Fund.


    The opinions expressed in this commentary are those of the Fund’s managers and are current through June 30, 2016. The manager's views are 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.

    Top 10 Equity Holdings as a percent of net assets as of 06/30/2016: Aspen Technology Inc. 5.6%, Alliance Data Systems Corp. 4.5%, Micron Technology, Inc. 4.5%, Euronet Worldwide Inc. 4.1%, Vertex Pharmaceuticals, Inc. 3.9%, Microsoft Corp. 3.8%, Cerner Corp. 3.6%, Facebook Inc., Class A 3.6%, WNS (Holdings) Ltd. ADR 3.5% and ACI Worldwide, Inc. 3.5%.

    Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund invests more than 25% of its total assets in the science and technology industry, the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than a fund that does not concentrate its investments in this industry. Securities of companies within specific industries or sectors of the economy may periodically perform differently than the overall market. In addition, the Fund’s performance may be more volatile than an investment in a portfolio of broad market securities and may underperform the market as a whole, due to the relatively limited number of issuers of science and technology related securities. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. 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.

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