(“Board”) to be voted at a special meeting of shareholders to be held on April 3, 2009, at 6300 Lamar Avenue, Overland Park, Kansas, at 1:4:00 p.m.,pm, Central time,Time, for the purposes set forth below and described in greater detail in this Proxy Statement. (The special meeting and any adjournment(s) or postponement(s) of the special meeting are referred to in this Proxy Statement as the “Meeting.”) This Proxy Statement, along with a Notice of Meeting and a Proxy Card, is first being mailed to shareholders of the Corporation on February 2, 2007. At the Special Meeting, shareholdersor about March 10, 2009.

    The following Proposals will be asked to vote on the following proposals:

The Corporation's Board of Directors unanimously recommends that shareholders vote "FOR" each proposal.

The persons named as proxies will vote in their discretion on any other business that may properly come before the Special Meeting or any adjournments or postponements thereof.

In the event that the necessary quorum to transact business or the vote required to approve any proposal is not obtainedconsidered and acted upon at the Special Meeting, the persons named as proxies may propose one or more adjournments of the Special Meeting in accordance with applicable law to permit further solicitation of proxies. Any such adjournment as to a matter will require the affirmative vote of the holders of a majority of the Fund's shares present in person or by proxy at the Special Meeting. The persons named as proxies will vote "FOR" any such adjournment those proxies which they are entitled to vote in favor of that proposal and will vote "AGAINST" any such adjournment those proxies to be voted against that proposal.Meeting:

VOTING INFORMATION

Shareholders of record atof a Fund as of the close of business on November 20, 2006 are entitled to notice of and to vote at the Special Meeting. You are invited to attend the Special Meeting. If you cannot do so, however, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD, AND RETURN IT IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE, OR TAKE ADVANTAGE OF THE ELECTRONIC OR TELEPHONIC VOTING PROCEDURES DESCRIBED ON THE PROXY CARD. Any shareholder attending the Special Meeting may vote in person even though a proxy already may have been returned.

This Proxy Statement provides you with information you should review before voting on the matters listed in the Notice of Special Meeting (the "Proposals") for Small Cap Value Portfolio (the "Fund"), a series of W&R Target Funds, Inc. (the "Corporation"). The Corporation's Board of Directors (the "Board," the members of which are referred to herein as the "Directors") is soliciting your vote for a Special Meeting of shareholders of the Fund (the "Special Meeting") to be held at 6300 Lamar Avenue, Overland Park, Kansas on February 2, 2007 at 1:00 p.m., Central time, and, if the Special Meeting is adjourned or postponed, at any adjournments or postponements of that meeting.

Solicitation of Proxies

The Board is soliciting votes from shareholders of the Fund by the mailing of this Proxy Statement and the accompanying proxy card to shareholders on or about December 15, 2006. Shareholders of record at the close of business on November 20, 2006 (the "record date") are entitled to vote at the Special Meeting.

The appointed proxies will vote in their discretion on any other business that may properly come before the Special Meeting or any adjournments or postponements thereof. Additional matters would only include matters that were not anticipated as of the date of this Proxy Statement.

You are being asked to vote on two Proposals - (1) to approve a new sub-advisory agreement between Waddell & Reed Investment Management Company ("WRIMCO") and BlackRock Capital Management, Inc. ("BCM") (the "Proposed Agreement") with respect to the Fund, and (2) to adopt a "manager of managers" structure for the Fund whereby WRIMCO will be able to make changes to the Fund's sub-advisers and materially amend investment sub-advisory agreements related to the Fund without obtaining shareholder approval.

With respect to Proposal 1, as explained below, the Proposed Agreement for the Fund is substantially identical to the interim sub-advisory agreement currently in effect for the Fund between WRIMCO and BCM (the "Interim Agreement") and to the prior sub-advisory agreement for the Fund between WRIMCO and BCM's affiliate, BlackRock Financial Management, Inc. ("BFM") (the "Prior Agreement"). The Interim Agreement with BCM, as approved by the Board, became effective upon the completion of the Transaction, as described below, and will remain in effect until the Proposed Agreement is approved by shareholders, but in no case for a period longer than 150 days.

Merrill Lynch & Co., Inc. ("Merrill Lynch") contributed its investment management business, Merrill Lynch Investment Managers ("MLIM"), to BlackRock, Inc. ("BlackRock"), the parent company of BCM, to form a new asset management company ("New BlackRock") on September 29, 2006 (the "Transaction").

Based in New York, BlackRock managed assets for institutional and individual investors worldwide through a variety of equity, fixed income, cash management and alternative investment products. New BlackRock operates under the BlackRock name and is governed by a board of directors with a majority of independent members. New BlackRock offers a full range of equity, fixed income, cash management and alternative investment products with strong representation in both retail and institutional channels, in the United States and in non-U.S. markets. As a result of the Transaction, it has over 4,500 employees in 18 countries and a major presence in most key markets, including the United States, the United Kingdom, Asia, Australia, the Middle East and Europe. BCM is an affiliate of BFM and is the provider of the advisory services for all U.S. equity portfolios managed out of New BlackRock's Boston office.

As a result of the Transaction, Merrill Lynch has a 49.8% economic interest and a 45% voting interest in New BlackRock, and The PNC Financial Services Group, Inc. ("PNC"), which held a majority interest in BlackRock, will retain approximately 34% of New BlackRock's voting stock. Each of Merrill Lynch and PNC has agreed that it will vote all of its shares on all matters in accordance with the recommendation of New BlackRock's board in order to assure the board's independence. The Transaction was approved by the boards of directors of Merrill Lynch, BlackRock and PNC.

The Transaction could be determined to have been an assignment of the Prior Agreement under the Investment Company Act of 1940, as amended ("1940 Act"), resulting in the automatic termination of the Prior Agreement. To prevent any potential disruption in sub-advisory services, WRIMCO proposed, and the Board unanimously approved, (1) termination of the Prior Agreement with BFM, (2) adoption of the Interim Agreement with BCM on substantially identical terms as the Prior Agreement, and (3) adoption of the Proposed Agreement with BCM on substantially identical terms as the Interim Agreement and the Prior Agreement. BCM provides equity portfolio management services to BFM's prior clients, including the Fund. The sub-advisory fee rate payable to BCM will remain the same under the Proposed Agreement.

The Board has considered the matter and have concluded that it is appropriate and in the best interests of the Fund and its shareholders for WRIMCO to enter into the Proposed Agreement for the Fund. Under the 1940 Act, WRIMCO cannot enter into the Proposed Agreement unless the Fund's shareholders vote to approve the Proposed Agreement. No change in the sub-advisory fee rate payable by WRIMCO or in the scope of services from those under the Interim Agreement or Prior Agreement is being proposed.

In Proposal 2, shareholders are being asked to approve a "manager of managers" structure for the Fund. A manager of managers structure would allow WRIMCO, with the Board's approval, to make changes to the Fund's sub-advisers and materially amend investment sub-advisory agreements related to the Fund without obtaining shareholder approval, subject to certain conditions. This effectively would allow WRIMCO to hire and replace sub-advisers to the Fund, subject to Board approval. Normally, shareholders of a mutual fund must approve any new investment advisory agreement related to a mutual fund including one between the investment manager and an investment sub-adviser.

The Board has carefully considered the matter and have concluded that it is appropriate and in the best interest of the Fund and its shareholders for the Fund to use a "manager of managers" arrangement.

Each share is entitled to cast one vote, and fractional shares are entitled to a proportionate fractional vote.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE TO APPROVE BOTH PROPOSALS.

Introduction

Shareholders are being asked to approve the Proposed Agreement between WRIMCO and BCM with respect to the Fund. On August 30, 2006, the Board, including all of the Directors who are not "interested persons" of the Corporation, WRIMCO, BCM or Merrill Lynch (the "Disinterested Directors"), unanimously voted to approve the Proposed Agreement and to recommend the Proposed Agreement to Fund shareholders for approval. If approved by the shareholders, the Proposed Agreement will take effect on the date of such approval. The Proposed Agreement will remain in effect through September 30, 2007 and will continue in effect thereafter only if its continuance is specifically approved at least annually (i) by the vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by a majority of the Directors and (ii) by the vote, cast in person at a meeting called for that purpose, of a majority of the Disinterested Directors.

At its meeting on August 30, 2006, the Board considered that the Transaction was anticipated to be completed before the date of the Special Meeting and receipt of shareholder approval of the Proposed Agreement. Accordingly, the Board, including all of the Disinterested Directors, unanimously approved the termination of the Prior Agreement, effective upon the completion of the Transaction, and also approved the Interim Agreement between WRIMCO and BCM with respect to the Fund pursuant to Rule 15a-4 under the 1940 Act.

This Rule, under certain circumstances, allows an interim advisory agreement to take effect, and to remain in effect for up to 150 days, without receiving prior shareholder approval, as long as the fees payable under the interim advisory agreement do not exceed the fees payable under the predecessor agreement that had been approved by shareholders and certain other contractual provisions are included in the interim agreement. The Interim Agreement requires all advisory fees earned by BCM to be escrowed pending approval by Fund shareholders of the Proposed Agreement. If the Proposed Agreement is not approved, BCM will be entitled to receive from escrow the lesser of (i) any costs incurred in performing the Interim Agreement (plus interest earned on the amount while in escrow) or (ii) the total amount in the escrow account (plus interest earned). The Interim Agreement took effect upon the completion of the Transaction since approval by Fund shareholders was not obtained by that date and will continue in effect until the earlier of shareholder approval of the Proposed Agreement or 150 days from the completion of the Transaction.

A form of the Proposed Agreement is attached as Exhibit A. The description of the Proposed Agreement's terms in this section is qualified in its entirety by reference to Exhibit A.

Board Recommendation

The Board of Directors, including the Disinterested Directors, unanimously recommends that shareholders of the Fund vote "FOR" approval of the Proposed Agreement.

For more information about the Directors' deliberations and the reasons for their recommendation, please see the discussion under the heading "Evaluation by the Board."

Comparison of Prior and Proposed Agreements

The Proposed Agreement for the Fund is substantially identical (but for a few non-material changes) to the Prior Agreement and to the Interim Agreement (apart from the provisions relating to Rule 15a-4) for the Fund. The date of the Proposed Agreement for the Fund will be the date on which shareholders of the Fund approve the Proposed Agreement, and the initial term of the Proposed Agreement expires on September 30, 2007. The next several paragraphs briefly summarize some important provisions of the Proposed Agreement, the Interim Agreement and the Prior Agreement, but for a complete understanding of the Proposed Agreement, you should read Exhibit A. For purposes of the discussion below, the Proposed Agreement, the Interim Agreement and the Prior Agreement each will be referred to as the "Agreement," and BCM and BFM each will be referred to as the "Sub-adviser."

The fees payable to BCM under the Proposed Agreement and the Interim Agreement are paid by WRIMCO and the fee rate will be no greater than the fee rate paid to BFM by WRIMCO under the Prior Agreement. In addition, BCM has assured the Board that it will continue to provide the same level of sub-advisory services to the Fund under the Proposed Agreement as it provides under the Interim Agreement and that BFM provided under the Prior Agreement.

The Prior Agreement was last approved by the shareholders of the Fund on January 20, 2005. The Prior Agreement was submitted to shareholders because the prior sub-advisory agreement would have terminated upon the sale of the Fund's previous sub-adviser, State Street Research & Management Company, to Blackrock. The Interim Agreement has not been approved by shareholders of the Fund, nor is it required to be approved by shareholders, pursuant to Rule 15a-4 under the 1940 Act.

Services and Obligations

Under the Prior Agreement, WRIMCO appointed BFM, and under the Interim Agreement and the Proposed Agreement, respectively, appointed and proposes to appoint BCM (an affiliate of BFM), to perform the portfolio selection services described below for the investment and reinvestment of the Fund's portfolio, subject to the supervision of WRIMCO and subject also to the control and direction of the Board. The Sub-adviser is deemed to be an independent contractor and, except as expressly provided or authorized in the Agreement, the Sub-adviser has no authority, to act for or represent the Corporation or WRIMCO in any way or be deemed an agent of the Corporation or WRIMCO. Under the Agreement, the Sub-adviser provides the below-listed services and assumes the following obligations with respect to the Fund.

(1) Within the framework of the investment objectives, policies and restrictions of the Fund, and subject to the supervision of WRIMCO, the Sub-adviser has the sole and exclusive responsibility for the making and execution of all investment decisions for the Fund. The investment of the assets of the Fund are at all times subject to the applicable provisions of the Corporation's Articles of Incorporation and bylaws, as well as the registration statement, current prospectus and statement of additional information applicable to the Fund, and must conform to the investment objectives, policies and restrictions of the Fund as set forth in such documents and as interpreted from time to time by the Board and by WRIMCO.

(2) In carrying out its obligations to manage the investment and reinvestment of the assets of the Fund, the Sub-adviser is required to (i) obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries, the securities of which are included in the Fund or are under consideration for inclusion therein; (ii) formulate and implement a continuous investment program for the Fund consistent with the investment objective and related investment policies of the Fund as set forth in the Fund's registration statement, as amended; and (iii) take such steps as are necessary to implement the aforementioned investment program by placing orders for such purchases and sales of securities with broker-dealers, including the placing, or directing the placement through an affiliate (if any) of the Sub-adviser, of orders for such purchases and sales.

(3) In connection with the purchase and sale of securities of the Fund, the Sub-adviser arranges for the transmission to WRIMCO (or its designee) and the custodian of the Fund on a daily basis such confirmations, trade tickets and other documents as may be necessary to enable them to perform their administrative responsibilities with respect to the Fund. The Sub-adviser is required to render such reports to WRIMCO and/or the Board concerning the investment activity and portfolio composition of the Fund in such form and at such intervals as WRIMCO or the Board may from time to time require.

(4) The Sub-adviser, in the name of the Corporation, places or directs the placement of orders for the execution of portfolio transactions in accordance with the policies with respect thereto, as set forth in the Fund's registration statement, as amended from time to time. In connection with the placement of orders for the execution of the Fund's portfolio transactions, the Sub-adviser is required to create and maintain all necessary brokerage records of the Corporation in accordance with all applicable law, rules and regulations, including but not limited to, records required by Section 31(a) of the 1940 Act. The Agreement provides that all records will be the property of the Corporation and the Sub-adviser shall make such records available for inspection and use by the Securities and Exchange Commission ("SEC"), the Corporation or any person retained by the Corporation. Where applicable, such records are required to be maintained by the Sub-adviser for the period and in the place requ ired by Rule 31a-2 under the 1940 Act.

(5) In placing orders or directing the placement of orders for the execution of portfolio transactions, the Sub-adviser selects brokers and dealers for the execution of the Fund's transactions. In selecting brokers or dealers to execute such orders, the Sub-adviser is expressly authorized to consider the fact that a broker or dealer has furnished statistical, research or other information or services that enhance investment research and portfolio management capability generally. Also, in accordance with Section 28(e) of the Securities Exchange Act of 1934, as amended, the Sub-adviser may negotiate with and assign to a broker a commission which may exceed the commission which another broker would have charged for effecting the transaction if the Sub-adviser determines in good faith that the amount of commission charged was reasonable in relation to the value of brokerage and/or research services (services that provide lawful and appropriate assistance to the Sub-adviser in the performance of investment decision-making responsibilities) (as defined in Section 28(e)) provided by such broker. Under the Agreement, the Sub-adviser is required to render such reports, at such intervals and in such form as may be mutually agreed to WRIMCO and/or to the Board regarding the total amount and usage of all commissions generated as a result of trades executed for the Fund's portfolio, as well as information regarding third-party services, if any, received by the Sub-adviser as a result of trading activity with select brokers and dealers.

On occasions when the Sub-adviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other customers, the Agreement permits the Sub-adviser, to the extent permitted by applicable law, to aggregate the securities to be sold or purchased in order to obtain the best execution or lower brokerage commissions, if any. The Sub-adviser also may purchase or sell a particular security for one or more clients in different amounts. To the extent permitted by applicable law and regulations, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, are to be made in the manner the Sub-adviser considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.

(6) The Sub-adviser is required to review all proxy solicitation materials and is responsible for voting and handling all proxies in relation to the securities held in the Fund.

Standard of Care

Under the Agreement, the Sub-adviser is entitled to rely on information that it reasonably believes to be accurate and reliable. Except as may otherwise be provided by the 1940 Act, neither the Sub-adviser nor its officers, directors, employees or agents shall be subject to any liability for any error of judgment or mistake of law or for any loss arising out of any investment or other act or omission in the performance of its duties under the Agreement or for any loss or damage resulting from the imposition by any government or exchange control restrictions which might affect the liquidity of the Fund's assets, or from acts or omissions of custodians or securities depositories, or from war or political act of any foreign government to which such assets might be exposed, provided that nothing in the Agreement will be deemed to protect, or purport to protect, the Sub-adviser against any liability to the Fund or to its shareholders to which it would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties under the Agreement, or by reason of its reckless disregard of its obligations and duties under the Agreement.

Compensation

The Fund pays WRIMCO a fee accruing daily at an annual rate of 0.85% of net assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3 billion of the Fund's average daily net assets. WRIMCO pays BFM, and under the Proposed Agreement would pay BCM, a sub-advisory fee at the annual rate of 0.50% of the Fund's average daily net assets managed by the Sub-adviser.

Renewal and Termination

Each of the Prior Agreement and the Proposed Agreement provides that it continues in effect from year to year, provided its continuance is specifically approved at least annually (i) by the vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by a majority of the Board and (ii) by the vote, cast in person at a meeting called for that purpose, of a majority of the Disinterested Directors. At a meeting held on August 29 and 30, 2006, the Board, with the Disinterested Directors voting separately, unanimously approved the continuation of the Prior Agreement until September 30, 2007, subject to termination upon completion of the Transaction, and unanimously approved the Interim Agreement. The Prior Agreement terminates, and the Interim Agreement becomes effective, upon completion of the Transaction. The Interim Agreement remains in effect until the earlier of shareholder approval of the Proposed Agreement or 150 days from the date of the Transaction. The initial term of the Proposed Agreement, if approved by the Fund's shareholders, will continue until September 30, 2007.

The Agreement states that it can be terminated with respect to the Fund at any time, without the payment of any penalty, by a vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by a vote of majority of the Board on 60 days' written notice to the Sub-adviser (10 days' written notice in the case of the Interim Agreement), or by either party to the Agreement upon 60 days' written notice to the other. The Agreement states that it will terminate automatically in the event of its assignment (as defined in the 1940 Act) or upon termination of WRIMCO's investment management agreement with respect to the Fund.

Other Provisions

The Agreement provides that the Sub-adviser irrevocably submits to the jurisdiction of any state or U.S. federal court sitting in the State of Kansas and that the Agreement shall be construed and enforced in accordance with the laws of Maryland, the 1940 Act and the applicable rules and guidance issued by the SEC and its staff thereunder.

Evaluation by the Board

At the Board meeting held on August 30, 2006, all of the Directors, including the Disinterested Directors, voted unanimously to approve the Proposed Agreement and to recommend that shareholders of the Fund vote to approve the Proposed Agreement. At that Board meeting, and for the reasons discussed below (see "Board Considerations" below), the Board, including the Disinterested Directors, unanimously approved the Interim Agreement and the Proposed Agreement and unanimously recommended approval of the Proposed Agreement by shareholders in order to assure continuity of investment sub-advisory services to the Fund after the completion of the Transaction.

At its meeting on August 30, 2006, the Board met with a representative of BlackRock to discuss the Transaction, BCM's general plans and intentions regarding the Fund, and BlackRock's planned combination of its business with that of MLIM. The BlackRock representative reviewed the Transaction and BlackRock's enhanced capabilities for U.S. equity investment strategies that are anticipated to result from the combination with MLIM. The BlackRock representative stated that the Fund's current portfolio manager would continue to serve as the Fund's portfolio manager after the Transaction and that the Transaction is not anticipated to result in any changes to the portfolio management team for the Fund or to the independence with which it operates. In response to questions from Directors and others at the Board meeting, the BlackRock representative: discussed the extent to which BCM would likely seek to engage in brokerage transactions on behalf of the Fund with Merrill Lynch; discussed the port folio manager's investment style and the relatively high portfolio turnover rate associated with that style; reviewed investment performance of the Fund as well as the general long-term performance of the portfolio manager for BlackRock's small cap value strategy; and confirmed that BlackRock continued to have sufficient capacity in this strategy for its current clients, including the Fund.

The Disinterested Directors also met separately with their counsel to consider the Proposed Agreement and the proposed Interim Agreement. Independent legal counsel provided the Disinterested Directors with a memorandum that explained their responsibilities in evaluating the Fund's investment advisory agreements and the regulatory requirements pertaining to their evaluation.

In connection with their evaluation of the proposed continuance of the Prior Agreement and as relevant to the Proposed Agreement, the Directors reviewed the nature and quality of services provided by BFM and considered the information provided by BFM in response to a request from the Disinterested Directors' legal counsel seeking certain relevant information in connection with the Directors' evaluation of the proposed continuance of the Prior Agreement. In determining whether to approve the proposed continuance of the Prior Agreement and whether to approve the Proposed Agreement, the Directors considered the best interests of the Fund and the overall fairness of the Prior Agreement and the Proposed Agreement, respectively. They considered the following factors to be of primary importance to their approval of the continuance of the Prior Agreement and their approval of the Proposed Agreement, without any one factor being dispositive:

• the performance of the Fund compared with the average performance of a peer group of comparable funds and with relevant indices;
• the Fund's investment management fees and total expenses compared with the management fees and total expenses of a peer group of comparable funds;
• the benefits that accrue to BFM or its affiliates (or are anticipated to accrue to BCM or its affiliates) as a result of its relationship to the Fund; and
• the favorable history, reputation, qualification and background of BFM as well as the qualifications of its personnel, which BCM is expected to enjoy after the Transaction.

With respect to the nature and quality of services provided to the Fund pursuant to the Prior Agreement and anticipated to be provided pursuant to the Proposed Agreement, the Directors considered the Fund's performance, both on an absolute basis and in relation to the performance of the peer group of comparable mutual funds, as selected by Lipper Inc. ("Lipper"). The Directors considered that the Fund's total return performance was lower than the peer group median and the Lipper index for most periods. The Directors discussed the Fund's performance with WRIMCO and the factors bearing on that performance, including the fact that BFM had assumed sub-advisory responsibility for the Fund in January 2005 and had been in the process of making adjustments to the Fund's portfolio. The Directors also noted that WRIMCO recommended the continuance of the Prior Agreement with BFM and approval of the Proposed Agreement with BCM.

The Directors also considered that there was a fund managed by WRIMCO (or its affiliate) with similar investment objectives, policies and strategies as the Fund ("Similar Fund") that had an advisory fee schedule that was the same as the Fund's advisory fee schedule (including a sub-advisory fee to the Sub-adviser that was the same as the Fund's). The Directors considered that the accounts managed by the sub-adviser with similar investment objectives, policies and strategies as the Fund ("Other Accounts") had average advisory fees that were higher than the sub-advisory fees for the Fund. The Directors considered the relevance of the fee information provided for the Similar Fund and the Other Accounts to evaluate the appropriateness and reasonableness of the Fund's management fee and the sub-advisory fee. The Directors recognized that differences in fees paid by the Other Accounts were consistent with the management and other services provided.

The Directors also considered BFM's (and BCM's anticipated) research and portfolio management capabilities. They also considered BFM's (and BCM's anticipated) practices regarding the selection and compensation of brokers and dealers that execute portfolio transactions for the Fund, as well as, as applicable, those brokers' and dealers' provision of brokerage and research services to BFM (or, under the Proposed Agreement, to BCM) and the benefits derived by other clients from such services. The Directors also considered that the Sub-adviser had noted that the sub-advisory fee already reflected economies of scale, since the sub-advisory fee was lower than that charged to Other Accounts. The Directors did not consider the profitability of the Sub-adviser to be relevant to their evaluation.

In addition, with respect to the Proposed Agreement, the Directors considered among other things: (i) the strategic reasons for the Transaction, as presented by BlackRock to the Board; (ii) the reputation, financial strength and resources of BlackRock and BCM and the anticipated financial strength and resources of New BlackRock; (iii) that each of BlackRock, MLIM and BCM are experienced and respected asset management firms, and that BlackRock has advised the Board that, in connection with the Transaction, it intends to take steps to combine the investment management operations of BlackRock and MLIM, which is anticipated to enhance BlackRock's equity management capabilities; (iv) the current portfolio manager to the Fund will remain in place after the Transaction; (v) that BlackRock advised the Board that following the Transaction, there is not expected to be any diminution in the nature, quality and extent of services provided to the Fund and its shareholders by BCM, including compliance services; (vi) t he certification from the Fund's Chief Compliance Officer regarding the compliance programs of BCM and its affiliates; (vii) the division of responsibilities between WRIMCO and BCM and the services provided by each of them; (viii) that BlackRock and MLIM would derive benefits from the Transaction and that as a result, they have a financial interest in the matters that were being considered; (ix) the fact that the Fund's total sub-advisory fees will not increase by virtue of the Proposed Agreement but, rather, will remain the same, and the fact that WRIMCO will continue to bear all of the Fund's sub-advisory fees; (x) the terms and conditions of the Proposed Agreement and the Prior Agreement are substantially identical (See "Comparison of Prior and Proposed Agreements" above); and (xi) the Fund would not bear the costs of obtaining shareholder approval of the Proposed Agreement.

Based on the discussions, considerations and information described generally above, the Directors determined that the Prior Agreement and the Proposed Agreement are each fair and reasonable and that continuance of the Prior Agreement and, accordingly, that approval of the Proposed Agreement were each in the best interests of the Fund. In reaching these determinations, the Directors concluded that: the nature, extent and quality of the services provided by BFM under the Prior Agreement, and anticipated to be provided by BCM under the Proposed Agreement, for the Fund are adequate and appropriate; and that they retained confidence in BFM's and, as applicable, BCM's anticipated, overall ability to manage the Fund.

In the event that the shareholders do not approve the Proposed Agreement, the Directors of the Corporation will consider what alternatives may then be available.

Vote Required

Approval of Proposal 1 requires an affirmative vote of the lesser of (i) 67% or more of the Fund's shares present at the Special Meeting if more than 50% of the outstanding shares of the Fund are present or represented by proxy or (ii) more than 50% of the outstanding shares of the Fund.

The Board unanimously recommends that shareholders of the Fund vote "FOR" Proposal 1.

As described above, pursuant to the Investment Management Agreement between WRIMCO and the Fund (the "Management Agreement"), WRIMCO, subject to the supervision of the Board, serves as investment manager to the Fund. WRIMCO is permitted under the Management Agreement, at its own expense, to select and contract with one or more sub-advisers to perform some or all of the services for the Fund for which WRIMCO is responsible.

If WRIMCO delegates portfolio management duties to a sub-adviser with respect to a series of the Corporation, the 1940 Act requires that the sub-advisory agreement must be approved by the shareholders of that series. Specifically, Section 15 of the 1940 Act makes it unlawful for any person to act as an investment adviser (including as a sub-adviser) to a mutual fund, except pursuant to a written contract that has been approved by shareholders. Therefore, to comply with Section 15 of the 1940 Act, each series of the Corporation, including the Fund, must obtain shareholder approval of a sub-advisory agreement in order to employ one or more sub-advisers, replace an existing sub-adviser with a new sub-adviser, materially change the terms of a sub-advisory agreement, or continue the employment of an existing sub-adviser when that sub-advisory agreement terminates because of an assignment (as such term is defined under the 1940 Act) of the agreement.

"Manager of Managers" Arrangement

Because of the expense and delays associated with obtaining shareholder approval of sub-advisers and related sub-advisory agreements, many mutual fund investment advisers have requested and obtained orders ("Orders") from the SEC exempting them and the mutual funds they manage from certain requirements of Section 15 of the 1940 Act and the rules thereunder. Subject to the conditions delineated therein, the Orders permit mutual funds and their respective advisers to employ a "manager of managers" arrangement with respect to the funds, whereby the advisers may retain unaffiliated sub-advisers for the funds and change the terms of a sub-advisory agreement without obtaining shareholder approval.

In addition, on October 23, 2003, the SEC proposed Rule 15a-5 under the 1940 Act (the "Rule"). If adopted as proposed, the Rule would permit the Board and WRIMCO to employ a "manager of managers" arrangement with respect to the Fund without obtaining an Order, provided that shareholders of the Fund approve the "manager of managers" arrangement prior to implementation. Rule 15a-5, as proposed, would require that any sub-adviser retained to manage a fund be unaffiliated with the investment adviser, directors, trustees and officers of the investment adviser and the fund. The ultimate conditions that would be included in the final Rule are expected to be very similar to those included in recent Orders, but the conditions could differ to some extent from those in recent Orders or the proposed Rule.

The Corporation has not filed an application with the SEC for an Order, and does not currently intend to do so. However, the Corporation may file such an application if the final Rule is not adopted in the near future. There is no assurance that an Order, if applied for, would be issued by the SEC. The Fund and WRIMCO would be required to comply with all conditions of any Order they receive or the Rule, as adopted by the SEC, as applicable. This may include, if required, amending the Management Agreement to expressly provide that WRIMCO is required to supervise and oversee the activities of a sub-adviser on behalf of the Fund.

Employment of the "manager of managers" arrangement by WRIMCO and the Fund is contingent upon (1) either (a) their receipt of an Order from the SEC, or (b) the adoption of the Rule by the SEC, and (2) approval by the Fund's shareholders. Neither WRIMCO nor the Fund can assure that the SEC will either grant an Order or adopt Rule 15a-5 as currently proposed. Because the Board was calling the Meeting to seek shareholder approval of Proposal 1, the Board determined to seek shareholder approval of a "manager of managers" arrangement at the Meeting to avoid additional meetings and proxy solicitation costs in the future.

Even if shareholders of the Fund approve this proposal, such a structure would not become effective until (1)the Board decides to implement the structure, and (2) either (a) the Fund applies for and obtains an exemption from the requirements under Section 15(a) of 1940 Act, or (b) the SEC adopts proposed Rule 15a-5.

Application of the Proposed "Manager of Managers" Arrangement by the Fund

The proposed "manager of managers" arrangement would permit WRIMCO, as the Fund's investment manager, to make changes to the Fund's sub-advisers and materially amend investment sub-advisory agreements related to the Fund without shareholder approval. This would allow WRIMCO, subject to the Board's approval, to select new or additional sub-advisers for the Fund and terminate and replace existing sub-advisers to the Fund. The "manager of managers" arrangement is intended to enable the Fund to operate with greater efficiency and help the Fund enhance performance by allowing WRIMCO to employ sub-advisers best suited to the needs of the Fund without incurring the expense and delays associated with obtaining shareholder approval of sub-advisers and related sub-advisory agreements. The Board believes that it is in the best interests of the Fund and its shareholders to adopt a "manager of managers" arrangement. A discussion of the factors considered by the Board is set f orth in the section below entitled "Board Approval of 'Manager of Managers' Arrangement".

The process of seeking shareholder approval can be administratively expensive to any series of the Corporation, including the Fund, and may cause delays in executing changes that the Board and WRIMCO have determined are necessary or desirable. These costs are often borne by the Fund (and therefore indirectly by the Fund's shareholders). Further, if a sub-adviser is involved in a corporate transaction that could be deemed to result in an assignment of the sub-advisory agreement, such as that described in Proposal 1, the Fund currently must seek shareholder approval of a new sub-advisory agreement, even where there will be no change in the persons managing the Fund or the investment sub-advisory fee paid to the sub-adviser. If shareholders approve the policy authorizing a "manager of managers" arrangement for the Fund, the Board would be able to act more quickly and with less expense to the Fund to appoint an unaffiliated sub-adviser, in instances in which the Board and WRIMCO believe that the app ointment would be in the best interests of the Fund and its shareholders.

The Board, including the Disinterested Directors, would continue to oversee the sub-adviser selection process under the "manager of managers" arrangement to help ensure that the interests of shareholders are protected whenever WRIMCO would seek to select a sub-adviser or modify a sub-advisory agreement. Specifically, the Board, including the Disinterested Directors, would evaluate and approve all sub-advisory agreements as well as any modification to an existing sub-advisory agreement. The Board, including a majority of the Disinterested Directors, will continue to be required to review and consider each sub-advisory agreement for renewal annually, after the expiration of the initial term. In reviewing new or reviewing existing sub-advisory agreements or modifications to existing sub-advisory agreements, the Board will analyze all factors that it considers to be relevant to its determination, including the sub-advisory fees, the nature, quality and scope of services to be provided by the sub-ad viser, the investment performance of the assets managed by the sub-adviser in the particular style for which a sub-adviser is sought, as well as the sub-adviser's compliance with federal securities laws and regulations. WRIMCO and the relevant sub-adviser will continue to have a legal duty to provide the Board with information on all factors pertinent to the Board's decision regarding the sub-advisory arrangement.

Furthermore, operation of the Fund under the proposed "manager of managers" arrangement would not: (1) permit investment management fees paid by a Fund to WRIMCO to be increased without shareholder approval, or (2) diminish WRIMCO's responsibilities to the Fund, including WRIMCO's overall responsibility for the portfolio management services furnished by a sub-adviser. Under the structure, WRIMCO would continue to supervise and oversee the activities of each sub-adviser to the Fund, monitor each sub-adviser's performance and make recommendations to the Board about whether its sub-advisory agreement should be continued, modified, or terminated. Until receipt of an Order from the SEC and/or the adoption of the Rule, WRIMCO will only enter into new or materially amended sub-advisory agreements with shareholder approval, to the extent required by applicable law.

Under the "manager of managers" arrangement, shareholders would receive notice of, and information pertaining to, any new sub-advisory agreement or any material change to a sub-advisory agreement. In particular, shareholders would receive the same information about a new sub-advisory agreement and a new sub-adviser that they would receive in a proxy statement related to their approval of a new sub-advisory agreement in the absence of a "manager of managers" arrangement. In each case, shareholders will receive such notice and information within the timeframe required by the Order or Rule, as applicable.

If Proposal 2 is not approved by the shareholders of the Fund, shareholder approval would continue to be required for WRIMCO to enter into new or materially amended sub-advisory agreements with respect to the Fund.

Board Recommendation

The Board of Directors, including the Disinterested Directors, recommends that shareholders of the Fund vote "FOR" approval of the "manager of managers" structure.

Board Approval of "Manager of Managers" Arrangement

At a meeting held November 15, 2006, the Board, including the Disinterested Directors, unanimously approved the use of the "manager of managers" arrangement and determined (1) that it would be in the best interests of the Fund and its shareholders, and (2) to obtain shareholder approval of the same. In evaluating this arrangement, the Board, including the Disinterested Directors, considered various factors and other information, including the following:

Approval of Proposal 2 requires an affirmative vote of the lesser of (i) 67% or more of the Fund's shares present at the Special Meeting if more than 50% of the outstanding shares of the Fund are present or represented by proxy or (ii) more than 50% of the outstanding shares of the Fund.

The Board unanimously recommends that shareholders of the Fund vote "FOR" Proposal 2.

Additional Information about Waddell & Reed Investment Management Company ("WRIMCO")

WRIMCO, 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas, 66201-9217, is a subsidiary of Waddell & Reed Financial, Inc. ("Waddell & Reed"), 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas, 66201-9217, a publicly held company. WRIMCO currently provides investment management services to the Fund and other funds in the W&R Target Funds, Inc., Waddell & Reed Advisors Funds and Waddell & Reed InvestEd Portfolios, Inc. WRIMCO is a SEC-registered investment adviser with approximately $33 billion in assets under management as of June 30, 2006.

During the fiscal year ended December 31, 2005, the Fund paid WRIMCO fees of $1,232,596. During the fiscal year ended December 31, 2005 WRIMCO paid subadvisory fees to BFM and its predecessor, State Street Research & Management Company, in the amount of $598,228. There were no other material payments by the Fund to BFM or any of its affiliates during that period.

Additional Information about BlackRock Capital Management, Inc. ("BCM")

BCM is an indirect, wholly-owned subsidiary of BlackRock, Inc. ("BlackRock"), which trades on the New York Stock Exchange under the symbol BLK. BlackRock is one of the largest publicly traded investment management firms in the United States, with over $1 trillion of assets under management as of September 30, 2006. Merrill Lynch & Co., Inc., headquartered in New York, NY, owns approximately 45% of BlackRock's outstanding voting securities and may be considered a contolling person of BlackRock. The PNC Financial Services Group, headquartered in Pittsburgh, PA, owns approximately 34% of BlackRock's outstanding voting securities. The balance of the shares is split between employees and the public. Together with its affiliates, BlackRock serves as investment adviser to fixed income, equity and liquidity investors in the United States and overseas through fund and institutional accounts with combined total assets at September 30, 2006, of approximately $1 trillion.

BCM currently manages three other funds with a small cap value strategy that have similar objectives to the Fund. BCM is the investment adviser for the BlackRock Small Cap Value Equity Portfolio, and the investment sub-adviser for Client A Fund and Client B Fund. Information with respect to the assets of and management fees payable to BCM by those funds is set forth below:

Name and Address	Status or Title with BCM
Lawrence D. Fink	Chairman and Chief Executive Officer
Ralph L. Schlosstein	President and Director
Robert S. Kapito	Vice Chairman and Director
Robert P. Connolly	General Counsel, Secretary and Managing Director
Susan L. Wagner	Vice Chairman and Chief Operating Officer
Steven E. Buller	Chief Financial Officer and Managing Director
Keith L. Anderson	Vice Chairman
Charles S. Hallac	Vice Chairman
Barbara G. Novick	Vice Chairman
Robert Doll	Vice Chairman
Robert Fairbairn	Vice Chairman

The address of the principal executive officer and each of directors listed above is BlackRock Capital Management, Inc., 100 Bellevue Parkway, Wilmington, DE 19809.

Organization and Management of the Corporation

The Corporation is governed by the Board. A majority of the Board members are Disinterested Directors. The Board elects the officers who are responsible for administering the Fund's day-to-day operations. Each Director and officer serves an indefinite term, until he or she dies, resigns, is removed or becomes disqualified. The Disinterested Directors and their principal occupations during the past five years are:

The investment adviser of the Fund is WRIMCO, the principal underwriter is Waddell & Reed, Inc., and the Administrator is Waddell & Reed Services Company. Each of these entities has as its principal place of business 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

Shareholder Reports

Copies of the Fund's Annual Report for the fiscal year ended December 31, 2005, and Semi-Annual Report for the period ended June 30, 2006, have previously been mailed to shareholders. This Proxy Statement should be read in conjunction with the Annual and Semi-Annual Reports. You can obtain copies of the those reports, without charge, by writing to Waddell & Reed, Inc., 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217, or by calling 888-WADDELL.

Voting Rights

Shareholders of record on November 20, 2006 (the "record date"6, 2009 (“Record Date”) are entitled to be present and to vote at the Special Meeting or any adjourned meeting.Meeting. The number of shares that you may vote is the total of the number shown on the proxy card accompanying this Proxy Statement. Shareholders are entitled to one vote for each full share and a proportionatefractional vote for each fractional share held.of the Fund that they own. On the Record Date, each Fund had the number of shares issued and outstanding as set forth in Exhibit D. To the best of the Corporation’s knowledge, Exhibit E sets forth, as of the Record Date, certain information regarding persons who own beneficially or of record more than 5% of any class of shares of the Funds.

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