WADDELL & REED FINANCIAL INC
INV. MGMT. AGREEMENT (W&R)
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>12
<FILENAME>a2041359zex-10_20.txt
<DESCRIPTION>INV. MGMT. AGREEMENT (W&R)
<TEXT>

<PAGE>

                                                               Exhibit 10.20

                         INVESTMENT MANAGEMENT AGREEMENT


THIS AGREEMENT, made this 31st day of August, 1992, by and between WADDELL &
REED FUNDS, INC. (hereinafter called "Fund"), and WADDELL & REED INVESTMENT
MANAGEMENT COMPANY,

                                   WITNESSETH:

In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:

                           I. IN GENERAL

                                    Waddell & Reed Investment Management Company
agrees to act as investment adviser to Fund with respect to the investment of
its assets and in general to supervise the investments of Fund, subject at all
times to the direction and control of the Board of Directors of Fund, all as
more fully set forth herein.

                           II. DUTIES OF WADDELL & REED INVESTMENT MANAGEMENT
COMPANY WITH RESPECT TO INVESTMENT OF ASSETS OF FUND

                                    A.  Waddell & Reed Investment Management
Company shall regularly provide investment advice to Fund and shall, subject to
the succeeding provisions of this section, continuously supervise the investment
and reinvestment of cash, securities or other property comprising the assets of
the investment portfolios of Fund; and in furtherance thereof, Waddell & Reed
Investment Management Company shall:

                                            1.  obtain and evaluate pertinent
information about significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether affecting the economy
generally or one or more of the portfolios of Fund, and whether concerning the
individual companies whose securities are included in one or more of Fund's
portfolios or the industries in which they engage, or with respect to securities
which Waddell & Reed Investment Management Company considers desirable for
inclusion in one or more of Fund's portfolios;

                                            2.  furnish continuously an
investment program for each of the portfolios of Fund;

                                            3.  determine what securities shall
be purchased or sold by Fund;

                                            4.  take, on behalf of Fund, all
actions which appear to Waddell & Reed Investment Management Company necessary
to carry into effect such investment programs and supervisory functions as
aforesaid, including the placing of purchase and sale orders.

<PAGE>

                                    B.  Waddell & Reed Investment Management
Company shall make appropriate and regular reports to the Board of Directors of
Fund on the actions it takes pursuant to Section II.A. above. Any investment
programs furnished by Waddell & Reed Investment Management Company under this
section, or any supervisory function taken hereunder by Waddell & Reed
Investment Management Company shall at all times conform to and be in accordance
with any requirements imposed by:

                                            1.  the provisions of the Investment
Company Act of 1940 and any rules or regulations in force thereunder;

                                            2.  any other applicable provision
of law;

                                            3.  the provisions of the Articles
of Incorporation of Fund as amended from time to time;

                                            4.  the provisions of the Bylaws of
Fund as amended from time to time;

                                            5.  the terms of the registration
statement of Fund, as amended from time to time, under the Securities Act of
1933 and the Investment Company Act of 1940.

                                    C.  Any investment programs furnished by
Waddell & Reed Investment Management Company under this section or any
supervisory functions taken hereunder by Waddell & Reed Investment Management
Company shall at all times be subject to any directions of the Board of
Directors of Fund, its Executive Committee, or any committee or officer of Fund
acting pursuant to authority given by the Board of Directors.

                           III. ALLOCATION OF EXPENSES

                                    The expenses of Fund and the expenses of
Waddell & Reed Investment Management Company in performing its functions under
this Agreement shall be divided into two classes, to wit: (i) those expenses
which will be paid in full by Waddell & Reed Investment Management Company as
set forth in subparagraph "A" hereof, and (ii) those expenses which will be paid
in full by Fund, as set forth in subparagraph "B" hereof.

                                    A.  With respect to the duties of Waddell &
Reed Investment Management Company under Section II above, it shall pay in full,
except as to the brokerage and research services acquired through the allocation
of commissions as provided in Section IV hereinafter, for (a) the salaries and
employment benefits of all employees of Waddell & Reed Investment Management
Company who are engaged in providing these advisory services; (b) adequate
office space and suitable office equipment for such employees; and (c) all
telephone and communications costs relating to such functions. In addition,
Waddell & Reed Investment Management Company shall pay the fees and expenses of
all directors of Fund who are employees of Waddell & Reed Investment Management
Company or an affiliated corporation and the salaries and employment benefits of
all officers of Fund who are affiliated persons of Waddell & Reed Investment
Management Company.


                                       2
<PAGE>

                                    B. Fund shall pay in full for all of its
expenses which are not listed above (other than those assumed by Waddell & Reed
Investment Management Company or one of its affiliates in its capacity as
principal underwriter of the shares of Fund, as Shareholder Servicing Agent or
as Accounting Services Agent for Fund), including (a) the costs of preparing and
printing prospectuses and reports to shareholders of Fund, including mailing
costs; (b) the costs of printing all proxy statements and all other costs and
expenses of meetings of shareholders of Fund (unless Fund and Waddell & Reed
Investment Management Company shall otherwise agree); (c) interest, taxes,
brokerage commissions and premiums on fidelity and other insurance; (d) audit
fees and expenses of independent accountants and legal fees and expenses of
attorneys, but not of attorneys who are employees of Waddell & Reed Investment
Management Company or an affiliated company; (e) fees and expenses of its
directors not affiliated with Waddell & Reed, Inc.; (f) custodian fees and
expenses; (g) fees payable by Fund under the Securities Act of 1933, the
Investment Company Act of 1940, and the securities or "Blue-Sky" laws of any
jurisdiction; (h) fees and assessments of the Investment Company Institute or
any successor organization; (i) such nonrecurring or extraordinary expenses as
may arise, including litigation affecting Fund, and any indemnification by Fund
of its officers, directors, employees and agents with respect thereto; (j) the
costs and expenses provided for in any Shareholder Servicing Agreement or
Accounting Services Agreement, including amendments thereto, contemplated by
subsection C of this Section III. In the event that any of the foregoing shall,
in the first instance, be paid by Waddell & Reed Investment Management Company,
Fund shall pay the same to Waddell & Reed Investment Management Company on
presentation of a statement with respect thereto.

                                    C.  Waddell & Reed Investment Management
Company or an affiliate of Waddell & Reed Investment Management Company, may
also act as (i) transfer agent or shareholder servicing agent of Fund and/or as
(ii) accounting services agent of Fund if at the time in question there is a
separate agreement, "Shareholder Servicing Agreement" and/or "Accounting
Services Agreement," covering such functions between Fund and Waddell & Reed
Investment Management Company, or such affiliate. The corporation, whether
Waddell & Reed Investment Management Company, or its affiliate, which is the
party to either such Agreement with Fund is referred to as the "Agent." Each
such Agreement shall provide in substance that it shall go into effect, or be
amended, or a new agreement covering the same topics between Fund and the Agent
may be entered into, only if the terms of such Agreement, such amendment or such
new agreement have been approved by the Board of Directors of Fund, including
the vote of a majority of the directors who are not "interested persons" as
defined in the Investment Company Act of 1940, of either party to the Agreement,
such amendment or such new agreement (considering Waddell & Reed Investment
Management Company to be such a party even if at the time in question the Agent
is an affiliate of Waddell & Reed Investment Management Company), cast in person
at a meeting called for the purpose of voting on such approval. Such a vote is
referred to as a "disinterested director" vote. Each such Agreement shall also
provide in substance for its continuance, unless terminated, for a specified
period which shall not exceed two years from the date of its execution and from
year to year thereafter only if such continuance is specifically approved at
least annually by a disinterested director vote, and that any disinterested
director vote shall include a determination that (i) the Agreement, amendment,
new agreement or continuance in question is in the best interests of Fund and
its shareholders; (ii) the services to be performed under the Agreement, the
Agreement as amended, new agreement or agreement to be continued are services
required for the operation of Fund; (iii) the Agent can provide services the
nature and quality of which are at least equal to those provided by others
offering the same or similar services; and (iv) the fees for such services are
fair and reasonable in


                                       3
<PAGE>

light of the usual and customary charges made by others for services of the same
nature and quality. Any such Agreement may also provide in substance that any
disinterested director vote may be conditioned on the favorable vote of the
holders of a majority (as defined in or under the Investment Company Act of
1940) of the outstanding shares of each class or series of Fund. Any such
Agreement shall also provide in substance that it may be terminated by the Agent
at any time without penalty upon giving Fund one hundred twenty (120) days'
written notice (which notice may be waived by Fund) and may be terminated by
Fund at any time without penalty upon giving the Agent sixty (60) days' written
notice (which notice may be waived by the Agent), provided that such termination
by Fund shall be directed or approved by the vote of a majority of the Board of
Directors of Fund in office at the time or by the vote of the holders of a
majority (as defined in or under the Investment Company Act of 1940) of the
outstanding shares of each class or series of Fund.

                           IV. BROKERAGE

                                    (a)  Waddell & Reed Investment Management
Company may select brokers to effect the portfolio transactions of Fund on the
basis of its estimate of their ability to obtain, for reasonable and competitive
commissions, the best execution of particular and related portfolio
transactions. For this purpose, "best execution" means prompt and reliable
execution at the most favorable price obtainable. Such brokers may be selected
on the basis of all relevant factors including the execution capabilities
required by the transaction or transactions, the importance of speed,
efficiency, or confidentiality, and the willingness of the broker to provide
useful or desirable investment research and/or special execution services.
Waddell & Reed Investment Management Company shall have no duty to seek advance
competitive commission bids and may select brokers based solely on its current
knowledge of prevailing commission rates.

                                    (b)  Subject to the foregoing, Waddell &
Reed Investment Management Company shall have discretion, in the interest of
Fund, to direct the execution of its portfolio transactions to brokers who
provide brokerage and/or research services (as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934) for Fund and/or other
accounts for which Waddell & Reed Investment Management Company or one or more
of its affiliates exercise "investment discretion" (as that term is defined in
Section 3(a)(35) of the Securities Exchange Act of 1934); and in connection with
such transactions, to pay commission in excess of the amount another adequately
qualified broker would have charged if Waddell & Reed Investment Management
Company determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage and/or research services provided by such
broker, viewed in terms of either that particular transaction or the overall
responsibilities of Waddell & Reed Investment Management Company and its
investment advisory affiliates with respect to the accounts for which they
exercise investment discretion. In reaching such determination, Waddell & Reed
Investment Management Company will not be required to attempt to place a
specified dollar amount on the brokerage and/or research services provided by
such broker; provided that Waddell & Reed Investment Management Company shall be
prepared to demonstrate that such determinations were made in good faith, and
that all commissions paid by Fund over a representative period selected by its
Board of Directors were reasonable in relation to the benefits to Fund.

                                    (c)  Subject to the foregoing provisions of
this Paragraph "IV," Waddell & Reed Investment Management Company may also
consider sales of Fund's shares and

                                       4
<PAGE>

shares of investment companies distributed by Waddell & Reed, Inc. or one of its
affiliates, and portfolio valuation or pricing services as a factor in the
selection of brokers to execute brokerage and principal portfolio transactions.


                           V. COMPENSATION OF WADDELL & REED INVESTMENT
MANAGEMENT COMPANY

                                    As compensation in full for services
rendered and for the facilities and personnel furnished under sections I, II,
and IV of this Agreement, Fund will pay to Waddell & Reed Investment Management
Company for each day the fees specified in Exhibit A hereto.

                                    The amounts payable to Waddell & Reed
Investment Management Company shall be determined as of the close of business
each day; shall, except as set forth below, be based upon the value of net
assets computed in accordance with the Articles of Incorporation of Fund; and
shall be paid in arrears whenever requested by Waddell & Reed Investment
Management Company. In computing the value of the net assets of Fund, there
shall be excluded the amount owed to Fund with respect to shares which have been
sold but not yet paid to Fund by Waddell & Reed, Inc.

                                    Notwithstanding the foregoing, if the laws,
regulations or policies of any state in which shares of Fund are qualified for
sale limit the operation and management expenses of Fund, Waddell & Reed
Investment Management Company will refund to Fund the amount by which such
expenses exceed the lowest of such state limitations.

                           VI.      UNDERTAKINGS OF WADDELL & REED INVESTMENT
MANAGEMENT COMPANY; LIABILITIES

                                    Waddell & Reed Investment Management Company
shall give to Fund the benefit of its best judgment, efforts and facilities in
rendering advisory services hereunder.

                                    Waddell & Reed Investment Management Company
shall at all times be guided by and be subject to Fund's investment policies,
the provisions of its Articles of Incorporation and Bylaws as each shall from
time to time be amended, and to the decision and determination of Fund's Board
of Directors.

                                    This Agreement shall be performed in
accordance with the requirements of the Investment Company Act of 1940, the
Investment Advisers Act of 1940, the Securities Act of 1933, and the Securities
Exchange Act of 1934, to the extent that the subject matter of this Agreement is
within the purview of such Acts. Insofar as applicable to Waddell & Reed
Investment Management Company, as an investment adviser and affiliated person of
Fund, Waddell & Reed Investment Management Company shall comply with the
provisions of the Investment Company Act of 1940, the Investment Advisers Act of
1940 and the respective rules and regulations of the Securities and Exchange
Commission thereunder.

                                    In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties hereunder
on the part of Waddell & Reed Investment Management Company, it shall not be
subject to liability to Fund or to any


                                       5
<PAGE>

stockholder of Fund for any act or omission in the course of or connected with
rendering services thereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.

                           VII.     DURATION OF THIS AGREEMENT

                                    This Agreement shall become effective at the
start of business on the date hereof and shall continue in effect, unless
terminated as hereinafter provided, for a period of one year and from
year-to-year thereafter only if such continuance is specifically approved at
least annually by the Board of Directors, including the vote of a majority of
the directors who are not parties to this Agreement or "interested persons" (as
defined in the Investment Company Act of 1940) of any such party, cast in person
at a meeting called for the purpose of voting on such approval, or by the vote
of the holders of a majority (as so defined) of the outstanding voting
securities of each class or series of Fund and by the vote of a majority of the
directors who are not parties to this Agreement or "interested persons" (as so
defined) of any such party, cast in person at a meeting called for the purpose
of voting on such approval.

                           VIII.    TERMINATION

                                    This Agreement may be terminated by
Waddell & Reed Investment Management Company at any time without penalty upon
giving Fund one hundred twenty (120) days' written notice (which notice may be
waived by Fund) and may be terminated by Fund at any time without penalty upon
giving Waddell & Reed Investment Management Company sixty (60) days' written
notice (which notice may be waived by Waddell & Reed Investment Management
Company), provided that such termination by Fund shall be directed or approved
by the vote of a majority of the Board of Directors of Fund in office at the
time or by the vote of a majority (as defined in the Investment Company Act of
1940) of the outstanding voting securities of Fund. This Agreement shall
automatically terminate in the event of its assignment, the term "assignment"
for this purpose having the meaning defined in Section 2(a)(4) of the Investment
Company Act of 1940 and the rules and regulations thereunder.

IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.


(Seal)                     WADDELL & REED FUNDS, INC.


                           By: /s/Rodney O. McWhinney
                              -----------------------
                              Rodney O. McWhinney
                              Vice President

ATTEST:


By: /s/Sharon K. Pappas
    -------------------
Sharon K. Pappas
Secretary


                                       6
<PAGE>

(Seal)                                      WADDELL & REED INVESTMENT
                                            MANAGEMENT COMPANY



                                            By: /s/Robert L. Hechler
                                                ------------------------
                                             Robert L. Hechler
                                             Executive Vice President

ATTEST:



By:  /s/Rodney O. McWhinney
     ----------------------
Rodney O. McWhinney
Secretary


                                       7
<PAGE>



                  EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT

                                 W&R FUNDS, INC.

                                  FEE SCHEDULES

A cash fee computed each day on net asset value for each Fund at the annual
rates listed below*:

ASSET STRATEGY FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $1 billion                                     0.70% of net assets

Over $1 billion and up to $2 billion                 0.65% of net assets

Over $2 billion and up to $3 billion                 0.60% of net assets

Over $3 billion                                      0.55% of net assets
</TABLE>

CORE EQUITY FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $1 billion                                     0.70% of net assets

Over $1 billion and up to $2 billion                 0.65% of net assets

Over $2 billion and up to $3 billion                 0.60% of net assets

Over $3 billion                                      0.55% of net assets
</TABLE>


HIGH INCOME FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $500 million                                   0.625% of net assets

Over $500 million and up to $1 billion               0.60% of net assets

Over $1 billion and up to $1.5 billion               0.55% of net assets

Over $1.5 billion                                    0.50% of net assets
</TABLE>


                                       8
<PAGE>

INTERNATIONAL GROWTH FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $1 billion                                     0.85% of net assets

Over $1 billion and up to $2 billion                 0.83% of net assets

Over $2 billion and up to $3 billion                 0.80% of net assets

Over $3 billion                                      0.76% of net assets
</TABLE>

LARGE CAP GROWTH FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $1 billion                                     0.70% of net assets

Over $1 billion and up to $2 billion                 0.65% of net assets

Over $2 billion and up to $3 billion                 0.60% of net assets

Over $3 billion                                      0.55% of net assets
</TABLE>

LIMITED-TERM BOND FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $500 million                                   0.50% of net assets

Over $500 million and up to $1 billion               0.45% of net assets

Over $1 billion and up to $1.5 billion               0.40% of net assets

Over $1.5 billion                                    0.35% of net assets
</TABLE>

MID CAP GROWTH FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $1 billion                                     0.85% of net assets

Over $1 billion and up to $2 billion                 0.83% of net assets

Over $2 billion and up to $3 billion                 0.80% of net assets

Over $3 billion                                      0.76% of net assets
</TABLE>


                                       9
<PAGE>

MONEY MARKET FUND

A cash fee computed each day on net asset value for the Fund at the annual rate
of 0.40% of net assets.

MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $500 million                                   0.525% of net assets

Over $500 million and up to $1 billion               0.50% of net assets

Over $1 billion and up to $1.5 billion               0.45% of net assets

Over $1.5 billion                                    0.40% of net assets
</TABLE>

SCIENCE AND TECHNOLOGY FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $1 billion                                     0.85% of net assets

Over $1 billion and up to $2 billion                 0.83% of net assets

Over $2 billion and up to $3 billion                 0.80% of net assets

Over $3 billion                                      0.76% of net assets
</TABLE>

SMALL CAP GROWTH FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $1 billion                                     0.85% of net assets

Over $1 billion and up to $2 billion                 0.83% of net assets

Over $2 billion and up to $3 billion                 0.80% of net assets

Over $3 billion                                      0.76% of net assets
</TABLE>

                                       10
<PAGE>

TAX-MANAGED EQUITY FUND

<TABLE>
<CAPTION>
Net Assets                                           Fee
----------                                           ---

<S>                                                  <C>
Up to $1 billion                                     0.65% of net assets

Over $1 billion and up to $2 billion                 0.60% of net assets

Over $2 billion and up to $3 billion                 0.55% of net assets

Over $3 billion                                      0.50% of net assets
</TABLE>


*If a Fund's net assets are less than $25 million, Waddell & Reed Investment
  Management Company has agreed to voluntarily waive the management fee, subject
  to its right to change or modify this waiver.

As Amended and Effective June 30, 2000.

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</TEXT>
</DOCUMENT>
