Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated October 31, 1996. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United Cash Management, Inc.
This Fund seeks maximum current income to the extent consistent with stability
of principal by investing in a portfolio of money market instruments meeting
specified quality standards.
This Prospectus describes two classes of shares of the Fund -- Class A Shares
and Class B Shares.
Prospectus
October 31, 1996
UNITED CASH MANAGEMENT, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.........................................3
EXPENSES........................................................4
FINANCIAL HIGHLIGHTS............................................6
PERFORMANCE.....................................................9
Explanation of Terms ..........................................9
ABOUT WADDELL & REED...........................................10
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....................11
Investment Goal and Principles ...............................11
Securities and Investment Practices ..........................11
ABOUT YOUR ACCOUNT.............................................17
Ways to Set Up Your Account ..................................17
Buying Shares ................................................18
Minimum Investments ..........................................20
Adding to Your Account .......................................20
Selling Shares ...............................................20
Telephone Transactions .......................................25
Shareholder Services .........................................26
Personal Service ...........................................26
Reports ....................................................26
Exchanges ..................................................26
Automatic Transactions .....................................26
Dividends, Distributions and Taxes ...........................27
Distributions ..............................................27
Taxes ......................................................28
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................29
WRIMCO and Its Affiliates ....................................30
Breakdown of Expenses ........................................31
Management Fee .............................................31
Other Expenses .............................................32
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares and the Class B shares
of United Cash Management, Inc., an open-end, diversified management investment
company.
Goals and Strategies: United Cash Management, Inc. (the "Fund") seeks to
maximize current income to the extent consistent with stability of principal.
The Fund seeks to achieve this goal by investing in a portfolio of money market
instruments. See "About the Investment Principles of the Fund" for further
information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed, Inc.
and its account representatives or through registered broker-dealers. You may
buy Class B shares of the Fund only by exchange of Class B shares of Waddell &
Reed Funds, Inc. The price to buy a share of the Fund is the net asset value of
a share of the class you are purchasing. There is no sales charge incurred upon
purchase of shares of the Fund, but Class B shares are subject to a contingent
deferred sales charge if redeemed within a certain period of time. See "About
Your Account" for information on how to purchase shares of the Fund.
Redemptions: You may redeem your Class A shares at net asset value. You may
redeem your Class B shares at net asset value less a deferred sales charge, if
any. The deferred sales charge will vary with the length of time you have held
your Class B shares and the Waddell & Reed Funds, Inc. shares from which they
were exchanged. When you sell your shares, they may be worth more or less than
what you paid for them. See "About Your Account" for a description of
redemption procedures.
Who May Want to Invest: The Fund offers an investment goal that is compatible
with different investment decisions by investors seeking current income and
stability of principal. You should consider whether the Fund fits with your
particular investment objectives.
<PAGE>
Expenses
Class Class
A B
----- -----
Shareholder Transaction Expenses
are charges you pay when you buy
or sell shares of a fund.
Maximum sales
load on
purchases None None
Maximum sales load
on reinvested dividends None None
Maximum contingent
deferred sales
load None 3%1
Redemption fees None None
Exchange fee None None
Annual Fund Operating Expenses
(as a percentage of average net assets)2.
Management
fees 0.41% 0.41%
12b-1 fees None 1.00%3
Other expenses 0.51% 0.51%
Total Fund
operating
expenses4 0.92% 1.92%
Example: You would pay the
following expenses on a $1,000
investment, assuming (1) 5% annual
return5 and (2) redemption at the
end of each time period:
Class Class
A B
----- -----
1 year $ 9 $ 49
3 years $ 29 $ 70
5 years $ 51 $104
10 years $113 $224
Example: You would pay the
following expenses on a $1,000
investment in the Class B shares
of the Fund, assuming (1) 5% annual
return5 and (2) no redemption at the
end of each time period:
Class Class
A B
----- -----
1 year Not
applicable $ 19
3 years Not
applicable $ 60
5 years Not
applicable $104
10 years Not
applicable $224
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of a class of shares of the Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
1The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
2For the Class B shares, expense ratios are based on the management fees and
other Fund-level expenses for the fiscal year ended June 30, 1996, and the 12b-1
expenses attributable to the Class B shares that are anticipated for the current
year based on annualization of the Class B expenses during the fiscal year ended
June 30, 1996. Actual expenses may be greater or lesser than those shown.
3It is possible that long-term shareholders of the Class B shares of the Fund
may bear 12b-1 distribution fees that are more than the maximum front-end sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc. See "Breakdown of Expenses."
4Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
5Use of an assumed annual return of 5% is for illustration purposes only and not
a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the financial
statements and notes thereto, together with the report of Price Waterhouse LLP,
included in the SAI.
For a Class A share outstanding throughout each period:*
<TABLE>
For the fiscal year ended June 30,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment
income .......... 0.0487 0.0465 0.0252 0.0251 0.0434 0.0665 0.0786 0.0805 0.0626 0.0555
Less dividends
declared ........ (0.0487) (0.0465) (0.0252) (0.0251) (0.0434) (0.0665) (0.0786) (0.0805) (0.0626) (0.0555)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period ... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ...... 5.01% 4.74% 2.55% 2.57% 4.41% 6.89% 8.18% 8.33% 6.46% 5.68%
Net assets, end of
period (000
omitted) ........$402,009 $368,800 $316,920 $350,624 $448,127 $579,944 $563,893 $445,156 $298,162 $242,084
Ratio of expenses
to average net
assets .......... 0.91% 0.97% 1.04% 1.06% 0.99% 0.95% 0.95% 1.00% 1.07% 1.08%
Ratio of net investment
income to average net
assets .......... 4.89% 4.68% 2.51% 2.56% 4.36% 6.65% 7.86% 8.14% 6.27% 5.54%
*On September 5, 1995, the Fund began offering Class B shares to the public. Fund shares outstanding prior to that date
were designated Class A shares.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the financial
statements and notes thereto, together with the report of Price Waterhouse LLP,
included in the SAI.
For a Class B share outstanding throughout the period:
For the
period
from 9/5/95*
through
6/30/96
--------
Net asset value,
beginning of period $1.00
-------
Net investment
income .......... 0.0312
Less dividends ....
declared......... (0.0312)
-------
Net asset value,
end of period ..... $1.00
=======
Total return ....... 3.15%
Net assets, end of
period (000
omitted) ......... $630
Ratio of expenses
to average net
assets ............ 1.88%**
Ratio of net
investment income
to average net
assets ............ 3.76%**
*Commencement of operations.
**Annualized.
<PAGE>
Performance
Money market fund performance is commonly measured as yield. The Fund may
also advertise its performance by showing performance rankings. Performance
information is calculated and presented separately for each class of Fund
shares.
Explanation of Terms
Current Yield refers to the income generated by an investment in the Fund
over a stated seven-day period, expressed as an annual percentage rate.
Effective Yield is the income generated by an investment in the Fund over a
stated seven-day period that, when annualized, is assumed to be reinvested.
Effective yield is slightly higher than current yield because of the compounding
effect of the assumed reinvestment.
Current yield and effective yield figures are based on historical earnings
and are not intended to indicate future performance. An investment in Fund
shares is not insured and these yields are not fixed or guaranteed. Yield
information cannot necessarily be used to compare Fund shares with investment
alternatives that provide fixed yields, such as money market instruments or bank
accounts that may also be insured.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goal and Principles
The goal of the Fund is to seek maximum current income to the extent
consistent with stability of principal. The Fund seeks to achieve this goal by
investing in a portfolio of money market instruments. There is no assurance
that the Fund will achieve its goal.
Subject to the diversification requirements of Rule 2a-7 ("Rule 2a-7")
under the Investment Company Act of 1940, as amended (the "1940 Act"), the Fund
may invest only in the following U.S. dollar-denominated money market
obligations and instruments: U.S. Government obligations (including obligations
of U.S. Government agencies and instrumentalities); bank obligations and
instruments secured by bank obligations, such as letters of credit; commercial
paper; corporate debt obligations, including variable amount master demand
notes; Canadian Government obligations; and certain other obligations (including
municipal obligations) guaranteed as to principal and interest by a bank in
whose obligations the Fund may invest or a corporation in whose commercial paper
the Fund may invest.
The Fund may invest only in instruments that are rated in one of the two
highest rating categories by the requisite nationally recognized statistical
rating organization(s) or are comparable unrated securities. Standard & Poor's
Ratings Services ("S&P") and Moody's Investors Service, Inc. ("MIS") are among
the nationally recognized statistical rating organizations. See Appendix A to
the SAI for a description of some of these ratings.
While Rule 2a-7 allows the Fund to invest in securities with a remaining
maturity of not more than 397 calendar days, as a fundamental policy, the Fund
may only invest in securities with a remaining maturity of not more than one
year.
Securities and Investment Practices
The following pages contain more detailed information about the types of
instruments in which the Fund may invest and strategies WRIMCO may employ in
pursuit of the Fund's goal. A summary of the risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies and
restrictions unless it believes that doing so will help the Fund achieve its
goal. As a shareholder, you will receive annual and semiannual reports
detailing the Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy of the Fund may not be changed without the
approval of the shareholders of the Fund. Operating policies may be changed by
the Board of Directors without the approval of the shareholders. The goal of
the Fund, the type of money market securities in which the Fund may invest and
the required maturities of these securities are fundamental policy. Unless
otherwise indicated, the types of other assets in which the Fund may invest and
other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. Not all U.S. Government Securities are
backed by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are backed by
the discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment.
Policies and Restrictions: The Fund intends to invest in U.S. Government
Securities when there is a limited availability of other obligations and
instruments.
Bank Obligations are instruments issued by financial institutions
evidencing financial obligations. Bank obligations include, among other
instruments, time deposits, certificates of deposit, and bankers acceptances.
Instruments secured by bank obligations, such as letters of credit, are also
eligible for investment by the Fund.
Policies and Restrictions: As a fundamental policy, the Fund may invest
only in obligations of a bank subject to regulation by the U.S. Government
(including obligations issued by foreign branches of such banks) or obligations
of a foreign bank having total assets equal to at least U.S. $500,000,000, and
instruments secured by any such obligation.
Commercial Paper is a short-term, unsecured promissory note used to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest and must repay the amount borrowed at maturity, a date within nine
months of the date of issue.
Commercial paper has varying levels of sensitivity to interest rates and
varying degrees of quality. Longer-term commercial paper is generally more
sensitive to interest rate changes than shorter term commercial paper. The
quality of commercial paper depends upon the probability of timely repayment.
S&P ratings are graded into several categories, ranging from A-1 for the highest
quality to D for the lowest. MIS employs the designations of Prime 1, Prime 2
and Prime 3, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers.
Policies and Restrictions: As a fundamental policy, the Fund may invest
only in commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by MIS
or, if not rated, issued by a corporation whose debt obligations are rated at
least A by S&P or MIS.
Corporate Debt Obligations. Bonds and other instruments are used by
issuers to borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest and must repay the amount borrowed at maturity.
Corporate debt obligations have varying levels of sensitivity to interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
Policies and Restrictions: As a fundamental policy, the Fund may invest
only in corporate debt obligations rated at least A by S&P or MIS.
The Fund may not purchase the securities of any company that has a record
of less than three years of continuous operation, including the operation of any
predecessor.
Municipal obligations are issued by a wide range of state and local
governments, agencies and authorities for various purposes. The two main kinds
of municipal bonds are "general obligation" bonds and "revenue" bonds. In
"general obligation" bonds, the issuer has pledged its full faith, credit and
taxing power for the payment of principal and interest. "Revenue" bonds are
payable only from specific sources; these may include revenues from a particular
facility or class of facilities or special tax or other revenue source.
Industrial development bonds are revenue bonds issued by or on behalf of
public authorities to obtain funds to finance privately operated facilities.
Their credit quality is generally dependent on the credit standing of the
company involved.
Policies and Restrictions: Consistent with its fundamental policies, the
Fund may invest in only those municipal obligations that either (i) are
guaranteed as to principal and interest by a bank in whose obligations the Fund
may invest or by a corporation in whose commercial paper the Fund may invest, or
(ii) depend for their repayment solely upon a corporate issuer whose debt
obligations are rated at least A by S&P or MIS.
Foreign Securities can involve significant risks in addition to the risks
inherent in U.S. investments. These risks include currency fluctuations,
exchange regulations, risks relating to political or economic conditions in the
foreign country, and the potentially less stringent investor protection,
accounting, auditing, financial and disclosure standards of foreign markets.
These factors could make foreign investments more volatile.
Policies and Restrictions: As a fundamental policy, the foreign securities
in which the Fund may invest are: Canadian Government obligations, which are
obligations issued or guaranteed by the Government of Canada, a Province of
Canada or any agency, instrumentality or political subdivision of the Canadian
Government or any Province; obligations issued by foreign banks with total
assets equal to at least U.S. $500,000,000; and obligations issued by foreign
branches of U.S. banks. Such obligations must be U.S. dollar denominated.
Subject to the diversification requirements of Rule 2a-7, the Fund may not
invest more than 10% of its total assets in Canadian Government obligations.
The Fund does not intend to invest more than 25% of its total assets in a
combination of foreign bank obligations and the obligations of foreign branches
of domestic banks.
Indexed Securities. Subject to the requirements of Rule 2a-7, the Fund may
purchase indexed securities, which are securities the value of which varies in
relation to the value of other securities, securities indices, precious metals
or other commodities, or other financial indicators, as long as the indexed
securities are U.S. dollar denominated. Indexed securities typically, but not
always, are debt securities or deposits whose value at maturity or coupon rate
is determined by reference to a specific instrument or statistic.
The indexed securities in which the Fund invests include securities whose
prices are indexed to 90-day Treasury Bill rates, the London Inter-Bank Offering
Rate (LIBOR), prime interest rates, Federal composite commercial paper rates and
Federal funds rates. Certain indexed securities that are not traded on an
established market may be deemed illiquid.
Policies and Restrictions: The Fund will not invest in any security whose
interest rate or principal amount to be repaid, or timing of payments, varies or
floats with the value of a foreign currency, the rate of interest payable on
foreign currency borrowings, or with any interest rate or index expressed in a
currency other than U.S. dollars.
Repurchase Agreements. In a repurchase agreement, the Fund purchases a
security at one price and simultaneously agrees to sell it back at a higher
price. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.
Policies and Restrictions: As a fundamental policy, the Fund will not
enter into a repurchase agreement if, as a result, more than 10% of its net
assets would consist of illiquid investments, which include repurchase
agreements not terminable within seven days.
Restricted Securities and Illiquid Investments. Restricted securities are
securities that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain types of restricted securities may be deemed to be liquid in accordance
with guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to the Fund.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase restricted securities except commercial paper that is exempt from
registration under Section 4(2) of the Securities Act of 1933.
The Fund may not purchase a security if, as a result, more than 10% of its
net assets would consist of illiquid investments. The Fund does not intend to
invest more than 25% of its total assets in liquid Section 4(2) commercial
paper.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security, other than a U.S. Government Security, if, as a result, it would own
more than 10% of the total value of the issuer's outstanding securities, or if
more than 5% of the Fund's total assets would be invested in securities of that
issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry. U.S. Government obligations and bank obligations
and instruments are not included in this limit.
The Fund may not invest more than 5% of its assets in securities rated in
the second highest rating category by the requisite nationally recognized
statistical rating organization(s) or comparable unrated securities, with
investments in such securities of any one issuer being limited to the greater of
1% of the Fund's assets or $1,000,000.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If the Fund makes
additional investments while borrowings are outstanding, this may be considered
a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow
only from banks to meet redemptions, as a temporary measure or for extraordinary
or emergency purposes, up to 10% of its total assets.
Lending. Securities loans may be made on a short-term or a long-term basis
for the purpose of increasing the Fund's income. This practice could result in
a loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not lend
securities representing more than one-third of its total asset value at any one
time and such loans must be on a collateralized basis in accordance with
applicable regulatory requirements.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
_ Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. The maximum is
$2,250 ($4,000 for tax years beginning in 1997) if the investor's spouse has
less than $250 of earned income in the taxable year.
_ Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh, but with fewer administrative
requirements.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
_ 401(k) Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
_ 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
Federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to
Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy Class A shares of the Fund through Waddell & Reed, Inc. and its
account representatives or through registered broker-dealers. Broker-dealers
may charge a fee for this service. You may buy Class B shares of the Fund by
exchange of your Class B shares of Waddell & Reed Funds, Inc. To open your
account you must complete and sign an application. Your Waddell & Reed account
representative can help you with any questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a share of the Fund (price to buy one share) is the
net asset value ("NAV") of the class of shares you are buying. The Fund's
shares are sold without a sales charge.
To purchase Class A shares by wire, you must first obtain an account number
by calling 1-800-366-2520, then mail a completed application to Waddell & Reed,
Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to 913-236-
5044. Instruct your bank to wire the amount you wish to invest to UMB Bank,
n.a., ABA Number 101000695, United K.C., for United Cash Management, Inc., FBO
Customer Name and Account Number.
To purchase Class A shares by check, make your check, money order, Federal
Reserve draft or other negotiable bank draft payable to Waddell & Reed, Inc.
Mail the check, money order or draft, along with your completed application, to
Waddell & Reed, Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
The NAV of each class of shares of the Fund is the value of a single share
of that class. The NAV of a class is computed by adding with respect to that
class the value of the Fund's investments, cash and other assets, subtracting
its liabilities, and then dividing the result by the number of shares of that
class outstanding. The NAV of each class will normally remain fixed at $1.00
per share. See the SAI for a discussion of extraordinary circumstances that
could result in a change in this fixed share value.
The NAV per share is based on a valuation of the Fund's investments at
amortized cost. The amortized cost method of valuation is accomplished by
valuing a security at its cost and thereafter assuming a constant amortization
rate to maturity of any discount or premium.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the net asset values of its
shares as of the close of business of the NYSE, normally 4 p.m. Eastern time.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
_ Orders are accepted only at the home office of Waddell & Reed, Inc.
_ All of your purchases must be made in U.S. dollars.
_ Dividends do not accrue until the Fund has federal funds available to it;
federal funds are monies of a member bank of the Federal Reserve System held
in deposit at a Federal Reserve Bank.
_ If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
_ The Fund does not issue certificates representing Class B shares of the Fund
and does not normally issue certificates representing Class A shares.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open a Class A
Account $1,000
To Open a Class B
Account $100
For certain exchanges
into Class A accounts$100
For certain Class A retirement accounts and Class A accounts opened with
Automatic Investment Service $50
For certain Class A retirement accounts and Class A accounts opened through
payroll deductions for or by employees of WRIMCO, Waddell & Reed, Inc. and their
affiliates $25
To Add to an Account
For Class B accounts and certain exchanges into Class A accounts $100
For Automatic Investment Service (Class A Accounts Only) $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your Class A account by wire: Instruct your bank to wire the
amount you wish to invest, along with the account number and registration, to
UMB Bank, n.a., ABA Number 101000695, United K.C., for United Cash Management,
Inc., FBO Customer Name and Account Number.
To add to your Class A account by mail: Make your check, money order,
Federal Reserve draft or other negotiable bank draft payable to Waddell & Reed,
Inc. Mail the check, money order or other draft, along with a letter showing
your account number, the account registration and stating the fund whose shares
you wish to purchase to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one share) is the NAV of the class of
shares you are selling. Class B shares are subject to the contingent deferred
sales charge discussed herein.
Deferred
Date of Sales
Redemption Charge
any time during
the calendar year
of investment and
the first full
calendar year
after the calendar
year of
investment 3%
second full
calendar year 2%
third full
calendar year 1%
after third full
calendar year 0%
The deferred sales charge will be applied to the total amount invested
during a calendar year to acquire shares or the value of the shares redeemed,
whichever is less. All investments made during a calendar year are deemed a
single investment during that calendar year for purposes of calculating the
deferred sales charge. The year of investment with respect to Class B shares
acquired by exchange of Class B shares of funds in Waddell & Reed Funds, Inc. is
deemed to be the calendar year that such Class B shares were acquired. In other
words, upon exchange, the time period for purposes of computing the contingent
deferred sales charge will continue to run.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-2520 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
_ the name on the account registration;
_ the Fund's name;
_ the Fund account number;
_ the dollar amount or number of shares to be redeemed; and
_ any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
To sell Class A shares by check: If you have elected this method in your
application or by subsequent authorization, the Fund will provide you with forms
of checks drawn on UMB Bank, n.a. You may make these checks payable to the
order of any payee in any amount of $250 or more.
Special Requirements for Selling Shares
Account Type Special
Requirements
Individual or Joint The written
Tenant instructions must be
signed by all persons
required to sign for
transactions, exactly
as their names appear
on the account.
Sole Proprietorship The written
instructions must be
signed by the
individual owner of
the business.
UGMA, UTMA The custodian must
sign the written
instructions
indicating capacity as
custodian.
Retirement Account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
Conservator, Guardian The written
or Other Fiduciary instructions must be
signed by the person
properly authorized by
court order to act in
the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next redemption price calculated after receipt of a written request in good
order by Waddell & Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written_
request.
If you hold a certificate, it must be properly endorsed and sent to the Fund._
If you recently purchased the shares by check, the Fund may delay payment of_
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE_
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions_
redemptions may be made in portfolio securities.
Redemption by telephone, fax or check writing is not available for shares_
represented by certificates. Redemption by check writing is not available
for certain retirement plan accounts.
There is no additional charge for maintaining the check writing privilege or_
for processing checks.
If you have elected the check writing privilege, the Fund's Custodian Bank_
will request that the Fund redeem a sufficient number of full and fractional
shares in your account to cover the amount of the check when a check is
presented to the Bank for payment. You will continue to receive dividends on
those shares equaling the amount being redeemed until such time as the check
is presented to the Bank for payment. No "stop-payment" order can be placed
against the checks. Checks may be dishonored if shares were recently
purchased as discussed above or if the net asset value per share has declined
so that there are insufficient shares to be redeemed to cover the amount of
the check.
As with any redemption of shares, redemption by check writing will, for_
Federal income tax purposes, result in a capital gain or loss on shares
redeemed.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
_ the request for redemption is made by a corporation, partnership or
fiduciary;
_ the request for redemption is made by someone other than the owner of record;
or
_ the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent. A notary public cannot provide a signature guarantee.
Contingent Deferred Sales Charge. A contingent deferred sales charge may
be assessed against your Class B redemption amount and paid to Waddell & Reed,
Inc. (the "Distributor"), subject to the limitation described under "Other
Expenses" and as further described below. The purpose of the deferred sales
charge is to compensate the Distributor for the costs incurred by it in
connection with the sale of the Fund's Class B shares. The deferred sales
charge will not be imposed on shares representing payment of dividends or
distributions.
For purposes of determining the applicability and rate of any deferred
sales charge, it will be assumed that a redemption is made first of shares
purchased during the deferred sales charge period representing payment of
dividends and distributions and then of shares held by the shareholder for the
longest period of time.
Unless instructed otherwise, the Fund, when requested to redeem a specific
dollar amount, will redeem additional shares equal in value to the deferred
sales charge. For example, should you request a $1,000 redemption and the
applicable deferred sales charge is $20, the Fund will redeem shares having an
aggregate net asset value of $1,020, absent different instructions.
The deferred sales charge will not apply in the following circumstances:
in connection with redemptions of shares requested within one year of the
shareholder's death or disability, provided the Fund is notified of the death
or disability at the time of the request and furnished proof of such event
satisfactory to the Distributor.
in connection with redemptions of shares that are made to effect a
distribution from a qualified retirement plan following retirement, a
required minimum distribution from an individual retirement account, Keogh
plan or Internal Revenue Code section 403(b)(7) custodial account, or a tax-
free return of an excess contribution, or that otherwise results from the
death or disability of the employee, as well as in connection with
redemptions by any tax-exempt employee benefit plan for which, as a result of
a subsequent law or legislation, the continuation of its investment would be
improper.
in connection with redemptions of shares purchased by current or retired
directors of the Fund, or current or retired officers or employees of the
Fund, WRIMCO, the Distributor or their affiliated companies, registered
representatives of Waddell & Reed, Inc., and by the members of immediate
families of such persons.
in connection with redemptions of shares made pursuant to a shareholder's
participation in any systematic withdrawal plan adopted for the Fund.
in connection with redemptions the proceeds of which are reinvested in the
Class B shares of the Fund within thirty days after such redemption.
in connection with the exercise of certain exchange privileges.
on redemptions effected pursuant to the Fund's right to liquidate a
shareholder's shares of the Fund if the aggregate net asset value of those
shares is less than $250.
in connection with redemptions effected by another registered investment
company by virtue of a merger or other reorganization with the Fund or by a
former shareholder of such investment company of shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Fund at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Fund's right to liquidate a shareholder's shares, which
requires certain notices.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
by you or held in your account, except in the case of retirement plan accounts,
having an aggregate NAV of less than $250. The Fund will give you notice of its
intention to redeem your shares and a 60-day opportunity to purchase a
sufficient number of additional shares to bring the aggregate NAV of your
account to $250. The Fund has the right to charge a fee of $1.75 per month on
all accounts with a NAV of less than $250, except for retirement plan accounts
and accounts with an increase or decrease in NAV within 60 days of such
determination.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
_ confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange, transfer
or redemption)
_ year-to-date statements (quarterly)
_ annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports
will be mailed to your household, even if you have more than one account with
the Fund. Call 913-236-2000 if you need copies of annual or semiannual reports
or historical account information.
Exchanges
You may sell your Class A shares and buy Class A shares of other funds in
the United Group. You may sell your Class B shares and buy Class B shares of
funds in Waddell & Reed Funds, Inc. without payment of a deferred sales charge.
The time period with respect to the deferred sales charge will continue to run.
You may exchange only into funds that are legally registered for sale in
your state of residence. Note that exchanges out of the Fund may have tax
consequences for you. Before exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual
or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Class A Fund
account automatically. While regular investment plans do not guarantee a profit
and will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses and other
long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account representative
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Class A Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from the Fund to other funds in the United Group whether in the
same or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Ordinarily, dividends are declared
daily and paid on the 27th day of each month or on the last business day prior
to the 27th if the 27th falls on a weekend or holiday. Dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio assets
less expenses. The Fund distributes its net short-term capital gains annually
but may make more frequent distributions of such gains if necessary to maintain
its NAV per share at $1.00. The Fund may make additional distributions if
necessary to avoid Federal income or excise taxes on certain undistributed
income and capital gains. The Fund does not expect to realize net long-term
capital gains and, thus, does not anticipate payment of any long-term capital
gains distributions. When shares are redeemed, any declared but unpaid
dividends on those shares will be paid with the next regular dividend payment
and not at the time of redemption.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains distributions will
be automatically paid in additional shares of the Fund of the same class as
that with respect to which they were paid. If you do not indicate a choice
on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in shares of the Fund of the same class as that with
respect to which they were paid, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in shares
of the Fund of the same class as that with respect to which they were paid.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of Federal income tax on that part of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and net capital gains (the excess of net long-term capital gain
over net short-term capital loss) that are distributed to its shareholders.
There are certain tax requirements that the Fund must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income are taxable to you as ordinary income whether received in cash or
paid in additional Fund shares. Distributions of the Fund's net capital gain,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or paid in additional Fund shares and regardless of the length
of time you have owned your shares. The Fund notifies you after each calendar
year-end as to the amounts of dividends and other distributions paid (or deemed
paid) to you for that year.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gains distributions also is required for such shareholders who
otherwise are subject to backup withholding.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Cash Management, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Fund is an open-end, diversified management investment company organized as
a corporation under Maryland law on February 13, 1979.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to September 5, 1995, the Fund
offered only one class of shares to the public. Shares outstanding on that date
were designated as Class A shares. The Class B shares provide shareholders of
each of the funds in Waddell & Reed Funds, Inc. with an opportunity to acquire
shares of a money market fund through exchange of their Class B shares of funds
in Waddell & Reed Funds, Inc. without incurring the contingent deferred sales
charge. Prior to September 5, 1995, shareholders of funds in Waddell & Reed
Funds, Inc. had no exchange option into a money market fund. Class B shares
that have been held by a shareholder for eight years will convert automatically
to Class A shares of the Fund. This conversion will be made, without charge or
fee, on the basis of the relative net asset values of the two classes.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate vote of
any class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board
of Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors have served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to TMK/United Funds, Inc.
since that fund's inception, until January 8, 1992, when it assigned its duties
as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992 and United
Asset Strategy Fund, Inc. since it commenced operations in March 1995.
Richard K. Poettgen is primarily responsible for the day-to-day management
of the portfolio of the Fund. Mr. Poettgen has held his Fund responsibilities
since January 1989. He is Vice President of WRIMCO, Vice President of the Fund,
and Vice President of other investment companies for which WRIMCO serves as
investment manager. Mr. Poettgen has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor, WRIMCO,
since January 1989 and has been an employee of Waddell & Reed, Inc. and its
successor, WRIMCO, since April 1968. Other members of WRIMCO's investment
management department provide input on market outlook, economic conditions,
investment research and other considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell &
Reed Funds, Inc. and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends. Waddell
& Reed Services Company also acts as agent ("Accounting Services Agent") in
providing bookkeeping and accounting services and assistance to the Fund and
pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a factor
in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is a pro rata participation based on the
relative net asset size of the Fund in the group fee computed each day on the
combined net asset values of all the funds in the United Group at the annual
rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
The management fee is accrued and paid to WRIMCO daily.
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $14.3 billion as of June 30, 1996. Management fees for the fiscal
year ended June 30, 1996 were 0.41% of the Fund's average net assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. The Fund pays the
Shareholder Servicing Agent a monthly fee for each account that was in existence
at any time during the month and, with respect to Class A shares, a fee for each
shareholder check it processes.
Distribution. The Fund, pursuant to Rule 12b-1 of the 1940 Act, and as
authorized under a Distribution and Service Plan (the "Plan"), may finance the
distribution and/or the service and maintenance of the Class B shareholder
accounts.
The Plan provides that the Fund, with respect to the Class B shares, may
compensate the Distributor in an amount calculated and payable daily up to 1%
annually of the Fund's Class B average daily net assets. There are two parts to
this fee: up to 0.75% may be paid to the Distributor for distribution services
and distribution expenses including commissions paid by the Distributor to its
sales representatives and managers (the "distribution fee") with respect to the
distribution of the Class B shares, and up to 0.25% may be paid to the
Distributor to finance the provision of certain personal services by the
Distributor and Waddell & Reed Services Company to Class B shareholders and the
provision of services to maintain Class B shareholder accounts (the "Service
Fee").
In addition to these fees, the Distributor may be compensated for
distribution of the Class B shares by the deferred sales charge imposed at the
time of redemption. See "About Your Account."
The distribution fee and the deferred sales charge are designed to allow
investors to purchase Class B shares without a front-end sales charge and at the
same time to allow the Distributor to pay commissions to its field sales force
and pay other expenses of distribution, including the cost of prospectuses for
prospective investors, sales literature, advertising, sales office expenses and
overhead. In this respect, the distribution fee and deferred sales charge are
comparable to a front-end sales charge. See "Breakdown of Expenses" for the
amount of these charges and the service fee that may be paid over certain
periods. The distribution fee would be the equivalent of a 6.25% and 7.25%
front-end sales charge after 9 and 10.5 years, respectively, assuming a 5%
growth rate. These are the maximum sales charges permitted under rules of the
National Association of Securities Dealers, Inc. ("NASD") for asset-based sales
charges and front-end sales charges, respectively, were the Class B shares
offered with such charges.
No payment of the distribution fee will be made, and no deferred sales
charge will be paid, to the Distributor by the Fund with respect to Class B
shares if, and to the extent that, the aggregate of the distribution fees paid
by the Fund and the deferred sales charges received by the Distributor with
respect to such shares would exceed the maximum amount of such charges that the
Distributor is permitted to receive under NASD rules as then in effect. During
any one period of time, the amount paid by the Distributor in commissions to its
sales force and attendant promotional and overhead costs with respect to Class B
shares may exceed the amount it receives from the Class B distribution fees and
deferred sales charges. Although such fees and charges are paid to compensate
the Distributor for its promotional activities with respect to Class B shares,
the expenses of such activities are not a liability of the Fund, and the Fund,
at any time, may on written notice terminate the Plan and the Underwriting
Agreement with the Distributor without penalty and without further payment of
the distribution fee. In such event, the deferred sales charge may remain in
effect as to investments made prior to termination.
The total expenses for the fiscal year ended June 30, 1996 for the Fund's
Class A shares were 0.91% of the average net assets of the Fund's Class A
shares.
<PAGE>
United Cash Management, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company Toll-Free - (800) 366-2520
6300 Lamar Avenue Local - 236-1303
P. O. Box 29217 For Yield Information
Shawnee Mission, Kansas Toll-Free - (800) 366-4953
66201-9217 Local - 236-1307
(913) 236-2000 Accounting Services Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Cash Management, Inc.
PROSPECTUS
September 30, 1996
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
Waddell & Reed Funds, Inc.
Asset Strategy Fund
Growth Fund
International Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
Total Return Fund
NUP2010(10-96)
printed on recycled paper
<PAGE>
UNITED CASH MANAGEMENT, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
October 31, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with the prospectus ("Prospectus")
of United Cash Management, Inc. (the "Fund") dated October 31, 1996, which may
be obtained from the Fund or its underwriter, Waddell & Reed, Inc., at the
address or telephone number shown above.
TABLE OF CONTENTS
Performance Information............................. 2
Goal and Investment Policies........................ 3
Investment Management and Other Services............ 14
Purchase, Redemption and Pricing of Shares.......... 19
Directors and Officers.............................. 27
Payments to Shareholders............................ 33
Taxes .............................................. 34
Portfolio Transactions and Brokerage................ 35
Other Information................................... 37
Appendix A.......................................... 38
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time to
time publish the Fund's yield, effective yield and performance rankings in
advertisements and sales materials. Yield information is also available by
calling the Shareholder Servicing Agent at the telephone number shown on the
inside back cover of the Prospectus.
There are two methods by which yield is calculated for a specified time
period for a class of shares of the Fund. The first method, which results in an
amount referred to as the "current yield," assumes an account containing exactly
one share of the applicable class at the beginning of the period. The net asset
value of this share will be $1.00 except under extraordinary circumstances. The
net change in the value of the account during the period is then determined by
subtracting this beginning value from the value of the account at the end of the
period which will include all dividends accrued for a share of such class;
however, capital changes are excluded from the calculation, i.e., realized gains
and losses from the sale of securities and unrealized appreciation and
depreciation. However, so that the change will not reflect the capital changes
to be excluded, the dividends used in the yield computation may not be the same
as the dividends actually declared, as certain realized gains and losses and,
under unusual circumstances, unrealized gains and losses (see "Purchase,
Redemption and Pricing of Shares"), will be taken into account in the
calculation of dividends actually declared. Instead, the dividends used in the
yield calculation will be those which would have been declared if the capital
changes had not affected the dividends.
This net change in the account value is then divided by the value of the
account at the beginning of the period (i.e., normally $1.00 as discussed above)
and the resulting figure (referred to as the "base period return") is then
annualized by multiplying it by 365 and dividing it by the number of days in the
period with the resulting current yield figure carried to at least the nearest
hundredth of one percent.
The second method results in a figure referred to as the "effective yield."
This represents an annualization of the current yield with dividends reinvested
daily. Effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result and rounding the result to the nearest hundredth of one
percent according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)] - 1
The yield for the Fund's Class A shares and Class B shares as calculated
above for the seven days ended June 30, 1996, the date of the most recent
balance sheet included in the Prospectus, was 4.77% and 3.95% respectively and
the effective yield calculated for the same period was 4.89% and 4.03%
respectively.
Changes in yields (calculated on either basis) primarily reflect different
interest rates received by the Fund as its portfolio securities change. These
different rates reflect changes in current interest rates on money market
instruments. Both yields are affected by portfolio quality, portfolio maturity,
type of instruments held and operating expense ratio.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by recognized
independent mutual fund statistical services such as Lipper Analytical Services,
Inc., or by publications of general interest such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Fortune or Morningstar Mutual Fund
Values. Each class of the Fund may also compare its performance to that of
other selected mutual funds or selected recognized market indicators such as the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average.
Performance information may be quoted numerically or presented in a table, graph
or other illustration.
All performance information that the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of Fund shares when redeemed may be more or less than
their original cost.
GOAL AND INVESTMENT POLICIES
The goal and investment policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
The Fund may invest only in the money market obligations and instruments
listed below. In addition, as a money market fund and in order for the Fund to
use the "amortized cost method" of valuing its portfolio securities, the Fund
must comply with Rule 2a-7 ("Rule 2a-7") under the Investment Company Act of
1940, as amended (the "1940 Act"). Under Rule 2a-7, investments are limited to
those that are U.S. dollar denominated and that are rated in one of the two
highest rating categories by the requisite nationally recognized statistical
rating organizations(s) ("NRSRO(s)") or are comparable unrated securities. See
Appendix A to this SAI for a description of some of these ratings. In addition,
Rule 2a-7 limits investments in securities of any one issuer (except U.S.
Government securities) to no more than 5% of the Fund's assets. Investments in
securities rated in the second highest rating category by the requisite NRSRO(s)
or comparable unrated securities are limited to no more than 5% of the Fund's
assets, with investment in such securities of any one issuer being limited to
the greater of 1% of the Fund's assets or $1,000,000. While Rule 2a-7 allows
the Fund to invest in securities with a remaining maturity of not more than 397
calendar days, as a matter of fundamental policy, the Fund may only invest in
securities with a remaining maturity of not more than one year. See discussion
under "Determination of Offering Price."
(1) U.S. Government Obligations: Obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. These include securities
issued by the U.S. Government, which in turn include Treasury Bills (which
mature within one year of the date they are issued) and Treasury Notes and Bonds
(which are issued with longer maturities). All Treasury securities are backed
by the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Federal National Mortgage Association, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, Government
National Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Farm Credit Banks, Maritime Administration, the Tennessee Valley Authority, the
Resolution Funding Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by the Federal National Mortgage
Association, are supported only by the credit of the instrumentality and by a
pool of mortgage assets. If the securities are not backed by the full faith and
credit of the United States, the owner of the securities must look principally
to the agency issuing the obligation for repayment and may not be able to assert
a claim against the United States in the event that the agency or
instrumentality does not meet its commitment. The Fund will invest in
securities of agencies and instrumentalities only if Waddell & Reed Investment
Management Company ("WRIMCO"), the Fund's investment adviser, is satisfied that
the credit risk involved is minimal.
(2) Bank Obligations and Instruments Secured Thereby: Subject to the
limitations described above, time deposits, certificates of deposit, bankers'
acceptances and other bank obligations if they are obligations of a bank subject
to regulation by the U.S. Government (including obligations issued by foreign
branches of these banks) or obligations issued by a foreign bank having total
assets equal to at least U.S. $500,000,000, and instruments secured by any such
obligation; in this SAI, a "bank" includes commercial banks and savings and loan
associations. Time deposits are monies kept on deposit with U.S. banks or other
U.S. financial institutions for a stated period of time at a fixed rate of
interest. At present, bank time deposits are not considered by the Board of
Directors or WRIMCO to be readily marketable. There may be penalties for the
early withdrawal of such time deposits, in which case, the yield of these
investments will be reduced.
(3) Commercial Paper Obligations Including Variable Amount Master Demand
Notes: Commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Services
("S&P") or Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("MIS") or, if
not rated, issued by a corporation in whose debt obligations the Fund may invest
(see 4 below). S&P and MIS are among the NRSRO's under Rule 2a-7. See Appendix
A for a description of some of these ratings. A variable amount master demand
note represents a borrowing arrangement under a letter agreement between a
commercial paper issuer and an institutional lender.
(4) Corporate Debt Obligations: Corporate debt obligations if they are
rated at least A by S&P or MIS. See Appendix A for a description of some of
these debt ratings.
(5) Canadian Government Obligations: Obligations of, or guaranteed by,
the Government of Canada, a Province of Canada or any agency, instrumentality or
political subdivision of that Government or any Province; however, the Fund may
not invest in Canadian Government obligations if more than 10% of the value of
its total assets would then be so invested, subject to the diversification
requirements of Rule 2a-7. The Fund may not invest in Canadian Government
obligations if they are denominated in Canadian dollars. See "Determination of
Offering Price."
(6) Certain Other Obligations: Obligations other than those listed in 1
through 5 (such as municipal obligations) above only if any such other
obligation is guaranteed as to principal and interest by either a bank in whose
obligations the Fund may invest (see 2 above) or a corporation in whose
commercial paper the Fund may invest (see 3 above) and otherwise permissible
under Rule 2a-7.
The value of the obligations and instruments in which the Fund invests will
fluctuate depending in large part on changes in prevailing interest rates. If
these rates go up after the Fund buys an obligation or instrument, its value may
go down; if these rates go down, its value may go up. Changes in value and
yield based on changes in prevailing interest rates may have different effects
on short-term debt obligations than on long-term obligations. Long-term
obligations (which often have higher yields) may fluctuate in value more than
short-term ones. Changes in interest rates will be more quickly reflected in
the yield of a portfolio of short-term obligations than in the yield of a
portfolio of long-term obligations.
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities as long as WRIMCO
determines that it is consistent with the Fund's goal and investment policies
and subject to the requirements of Rule 2a-7. Mortgage-backed securities may
include pools of mortgages, such as collateralized mortgage obligations, and
stripped mortgage-backed securities. The value of these securities may be
significantly affected by changes in interest rates, the market's perception of
the issuers, and the creditworthiness of the parties involved. The Fund may
purchase mortgage-backed securities issued by both government and non-government
entities such as banks, mortgage lenders, or other financial institutions.
A mortgage-backed security may be an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties. Some
mortgage-backed securities, such as collateralized mortgage obligations, make
payments of both principal and interest at a variety of intervals; others make
semiannual interest payments at a predetermined rate and repay principal at
maturity (like a typical bond). Pass-through securities and participation
certificates represent pools of mortgages that are assembled, with interests
sold in the pool; the assembly is made by an "issuer," such as a mortgage
banker, commercial bank or savings and loan association, which assembles the
mortgages in the pool and passes through payments of principal and interest for
a fee payable to it. Payments of principal and interest by individual
mortgagors are passed through to the holders of the interest in the pool.
Monthly or other regular payments on pass-through securities and participation
certificates include payments of principal (including prepayments on mortgages
in the pool) rather than only interest payments.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently on mortgage-backed securities
and that principal may be prepaid at any time because the underlying mortgage
loans generally may be prepaid at any time. As a result, if the Fund purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if the Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Accelerated prepayments on securities purchased by
the Fund at a premium also impose a risk of loss of principal because the
premium may not have been fully amortized at the time the principal is repaid in
full.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association) is guaranteed by the
full faith and credit of the United States. This is not a guarantee against
market decline of the value of these securities or shares of the Fund. It is
possible that the availability and marketability (i.e., liquidity) of these
securities could be adversely affected by actions of the U.S. Government to
tighten the availability of its credit.
Stripped Securities
The Fund may invest in stripped securities as long as WRIMCO determines
that it is consistent with the Fund's goal and investment policies and subject
to the requirements of Rule 2a-7. Stripped securities are the separate income
or principal components of a debt instrument. Stripped mortgage-backed
securities are created when a U.S. Government agency or a financial institution
separates the interest and principal components of a mortgage-backed security
and sells them as individual securities. The holder of the "principal-only"
security ("PO") receives the principal payments made by the underlying mortgage-
backed security, while the holder of the "interest-only" security ("IO")
receives interest payments from the same underlying security.
These securities involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates. As interest rates fall, prepayment rates tend to increase, which tends
to reduce prices of IOs and increase prices of POs. Rising interest rates can
have the opposite effect. The Fund has not in the past and has no present
intention to invest in these types of securities.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and may carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries on dates prior to
their stated maturities. Floating rate securities have interest rates that
change whenever there is a change in a designated base rate while variable rate
instruments provide for a specified periodic adjustment in the interest rate.
These formulas are designed to result in a market value for the instrument that
approximates its par value.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase securities in which it may invest on a when-issued or
delayed-delivery basis or sell them on a delayed-delivery basis. The securities
so purchased or sold by the Fund are subject to market fluctuation; their value
may be less or more when delivered than the purchase price paid or received.
For example, delivery to the Fund and payment by the Fund in the case of a
purchase by it, or delivery by the Fund and payment to it in the case of a sale
by the Fund, may take place a month or more after the date of the transaction.
The purchase or sale price is fixed on the transaction date. The Fund will
enter into when-issued or delayed-delivery transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the transaction. No interest accrues to the Fund until delivery and payment is
completed. When the Fund makes a commitment to purchase securities on a when-
issued or delayed-delivery basis, it will record the transaction and thereafter
reflect the value of the securities in determining its net asset value per
share. The securities so sold by the Fund on a delayed-delivery basis are also
subject to market fluctuation; their value when the Fund delivers them may be
more than the purchase price the Fund receives. When the Fund makes a
commitment to sell securities on a delayed-delivery basis, it will record the
transaction and thereafter value the securities at the sales price in
determining the Fund's net asset value per share.
Ordinarily the Fund purchases securities on a when-issued or delayed-
delivery basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Lending Securities
One of the ways in which the Fund may try to realize income is by lending
not more than one-third of its total asset value. This percentage limitation
can only be changed by shareholder vote. If the Fund does this, the borrower
pays the Fund an amount equal to the dividends or interest on the securities
that the Fund would have received if it had not loaned the securities. The Fund
also receives additional compensation.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). Under
the present Guidelines, the collateral must consist of cash and/or U.S.
Government Obligations, at least equal in value to the market value of the
securities loaned on each day the loan is outstanding. If the market value of
the loaned securities exceeds the value of the collateral, the borrower must add
more collateral so that it at least equals the market value of the securities
loaned. If the market value of the securities decreases, the borrower is
entitled to return of the excess collateral. This policy of 100%
collateralization is a fundamental policy that can be changed only by
shareholder vote.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for both types of collateral. The second method is to receive
interest on the investment of the cash collateral or to receive interest on the
U.S. Government Obligations used as collateral. Part of the interest received
in either case may be shared with the borrower.
Under the Fund's current securities lending procedures, the Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. The Fund will make loans only under rules of the New York Stock
Exchange (the "NYSE"), which presently require the borrower to give the
securities back to the Fund within five business days after the Fund gives
notice to do so. The Fund may pay reasonable finder's, administrative and
custodian fees in connection with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, risks of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially.
Some, but not all, of the Fund's rules are necessary to meet requirements
of certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to how the Fund may invest cash collateral.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. A
repurchase agreement is an instrument under which the Fund purchases a security
and the seller (normally a commercial bank or broker-dealer) agrees, at the time
of purchase, that it will repurchase the security at a specified time and price.
The amount by which the resale price is greater than the purchase price reflects
an agreed-upon market interest rate effective for the period of the agreement.
The return on the securities subject to the repurchase agreement may be more or
less than the return on the repurchase agreement.
The majority of the repurchase agreements in which the Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that
the Fund may suffer a loss if the seller fails to pay the agreed-upon amount on
the delivery date and that amount is greater than the resale price of the
underlying securities and other collateral held by the Fund. In the event of
bankruptcy or other default by the seller, there may be possible delays or
expenses in liquidating the underlying securities or other collateral, decline
in their value and loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans, i.e., the
value of the underlying securities, which will be held by the Fund's custodian
bank or by a third party that qualifies as a custodian under Section 17(f) of
the 1940 Act, is and, during the entire term of the agreement, will remain at
least equal to the value of the loan, including the accrued interest earned
thereon. Repurchase agreements are entered into only with those entities
approved by WRIMCO on the basis of criteria established by the Board of
Directors.
Restricted Securities
The Fund may purchase commercial paper that is issued in reliance on the
so-called "private placement" exemption from registration that is afforded by
Section 4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2)
paper is subject to legal or contractual restrictions on resale under the
federal securities laws. It is generally sold to institutional investors, such
as the Fund, who agree that they are purchasing the paper for investment and not
with a view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) paper is normally resold to other
institutional investors through or with the assistance of investment dealers who
make a market in the Section 4(2) paper, thus providing liquidity. Any such
paper purchased must meet the credit, maturity and other criteria that apply to
other securities in which the Fund invests. Although WRIMCO is of the opinion
that this type of paper is nearly as liquid as other commercial paper in which
the Fund invests, there is no assurance that a market will exist for Section
4(2) paper that the Fund may own. WRIMCO will determine the liquidity of
Section 4(2) paper in accordance with guidelines established by the Board of
Directors.
These restricted securities will be valued in the same manner that other
commercial paper held by the Fund is valued. See "Portfolio Valuation." The
Fund does not anticipate adjusting for any diminution in value of these
securities on account of their restrictive feature because of the existence of
an active market which creates liquidity and because of the availability of
actual market quotations for these restricted securities. In the event that
there should cease to be an active market for these securities or actual market
quotations become unavailable, they will be valued at fair value as determined
in good faith by the Board of Directors.
Illiquid Investments
The Fund has an operating policy, which may be changed without shareholder
approval, which provides that the Fund may not invest more than 10% of its net
assets in illiquid investments. Investments currently considered to be illiquid
include: (i) repurchase agreements not terminable within seven days; (ii) fixed
time deposits subject to withdrawal penalties other than overnight deposits;
(iii) securities for which market quotations are not readily available; and (iv)
Section 4(2) paper not determined to be liquid pursuant to guidelines
established by the Fund's Board of Directors. However, this 10% limit does not
include any obligations payable at principal amount plus accrued interest on
demand or within seven days after demand.
Indexed Securities
Subject to the requirements of Rule 2a-7, the Fund may purchase securities
the values of which varies in relation to the value of other securities,
securities indices, precious metals or other commodities, or other financial
indicators. Indexed securities typically, but not always, are debt securities
or deposits whose value at maturity or coupon rate is determined by reference to
a specific instrument or statistic. Gold-indexed securities, for example,
typically provide for a maturity value that depends on the price of gold,
resulting in a security whose price tends to rise and fall together with gold
prices. Indexed securities may be positively or negatively indexed; that is,
their maturity value may increase when the specified index value increases, or
their maturity value may decline when the index increases. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
Government agencies.
Foreign Obligations and Instruments
Subject to the diversification requirements applicable to the Fund under
Rule 2a-7, the Fund may invest up to 10% of its total assets in Canadian
Government obligations and may also invest in foreign bank obligations and
obligations of foreign branches of domestic banks. Each of these obligations
must be U.S. dollar denominated. Although there is no fundamental policy
limiting the Fund's investment in foreign bank obligations and obligations of
foreign branches of domestic banks, it does not intend to invest more than 25%
of its total assets in a combination of these obligations. Investments in
obligations of domestic branches of foreign banks will not be considered to be
foreign securities if WRIMCO has determined that the nature and extent of
federal and state regulation and supervision of the branch in question is
substantially equivalent to federal and state chartered or domestic banks doing
business in the same jurisdiction.
Purchasing these securities presents special considerations: reduction of
income by foreign taxes; changes in currency rates and controls (e.g., currency
blockage); lack of public information; lack of uniform accounting, auditing and
financial reporting standards; less volume on foreign exchanges; less liquidity;
greater volatility; less regulation of issuers, exchanges and brokers; greater
difficulties in commencing lawsuits; possibilities in some countries of
expropriation, confiscatory taxation, social instability or adverse diplomatic
developments; and differences (which may be favorable or unfavorable) between
the U.S. economy and foreign economies. Uncertificated foreign securities will
be purchased only if permissible under the custodianship provisions of the 1940
Act.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and together with certain
restrictions described in the Prospectus cannot be changed without shareholder
approval. Under these restrictions, the Fund may not:
(i) Buy commodities or commodity contracts, voting securities, any mineral
related programs or leases, or oil or gas leases, any shares of other
investment companies or any warrants, puts, calls or combinations
thereof;
(ii) Buy real estate nor any nonliquid interest in real estate investment
trusts; however, the Fund may buy obligations or instruments that it may
otherwise buy even though the issuer invests in real estate or interests
in real estate;
(iii) Buy the securities of any company if it would then own more than 10% of
the total value of its outstanding securities; or buy the securities
(not including U.S. Government Obligations) of any company if more than
5% of the Fund's total assets (valued at market value) would then be
invested in that company; or buy the securities of companies in any one
industry if more than 25% of the Fund's total assets would then be in
companies in that industry; U.S. Government Obligations and bank
obligations and instruments are not included in this limit (but see
"Foreign Obligations and Instruments");
(iv) Make loans other than certain limited types of loans described herein;
the Fund can buy debt securities that it is permitted to purchase; it
can also lend its portfolio securities (see "Lending Securities" above)
or, except as provided above, enter into repurchase agreements (see
"Repurchase Agreements" above);
(v) Invest for the purpose of exercising control or management of other
companies;
(vi) Buy or continue to hold securities if the Fund's Directors or officers
or certain others own a certain percentage of the same securities; if
any one of these individuals owns more than .5 of 1% of the shares of a
company and if the individuals who own that much or more own 5% of that
company's shares, the Fund cannot buy that company's shares or continue
to own them;
(vii) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(viii) Sell securities short or buy securities on margin; also, the Fund may
not engage in arbitrage transactions;
(ix) Engage in the underwriting of securities or invest in restricted
securities, which are securities that are restricted as to disposition
under the Federal securities laws, except commercial paper that is
exempt from registration under Section 4(2) of the Securities Act of
1933; or
(x) Borrow to increase income, but only to meet redemptions so it will not
have to sell portfolio securities for this purpose. The Fund may borrow
money from banks as a temporary measure or for extraordinary or
emergency purposes but only up to 10% of its total assets. It can
mortgage or pledge its assets in connection with such borrowing but only
up to the lesser of the amounts borrowed or 5% of the value of the
Fund's assets.
Portfolio Turnover
In general, the Fund purchases investments with the expectation of holding
them to maturity. However, the Fund may engage in short-term trading to attempt
to take advantage of short-term market variations. The Fund may also sell
securities prior to maturity to meet redemptions or as a result of a revised
management evaluation of the issuer. The Fund has high portfolio turnover due
to the short maturities of its investments, but this should not affect its net
asset value or income, as brokerage commissions are not usually paid on the
investments which the Fund makes. In the usual calculation of portfolio
turnover, securities of the type in which the Fund invests are excluded.
Consequently, the high turnover which it will have is not comparable to the
turnover rates of most investment companies.
Portfolio Valuation
Under Rule 2a-7, the Fund is permitted to use the "amortized cost method"
for valuing its portfolio securities provided it meets certain conditions. See
"Purchase, Redemption and Pricing of Shares." As a general matter, the primary
conditions imposed under Rule 2a-7 relating to the Fund's portfolio investments
are that the Fund must (i) not maintain a dollar-weighted average portfolio
maturity in excess of 90 days, (ii) limit its investments, including repurchase
agreements, to those instruments which are U.S. dollar denominated and which
WRIMCO, pursuant to guidelines established by the Fund's Board of Directors,
determines present minimal credit risks and which are rated in one of the two
highest rating categories by the NRSRO(s), as defined in Rule 2a-7 or, in the
case of any instrument that is not rated, of comparable quality as determined by
the Fund's Board of Directors, (iii) limit its investments in the securities of
any one issuer (except U.S. Government Securities) to no more than 5% of its
assets, (iv) limit its investments in securities rated in the second highest
rating category by the requisite NRSRO(s) or comparable unrated securities to no
more than 5% of its assets, (v) limit its investments in the securities of any
one issuer which are rated in the second highest rating category by the
requisite NRSRO(s) or comparable unrated securities to the greater of 1% of its
assets or $1,000,000, and (vi) limit its investments to securities with a
remaining maturity of not more than 397 days; however, the Fund is required as a
matter of fundamental policy to limit its investments to securities with a
remaining maturity of not more than one year. Rule 2a-7 sets forth the method
by which the maturity of a security is determined.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell & Reed, Inc.
Under the Management Agreement, WRIMCO is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of WRIMCO
and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Board of Directors prior to approving any Shareholder
Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly-held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds,
except United Asset Strategy Fund, Inc., since 1940 or the company's inception
date, whichever was later, and to TMK/United Funds, Inc. since that fund's
inception, until January 8, 1992 when it assigned its duties as investment
manager for these funds (and the related professional staff) to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992 and United Asset Strategy Fund, Inc. since it
commenced operations in March 1995. Waddell & Reed, Inc. serves as principal
underwriter for the investment companies in the United Group of Mutual Funds and
Waddell & Reed Funds, Inc. and serves as distributor for the TMK/United Funds,
Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund and
Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund and
the Agent, the Agent provides the Fund with bookkeeping and accounting services
and assistance, including maintenance of the Fund's records, pricing of the
Fund's shares, and preparation of prospectuses for existing shareholders, proxy
statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Board of Directors
without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the Fund
pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO during the fiscal years ended June 30,
1996, 1995 and 1994 were $1,686,054, $1,398,085 and $1,372,977, respectively.
For purposes of calculating the daily fee the Fund does not include money
owed to it by Waddell & Reed, Inc. for shares which it has sold but not yet paid
the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.75 for each shareholder account which was in existence at any
time during the prior month, and $.75 for each shareholder check it processes.
The Fund also pays certain out-of-pocket expenses of the Agent, including long
distance telephone communications costs; microfilm and storage costs for certain
documents; forms, printing and mailing costs; and costs of legal and special
services not provided by Waddell & Reed, Inc., WRIMCO, or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent for the fiscal years ended June 30, 1996, 1995 and
1994 were $60,000, $51,667 and $50,000, respectively.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with WRIMCO and its affiliates. The
Fund pays the fees and expenses of the Fund's other Directors.
These and other sales expenses of Waddell & Reed, Inc. are not covered by
any sales charge on Class A shares of the Fund. The contingent deferred sales
charge, if any, imposed on Class B shares is designed to compensate Waddell &
Reed, Inc. for distribution of Class B shares. On shares of funds in the United
Group that are sold with sales charges and in the sale of certain unit
investment trusts, a major portion of the sales charge is paid to Waddell &
Reed, Inc.'s account representatives and managers. Waddell & Reed, Inc. may
compensate its account representatives as to purchases for which there is no
sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Distribution Arrangement
Waddell & Reed, Inc. (the "Distributor") acts as principal underwriter and
distributor of the Fund's shares pursuant to an underwriting agreement
("Agreement"). The Agreement requires the Distributor to use its best efforts
to sell the shares of the Fund but is not exclusive, and permits and recognizes
that the Distributor also distributes shares of other investment companies and
other securities. Shares are sold on a continuous basis. Under this Agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund; however, the Agreement recognizes that
the Fund may adopt a Distribution and Service Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan adopted by the Fund with respect to
Class B shares, the Fund pays the Distributor daily a distribution fee not to
exceed, on an annual basis, 0.75% of the Fund's Class B net assets and a service
fee not to exceed, on an annual basis, 0.25% of the Fund's Class B net assets.
The Distributor offers the Class B shares of the Fund to shareholders of
Class B shares of Waddell & Reed Funds, Inc. through its registered
representatives and sales managers (sales force). In distributing shares
through its sales force, the Distributor may pay commissions and/or incentives
to the sales force at or about the time of sale and will incur other expenses
including for prospectuses, sales literature, advertisements, sales office
maintenance, processing of orders and general overhead with respect to its
efforts to distribute the Fund's shares. The Class B Plan and the Agreement
contemplate that the Distributor may be compensated for these distribution
efforts with respect to Class B shares through the distribution fee. The sales
force may be paid continuing compensation based on the value of the Class B
shares held by shareholders to whom the member of the sales force is assigned to
provide personal services, and the Distributor or its subsidiary, Waddell & Reed
Services Company, may also provide services to Class B shareholders through
telephonic means and written communications.
The Plan and Agreement were approved by the Fund's Board of Directors,
including the Directors who are not interested persons of the Fund or of the
Distributor and who have no direct or indirect financial interest in the
operations of the Plan or any agreement referred to in the Plan (hereafter the
"Plan Directors"). The Plan was also approved by the Distributor as the sole
shareholder of the Class B shares of the Fund at the time.
Among other things, the Plan provides that (i) the Distributor will submit
to the Directors at least quarterly, and the Directors will review, reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, (ii) the Plan will continue in effect only so long as it
is approved at least annually, and any material amendments thereto are approved
by the Directors including the Plan Directors acting in person at a meeting
called for that purpose, (iii) payments by the Fund under the Plan shall not be
materially increased without the affirmative vote of the holders of a majority
of the outstanding Class B shares, and (iv) while the Plan remains in effect,
the selection and nomination of the Directors who are Plan Directors shall be
committed to the discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In general,
the Custodian is responsible for holding the Fund's cash and securities. Price
Waterhouse LLP, Kansas City, Missouri, the Fund's independent accountants,
audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The value of each share of a class of the Fund is the net asset value of
the applicable class. The Fund is designed so that the value of each share of
each class of the Fund (the net asset value per share) will remain fixed at
$1.00 per share except under extraordinary circumstances, although this may not
always be possible. This net asset value per share is what you pay for shares
and what you receive when you redeem them prior to the application of the
contingent deferred sales charge, if any, to Class B shares.
The net asset value per share is ordinarily computed once each day that the
NYSE is open for trading as of the close of the regular session of the NYSE
(ordinarily, 4:00 p.m. Eastern time). The NYSE annually announces the days on
which it will not be open for trading. The most recent announcement indicates
that it will not be open on the following days: New Years Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, it is possible that the NYSE may close on other days.
The Fund operates under Rule 2a-7 which permits it to value its portfolio
on the basis of amortized cost. The amortized cost method of valuation is
accomplished by valuing a security at its cost and thereafter assuming a
constant amortization rate to maturity of any discount or premium, and does not
reflect the impact of fluctuating interest rates on the market value of the
security. This method does not take into account unrealized gains or losses.
While the amortized cost method provides some degree of certainty in
valuation, there may be periods during which value, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on the
Fund's shares may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio instruments and changing
its dividends based on these changing prices. Thus, if the use of amortized
cost by the Fund resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Fund's shares would be able to obtain a
somewhat higher yield than would result from investment in such a fund, and
existing investors in the Fund's shares would receive less investment income.
The converse would apply in a period of rising interest rates.
Under Rule 2a-7, the Fund's Board of Directors must establish procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
share as computed for the purpose of sales and redemptions at $1.00. Such
procedures must include review of the Fund's portfolio holdings by the Board at
such intervals as it may deem appropriate and at such intervals as are
reasonable in light of current market conditions to determine whether the Fund's
net asset value calculated by using available market quotations (see below)
deviates from the per share value based on amortized cost.
For the purpose of determining whether there is any deviation between the
value of the Fund's portfolio based on amortized cost and that determined on the
basis of available market quotations, if there are readily available market
quotations, investments are valued at the mean between the bid and asked prices.
If such market quotations are not available, the investments will be valued at
their fair value as determined in good faith under procedures established by and
under the general supervision and responsibility of the Fund's Board of
Directors, including being valued at prices based on market quotations for
investments of similar type, yield and duration.
Under Rule 2a-7, if the extent of any deviation between the net asset value
per share based upon "available market quotations" (see above) and the net asset
value per share based on amortized cost exceeds one-half of 1%, the Board must
promptly consider what action, if any, will be initiated. When the Board
believes that the extent of any deviation may result in material dilution or
other unfair results to investors or existing shareholders, it is required to
take such action as it deems appropriate to eliminate or reduce to the extent
reasonably practicable such dilution or unfair results. Such actions could
include the sale of portfolio securities prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding dividends
or payment of distributions from capital or capital gains, redemptions of shares
in kind, or establishing a net asset value per share using available market
quotations.
The procedures which the Fund's Board of Directors has adopted include
changes in the dividends payable by the Fund under specified conditions, as
further described under "Taxes" and "Payments to Shareholders." The purpose of
this portion of the procedures is to provide for the automatic taking of one of
the actions which the Board of Directors might take should it otherwise be
required to consider taking appropriate action.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $1,000 with the
exceptions described in this paragraph. A $50 minimum initial investment
pertains to certain retirement plan accounts and to accounts for which an
investor has arranged, at the time of initial investment, to make subsequent
purchases for the account by having regular monthly withdrawals of $25 or more
made from a bank account. A $25 minimum initial investment pertains to
purchases made through payroll deduction for or by employees of Waddell & Reed,
Inc., WRIMCO, their affiliates or certain retirement plan accounts. With the
exception of automatic withdrawals from a shareholder's bank account, a
shareholder may make subsequent investments of any amount. See "Exchanges."
For Class B shares, initial and subsequent investments must be at least
$100. See "Exchanges."
How to Open an Account
If you are purchasing Class A shares, you can make an initial investment of
$1,000 or more in any of the following ways:
1) By Mail. Complete an application form and mail it to Waddell & Reed,
Inc. at the address indicated on the form. Accompany the form with a check,
money order, Federal Reserve draft or other negotiable bank draft payable to
Waddell & Reed, Inc.
2) By Wire. (a) Telephone Waddell & Reed, Inc. (toll-free phone number on
the inside back cover of the Prospectus) and provide the account registration,
address and social security or tax identification number, the amount being
wired, the name of the wiring bank and the name and telephone number of the
person to be contacted in connection with the order. You will then be provided
with an order number; (b) instruct your bank to wire by the Federal Reserve Wire
Order System the specified amount, along with the order number and registration
to the UMB Bank, n.a.; 101000695, United K.C.; for United Cash Management, Inc.;
(c) complete an application form and mail it to Waddell & Reed, Inc.
3) Through Broker-dealers. You may, if you wish, purchase your shares
through registered broker-dealers, which may charge their customers a fee for
this service. There is no such fee for investments made by mail or wire, as
described above, or for additional investments made by mail or wire. No such
service fee will be charged for shares purchased through Waddell & Reed, Inc.
If you are purchasing Class B shares, you can make an initial investment of
$100 or more only by exchange of your Class B shares of Waddell & Reed Funds,
Inc.
How to Make Additional Investments
You may make additional investments in Class A shares in any amount through
broker-dealers as described above or in either of the following ways:
1) By Mail. Mail a check, money order, Federal Reserve draft or other
negotiable bank draft payable to Waddell & Reed, Inc. at P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217, accompanied by either (i) the detachable form which
accompanies the confirmation of a prior purchase by you, or (ii) a letter
showing your account number and registration and stating that you wish the
enclosed check, etc. to be used for the purchase of shares of United Cash
Management, Inc.
2) By Wire. Instruct your bank to wire the specified amount along with
the account number and registration to the UMB Bank, n.a.; 101000695, United
K.C.; for United Cash Management, Inc.
You may make additional investments of $100 or more in Class B shares only
by exchange of your Class B shares of Waddell & Reed Funds, Inc.
Purchase of the Fund's shares are effective after (i) one of the methods
for purchasing the Fund's shares indicated above has been properly completed and
(ii) UMB Bank, n.a. (the "Bank") has Federal funds available to it which are
thus available to the Fund for investment. Federal funds are monies of a member
bank with the Federal Reserve System held in deposit at a Federal Reserve Bank.
They represent immediately available cash. If payment is made by check or
otherwise than in Federal funds, it will be necessary to convert investors'
payments into Federal funds, and orders for the purchase of the Fund's shares,
if accepted by Waddell & Reed, Inc., will become effective on the day Federal
funds are received for value by the Bank; this is normally anticipated to be two
business days following receipt of payment by Waddell & Reed, Inc. The Fund's
shares are issued at their net asset value next determined after the
effectiveness of the purchase (i.e., at $1.00 per share except under
extraordinary circumstances as described above).
If you wish to insure that shares will be issued on the same day on which
your payment is made so that dividends on these shares will be declared on the
next day, you should (i) place your order by wire so that it will be received by
the Bank prior to 3:00 P.M. Kansas City time, and (ii) before wiring the order,
phone Waddell & Reed, Inc. at the number on the inside back cover of the
Prospectus to make sure that the wire order as described above is properly
identified.
Special arrangements may be made by Waddell & Reed, Inc. with other broker-
dealers to permit shares ordered by such broker-dealers to be issued on the day
of such order. Under these arrangements, the orders, including registration
information, must be received by Waddell & Reed, Inc. at its Overland Park,
Kansas office prior to 3:00 p.m. Overland Park, Kansas time; and the broker-
dealer must guarantee that the Bank will have Federal funds for the purchase
price of the shares ordered by at least 11:00 a.m. on the following business
day. Such arrangements will not be made on Fridays or on any day that precedes
a holiday.
Waddell & Reed, Inc. has the right not to accept any purchase order for the
Fund's shares. Certificates are not normally issued but may be requested for
Class A shares. No certificates are issued for Class B shares. Shareholdings
are recorded on the Fund's books whether or not a certificate is issued.
Redemptions
The Prospectus gives information as to expedited and regular redemption
procedures. Redemption payments are made within seven days unless delayed
because of certain emergency conditions determined by the Securities and
Exchange Commission, when the NYSE is closed other than for weekends or
holidays, or when trading on the NYSE is restricted. Payment is made in cash,
although under extraordinary conditions redemptions may be made in portfolio
securities. Payment for redemption of shares of the Fund may be made in
portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. Securities used for payment
of redemptions are valued at the value used in figuring net asset value. There
would be brokerage costs to the redeeming shareholder in selling such
securities. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Flexible Withdrawal Service
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming shares on a regular basis through the
Flexible Withdrawal Service (the "Service").
If you own Class A shares, to qualify for the Service you must have
invested at least $10,000 in Class A shares which you still own of any of the
funds in the United Group; or, you must own Class A shares having a value of at
least $10,000. The value for this purpose is not the net asset value but the
value at the offering price, i.e., the net asset value plus the sales charge.
If you own Class B shares, to qualify for the Service you must have
invested at least $10,000 in Class B shares which you still own of any of the
funds in Waddell & Reed Funds, Inc. or you must own Class B shares of any of the
funds in Waddell & Reed Funds, Inc. having a value of at least $10,000.
To start the Service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;
Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made (or on the prior business day if the 20th is not a business day).
Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
If you have a share certificate for the shares you want to make available
for the Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for the
Service are paid in additional shares of the Fund of the same class as that with
respect to which they were paid. All payments are made by redeeming shares,
which may involve a gain or loss for tax purposes. To the extent that payments
exceed dividends and distributions, the number of shares you own will decrease.
When all of the shares in your account are redeemed, you will not receive any
further payments. Thus, the payments are not an annuity or an income or return
on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed, you can change to any one of the other choices originally
available to you. For example, if you started out with a $50 monthly payment,
you could change to a $200 quarterly payment. You can at any time redeem part
or all of the shares in your account; if you redeem all of the shares, the
Service is terminated. The Fund can also terminate the Service by notifying you
in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchanges
Class A Share Exchanges
You may exchange Class A shares of the Fund which you have acquired by
exchange for Class A shares of one or more other funds in the United Group
(whose shares are sold with a sales charge) and any shares received in payment
of dividends on those Class A shares of the Fund for Class A shares of any of
the other funds in the United Group, without payment of any additional sales
charge.
In addition, you may specify a dollar amount of Class A shares of the Fund
to be exchanged each month into Class A shares of any other fund in the United
Group. The shares which you designate for exchange into any fund must be worth
at least $100 or you must own Class A shares of the fund in the United Group
into which you want to exchange. The minimum value of shares that you may
designate for monthly exchange is $100, which may be allocated among funds in
the United Group, provided each fund receives a value of at least $25. A
minimum daily balance of $750 is required in order to maintain such automatic
exchange privileges.
Class B Share Exchanges
You may exchange Class B shares for Class B shares of Waddell & Reed Funds,
Inc. without charge. You may also have a specific dollar amount of Class B
shares of any of the funds of Waddell & Reed Funds, Inc. redeemed and invested
in Class B shares of the Fund. The Class B shares that you designate for
exchange must be worth at least $100. The exchange will be made at the net
asset values next determined after receipt and acceptance of your written
request. When you exchange shares, the total shares you receive will have the
same aggregate net asset value as the total shares you exchange.
The redemption of Class B shares of the Fund as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of Class B shares acquired in
the exchange, those acquired shares are treated as having been purchased when
the original redeemed shares were purchased.
General Exchange Information
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the shares you exchange. The relative values are
those next figured after your exchange request is received in good order.
These exchange rights and other exchange rights concerning other funds in
the United Group or Waddell & Reed Funds, Inc. can in most instances be
eliminated or modified at any time and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus, your account may be set up as a funding
vehicle for a retirement plan. For individual taxpayers meeting certain
requirements, Waddell & Reed, Inc. offers prototype documents for the following
retirement plans. All of these plans involve investment in shares of the Fund
(or shares of certain other funds in the United Group or Waddell & Reed Funds,
Inc.).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 ($4,000 for tax years beginning
in 1997) if an investor's spouse has earned income of $250 or less in a taxable
year. If an investor's spouse has at least $2,000 of earned income in a taxable
year, the annual maximum is $4,000 ($2,000 for each spouse). The contributions
are deductible unless the investor (or, if married, either spouse) is an active
participant in a qualified retirement plan or if, notwithstanding that the
investor or one or both spouses so participate, their adjusted gross income does
not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500, per
year for each employee. SARSEPs may not be established after December 31, 1996.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board intends to compel redemptions of accounts, except for retirement plan
accounts, in which the total net asset value is less than $250. Shareholders
have 60 days from the date on which the net asset value falls below $250 to
bring the net asset value above $250 in order to avoid mandatory redemption. A
shareholder may also avoid mandatory redemption by initiating a transaction
which either increases or decreases the net asset value of the account. A
dividend payment does not constitute a shareholder initiated transaction for the
purpose of avoiding mandatory redemption.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Wise is a member of the Fund's Board of Directors. The other
persons are officers but not Board members. For purposes of this section, the
term "Fund Complex" includes each of the registered investment companies in the
United Group of Mutual Funds, TMK/United Funds, Inc. and Waddell & Reed Funds,
Inc. Each of the Fund's Directors is also a Director of each of the other funds
in the Fund Complex and each of its officers is also an officer of one or more
of the funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies, an actuarial consulting company;
President, Buchanan Ranch Corporation; formerly, Professor and Chairman of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Retired.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Kansas Bankshares,
a bank holding company; Director of Central Properties, Inc., a real estate
holding company; Chairman, Gilliland & Hayes, P.A., a law firm; formerly,
President, Gilliland & Hayes, P.A.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence. (Mr. Morgan retired
as Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly, Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment.
WILLIAM L. ROGERS
1999 Avenue of the Stars
Los Angeles, California 90067
Principal, Colony Capital, Inc., a real estate related investment company;
formerly, partner in Trivest, a private investment concern.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Partner, Polsinelli, White, Vardeman and Shalton, a law firm.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan, a fertilizer company.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Vice President, Secretary and General Counsel
of Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Director, Senior Vice
President, Secretary and General Counsel of Waddell & Reed Services Company;
Director, Secretary and General Counsel of Waddell & Reed Asset Management
Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell &
Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
John M. Holliday
Vice President of the Fund and nine other funds in the Fund Complex; Senior
Vice President of WRIMCO; Senior Vice President of Waddell & Reed Asset
Management Company; formerly, Senior Vice President of Waddell & Reed, Inc.
Richard Poettgen
Vice President of the Fund and one other fund in the Fund Complex; Vice
President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, six of the Fund's Directors may be deemed to be
"interested persons," as defined in the 1940 Act, of its underwriter, Waddell &
Reed, Inc., or of WRIMCO. The Directors who may be deemed to be interested
persons are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director Emeritus,
which position a director may elect after resignation from the Board provided
the director has attained the age of 75 and has served as a director of the
funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but he has no
authority or responsibility with respect to management of the Fund. Mr. Leslie
S. Wright retired as a Director of the Fund and of each of the funds in the Fund
Complex effective April 1, 1996, and has elected a position as Director
Emeritus. During the Fund's fiscal year ended June 30, 1996, Mr. Wright
received total compensation for his service as a Director of $42,000 from the
Fund Complex and aggregate compensation from the Fund of $1,112.
The funds in the United Group, TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. pay to each Director a total of $44,000 per year, plus $1,000 for
each meeting of the Board of Directors attended (prior to April 1, 1996, the
funds in the United Group (with the exception of United Asset Strategy Fund,
Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. paid to each
Director a fee of $40,000 per year plus $1,000 for each meeting of the Board of
Directors attended) and $500 for each committee meeting attended which is not in
conjunction with a Board of Directors' meeting, other than Directors who are
affiliates of Waddell & Reed, Inc. The fees to the Directors who receive them
are divided among the funds in the United Group, TMK/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size.
During the Fund's fiscal year ended June 30, 1996, the Fund's Directors
received the following fees for service as a director:
COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 1,244 0 47,000
Dodds I. Buchanan 1,244 0 47,000
Jay B. Dillingham 1,244 0 47,000
Linda Graves 954 0 36,000
John F. Hayes 1,244 0 47,000
Glendon E. Johnson 1,244 0 47,000
William T. Morgan 1,244 0 47,000
Doyle Patterson 1,244 0 47,000
Eleanor B. Schwartz 927 0 35,000
Frederick Vogel III 1,244 0 47,000
Paul S. Wise 1,112 0 47,000
Messrs. Rogers and Ross were elected as Directors on October 16, 1996. The
officers are paid by Waddell & Reed, Inc. or its affiliates.
Shareholdings
As of September 30, 1996, all of the Fund's Directors and officers as a
group owned less than 1% of the outstanding shares of the Fund. As of such date
no person owned of record or was known by the Fund to own beneficially 5% or
more of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are two sources for the payments the Fund makes to you as a
shareholder of a class of shares of the Fund, other than payments when you
redeem your shares. The first source is the Fund's net investment income, which
is derived from the interest and earned discount on the securities it holds,
less expenses (which will vary by class) and amortization of any premium. The
second source is realized capital gains, which are derived from the proceeds
received from the sale of securities at a price higher than the Fund's tax basis
(usually cost) in such securities; these gains are expected to be short-term
capital gains. Payments from either net investment income or net short-term
capital gains are called dividends.
On each day, including a Saturday, Sunday or other holiday, a dividend of
all of the net investment income and realized net capital gains of a class will
be declared. The shares whose holders are entitled to receive dividends are
those held on the Fund's books at the close of business on the prior day and for
which federal funds have been received by the Fund. See "How to Open An
Account" for information on when shares are issued.
Under the procedures that the Fund's Board of Directors has adopted
relating to "amortized cost" valuation, the calculation of the daily dividend of
a class will change from that indicated above under certain circumstances. If
on any day there is a deviation of .3 of 1% or more between the net asset value
of a share of a class of the Fund computed on the amortized cost basis and that
computed on an available market price basis, the amount of the deviation will be
added to or subtracted from the dividend for that class for that day if
necessary to reduce the per-share value to within .3 of 1% of $1.00.
If on any day there is insufficient net income to absorb any such
reduction, the Fund's Board of Directors would be required under Rule 2a-7 to
consider taking other action if the deviation after eliminating the dividend for
that day exceeds one-half of 1%. See "Determination of Offering Price." One of
the actions that the Board of Directors might take could be the elimination or
reduction of dividends for more than one day.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of the Fund of the same class as that with respect
to which they were declared. You can change your instructions at any time. If
you give no instructions, your dividends and distributions (if any) will be paid
in shares of the Fund of the same class as that with respect to which they were
paid. All payments in shares are at net asset value. The net asset value used
for this purpose is that computed as of the payment date for the dividend,
although this could be changed by the Board of Directors.
Even if you get dividends and distributions in cash, you can thereafter
reinvest them (or distributions only) in shares of the Fund of the same Class as
that with respect to which they were paid at net asset value next determined
after receipt by Waddell & Reed, Inc., of the amount clearly identified as a
reinvestment. The reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of taxable net investment income, net short-term capital
gains and net gains from certain foreign currency transactions) and must meet
several additional requirements. These requirements include the following:
(1) the Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures contracts or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30% of its
gross income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months -- (i)
options, futures contracts or forward contracts or (ii) foreign currencies (or
options, futures contracts or forward contracts thereon) that are not directly
related to the Fund's principal business of investing in securities (or in
options and futures contracts with respect to securities) ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, Government Securities, securities of other RICs and other securities that
are limited, in respect of any one issuer, to an amount that does not exceed 5%
of the value of the Fund's total assets and that does not represent more than
10% of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than Government Securities or the
securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to make sufficient distributions each year to avoid
imposition of the Excise Tax.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management Agreement
is to arrange the purchase and sale of securities for the portfolio of the Fund.
Purchases are made directly from issuers or from underwriters, dealers or banks.
Purchases from underwriters include a commission or concession paid by the
issuer to the underwriter. Purchases from dealers will include the spread
between the bid and the asked price. Brokerage commissions are paid primarily
for effecting transactions in securities traded on an exchange and otherwise
only if it appears likely that a better price or execution can be obtained. The
Fund has not effected transactions through brokers and does not anticipate doing
so. The individual who manages the Fund may manage other advisory accounts with
similar investment objectives. It can be anticipated that the manager will
frequently place concurrent orders for all or most accounts for which the
manager has responsibility. Transactions effected pursuant to such combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each fund or advisory account.
To effect the portfolio transactions of the Fund, WRIMCO is authorized to
engage brokers-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO is expected to allocate orders
to brokers or dealers consistent with the interests and policies of the Fund.
Subject to review by the Board of Directors, such policies include the selection
of brokers or dealers which provide research services and other services
including pricing or quotation services directly or through others ("services").
If the execution and price offered by more than one dealer are comparable, the
order may be allocated to a dealer which has provided such services considered
by WRIMCO to be useful or desirable for its investment management of the Fund
and/or the other funds and accounts over which WRIMCO or its affiliates have
investment discretion.
Subject to the foregoing considerations, WRIMCO may also consider the
willingness of particular brokers and dealers to sell shares of the Fund and
other funds managed by WRIMCO and its affiliates as a factor in its selection.
No allocation of brokerage or principal business is made to provide any other
benefits to WRIMCO or its affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist WRIMCO in
making investment management decisions are used for administration or other non-
research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker or dealer) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in
the Fund's portfolio or being considered for purchase.
In placing transactions for the Fund's portfolio, WRIMCO may consider sales
of shares of the Fund and other funds managed by WRIMCO and its affiliates in
the United Group as a factor in the selection of brokers to execute portfolio
transactions. WRIMCO intends to allocate brokerage on the basis of this factor
only if the sale is $2 million or more and there is no sales charge. This
results in the consideration only of sales which by their nature would not
ordinarily be made by Waddell & Reed, Inc.'s direct sales force and is done in
order to prevent the direct sales force from being disadvantaged by the fact
that it cannot participate in the allocation of Fund orders for portfolio
securities. As of June 30, 1996, the Fund owned Merrill Lynch and Co., Inc.
debt securities in the aggregate amount of $14,000,000. Merrill Lynch & Co.,
Inc. is a regular broker of the Fund.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling With Other Funds
The Fund and one or more of the other funds in the United Group, TMK/United
Funds, Inc. and Waddell & Reed Funds, Inc. or accounts over which Waddell & Reed
Asset Management Company exercises investment discretion frequently buy or sell
the same securities at the same time. If this happens, the amount of each
purchase or sale is divided. This is done on the basis of the amount of
securities each fund or account wanted to buy or sell. Sharing in large
transactions could affect the price the Fund pays or receives or the amount it
buys or sells. However, sometimes a better negotiated commission is available.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two classes of shares: Class A and Class B. Prior to
September 5, 1995, the Fund offered only one class of shares to the public.
Shares outstanding on that date were designated as Class A shares. Each class
represents an interest in the same assets of the Fund and differs as follows:
each class of shares has exclusive voting rights on matters pertaining to
matters appropriately limited to that class; Class B shares are subject to a
contingent deferred sales charge and to an ongoing distribution and service fee;
Class B shares that have been held by a shareholder for eight years will convert
automatically to Class A shares of the Fund, and such conversion will be made,
without charge or fee, on the basis of the relative net asset values of the two
classes; each class may bear differing amounts of certain class-specific
expenses; and each class has a separate exchange privilege. The Fund does not
anticipate that there will be any conflicts between the interests of holders of
the different classes of shares of the Fund by virtue of those classes. On an
ongoing basis, the Board of Directors will consider whether any such conflict
exists and, if so, take appropriate action. Each share of the Fund is entitled
to equal voting, dividend, liquidation and redemption rights, except that due to
the differing expenses borne by the two classes, dividends and liquidation
proceeds of Class B shares are expected to be lower than for Class A shares of
the Fund. Each fractional share of a class has the same rights, in proportion,
as a full share of that class.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Services. A Standard & Poor's ("S&P") corporate
or municipal bond rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment of
creditworthiness may take into consideration obligors such as guarantors,
insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
The top three rating categories of S&P are described below:
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. ("MIS") rating symbols and their meanings
follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
DESCRIPTION OF NOTE RATINGS
Standard and Poor's Rating's Services. A S&P note rating reflects the
liquidity factors and market access risks unique to notes. Notes maturing in 3
years or less will likely receive a note rating. Notes maturing beyond 3 years
will most likely receive a long-term debt rating. The following criteria will
be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. MIS ratings for state and municipal short-
term obligations will be designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of major
importance in bond risk are of lesser importance over the short run. Rating
symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's Ratings Services commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. Ratings are graded into several categories, ranging from
A-1 for the highest quality obligations to D for the lowest. Issuers rated A
are further referred to by use of numbers 1, 2 and 3 to indicate the relative
degree of safety. Issues assigned an A rating (the highest rating) are regarded
as having the greatest capacity for timely payment. An A-1 designation
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
with a plus sign (+) designation. An A-2 rating indicates that capacity for
timely payment is satisfactory; however, the relative degree of safety is not as
high as for issues designated A-1.
Moody's Investors Service, Inc. commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. MIS employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on Funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation;
capitalization characteristics, while still appropriate, may be more affected by
external conditions; and ample alternate liquidity is maintained.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1996
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit - 7.95%
Yankee
Banque Nationale de Paris,
5.31%, 3-6-97 ......................... $10,000 $10,000,000
Creditanstalt - Bankverein,
5.38%, 3-7-97 ......................... 10,000 10,000,000
Societe Generale - New York,
5.3%, 2-21-97 ......................... 12,000 12,000,000
Total ................................. 32,000,000
Commercial Paper (backed by irrevocable
bank letter of credit) - 4.46%
Banco Nacional de Mexico S.A.
(Barclays Bank PLC),
5.12%, 7-24-96 ........................ 5,000 4,983,645
Nacional Financiera, S.N.C., Grand
Cayman Branch (Societe Generale),
5.33%, 7-29-96 ........................ 5,000 4,979,272
Petroleo Brasileiro S.A. - Petrobras
(Barclays Bank PLC),
5.24%, 7-9-96 ......................... 8,000 7,990,685
Total ................................. 17,953,602
Notes - 10.56%
Abbey National Treasury Services plc,
7.8%, 12-16-96 ........................ 3,000 3,029,753
Capital One Funding Corporation
(Bank One, Kentucky, NA),
5.5%, 7-5-96 .......................... 13,500 13,500,000
Comerica Bank,
5.4605%, 7-15-96 ...................... 12,000 12,000,000
PNC Bank, N.A.,
5.3992%, 7-22-96 ...................... 14,000 13,997,442
Total ................................. 42,527,195
TOTAL BANK OBLIGATIONS - 22.97% $92,480,797
(Cost: $92,480,797)
CORPORATE OBLIGATIONS
Commercial Paper
Chemicals and Allied Products - 5.15%
Hercules Inc.:
5.3%, 7-23-96 ......................... 7,000 6,977,328
5.34%, 8-14-96 ........................ 4,822 4,790,529
PPG Industries Inc.,
5.33%, 7-11-96 ........................ 9,000 8,986,675
Total ................................. 20,754,532
See Notes to Schedule of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1996
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Electric, Gas, and Sanitary Services - 3.29%
Idaho Power Co.:
5.36%, 7-22-96 ........................ $ 4,800 $ 4,784,992
5.4%, 7-30-96 ......................... 4,492 4,472,460
Pacificorp,
5.3%, 7-16-96 ......................... 4,000 3,991,167
Total ................................. 13,248,619
Electronic and Other Electric Equipment - 3.91%
Sony Capital Corp.,
5.3%, 7-19-96 ......................... 3,300 3,291,255
TDK (USA) Corp.:
5.32%, 7-17-96 ........................ 10,470 10,445,244
5.35%, 7-17-96 ........................ 2,000 1,995,244
Total ................................. 15,731,743
Forestry - 1.50%
Weyerhaeuser Co.,
5.3%, 7-2-96 .......................... 6,060 6,059,108
Insurance Carriers - 3.12%
Safeco Credit Company, Inc.,
5.37%, 8-19-96 ........................ 2,600 2,580,996
Transamerica Finance Corporation,
5.32%, 7-15-96 ........................ 10,000 9,979,311
Total ................................. 12,560,307
Nondepository Institutions - 2.01%
Associates Corporation of North America,
5.36%, 7-29-96 ........................ 7,800 7,767,483
Island Finance Puerto Rico Inc.,
5.31%, 7-9-96 ......................... 310 309,634
Total ................................. 8,077,117
Petroleum and Coal Products - 3.48%
Amoco Corporation:
5.35%, 7-8-96 ......................... 5,000 5,000,000
5.48%, 7-25-96 ........................ 9,000 9,000,000
Total ................................. 14,000,000
Printing and Publishing - 1.86%
American Greetings Corp.,
5.35%, 7-10-96 ........................ 7,500 7,489,969
Tobacco Products - 1.99%
B.A.T. Capital Corp.:
5.3%, 7-3-96 .......................... 7,000 6,997,939
5.37%, 7-23-96 ........................ 1,000 996,718
Total ................................. 7,994,657
See Notes to Schedule of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1996
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Transportation Equipment - 2.48%
Echlin, Inc.,
5.35%, 7-8-96 ......................... $10,000 $ 9,989,597
Total Commercial Paper - 28.79% 115,905,649
Commercial Paper (backed by irrevocable
bank letter of credit)
Electric, Gas, and Sanitary Services - 2.40%
CommEd Fuel Co. Inc. (First National
Bank of Chicago),
5.29%, 7-23-96 ........................ 9,682 9,650,700
Hotels and Other Lodging Places - 1.23%
Accor (Banque Nationale de Paris),
5.3%, 8-1-96 .......................... 5,000 4,977,181
Total Commercial Paper (backed by
irrevocable bank letter of credit)- 3.63% 14,627,881
Notes
Auto Repair, Services, and Parking - 3.23%
PHH Corporation,
5.4451%, 7-26-96 ...................... 13,000 12,994,398
Communication - 3.72%
AT&T Capital Corp.:
6.29%, 7-5-96 ......................... 10,000 10,000,447
5.5344%, 7-18-96 ...................... 5,000 5,000,739
Total ................................. 15,001,186
Food and Kindred Products - 1.29%
Grand Metropolitan Investment Corporation,
8.125%, 8-15-96 ....................... 5,200 5,213,725
Nondepository Institutions - 1.62%
American Express Credit Corp.,
7.875%, 12-1-96 ....................... 1,500 1,514,805
Associates Corporation of North America:
6.02%, 8-19-96 ........................ 4,000 4,002,909
4.625%, 11-30-96 ...................... 1,000 996,520
Total.................................. 6,514,234
See Notes to Schedule of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1996
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Notes (Continued)
Security and Commodity Brokers - 3.48%
Merrill Lynch & Co., Inc.,
5.4197%, 5-29-97 ...................... $14,000 $ 14,000,000
Total Notes - 13.34% 53,723,543
TOTAL CORPORATE OBLIGATIONS - 45.76% $184,257,073
(Cost: $184,257,073)
MUNICIPAL OBLIGATIONS
California - 8.68%
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
5.5%, 8-1-96 .......................... 15,000 15,000,000
Oakland-Alameda County Coliseum Lease
Revenue Bonds (Oakland Coliseum Project),
1995 Series B-1 (Canadian Imperial Bank
of Commerce),
5.43%, 8-7-96 ......................... 15,000 15,000,000
Community Redevelopment Agency of the
City of Visalia, California, East
Visalia Redevelopment Project, Variable
Interest Short Term Adjustable Securities
(National Westminster Bank PLC),
5.592%, 7-4-96 ........................ 4,955 4,955,000
Total ................................. 34,955,000
Missouri - 0.33%
The Industrial Development Authority
of the County of St. Louis,
Missouri, Series 1991B (Citibank
of New York),
6.125%, 7-4-96 ........................ 1,335 1,335,000
New York - 5.34%
Health Insurance Plan of Greater New York
(Morgan Guaranty Trust Company of New York),
5.55%, 7-3-96 ......................... 21,500 21,500,000
See Notes to Schedule of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1996
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Pennsylvania - 1.12%
Berks County Industrial Development Authority
(Commercial Facilities Project), Series
B of 1995 (Meridian Bank),
5.55%, 7-3-96 ......................... $ 3,440 $ 3,440,000
Montgomery County Industrial Development
Authority, Taxable Fixed Rate/Variable
Rate Demand Revenue Bonds (410 Horsham
Associates Project), Series of 1995
(Meridian Bank),
5.55%, 7-3-96 ......................... 1,050 1,050,000
Total ................................. 4,490,000
Texas - 5.28%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
5.4689%, 8-1-96 ....................... 15,000 14,929,360
Lower Neches Valley Authority, Industrial
Development Corporation (Texas), Variable
Rate Sewage Facilities Revenue Bonds,
Series 1995A (Taxable) (Mobil Oil Refining
Corporation Project),
5.38%, 7-15-96 ........................ 6,340 6,340,000
Total ................................. 21,269,360
TOTAL MUNICIPAL OBLIGATIONS - 20.75% $ 83,549,360
(Cost: $83,549,360)
UNITED STATES GOVERNMENT OBLIGATIONS
Federal Farm Credit Banks,
4.95%, 3-3-97 ......................... 10,000 9,977,531
Federal Home Loan Banks,
5.65%, 7-3-96 ......................... 14,000 14,000,000
Federal Home Loan Mortgage Corporation,
4.7%, 7-26-96 ......................... 2,000 1,999,016
Federal National Mortgage Association,
5.47%, 9-20-96 ........................ 10,000 9,990,340
Student Loan Marketing Association,
5.54%, 7-2-96 ......................... 15,000 15,000,000
TOTAL UNITED STATES GOVERNMENT
OBLIGATIONS - 12.66% $ 50,966,887
(Cost: $50,966,887)
TOTAL INVESTMENT SECURITIES - 102.14% $411,254,117
(Cost: $411,254,117)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.14%) (8,615,119)
NET ASSETS - 100.00% $402,638,998
See Notes to Schedule of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1996
Notes to Schedule of Investments
Cost of investments owned is the same as that used for Federal income tax
purposes.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
<PAGE>
UNITED CASH MANAGEMENT, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
Assets
Investment securities - at value (Note 1) ........ $411,254,117
Cash ............................................ 123,852
Receivables:
Interest ........................................ 2,260,826
Fund shares sold ................................ 455,012
Prepaid insurance premium ........................ 17,142
------------
Total assets .................................. 414,110,949
------------
Liabilities
Payable for Fund shares redeemed ................. 11,112,188
Dividends payable ................................ 158,733
Accrued transfer agency and dividend disbursing .. 157,890
Accrued accounting services fee .................. 5,000
Accrued service fee .............................. 525
Other ............................................ 37,615
------------
Total liabilities ............................. 11,471,951
------------
Total net assets ............................. $402,638,998
============
Net Assets
$0.01 par value capital stock, authorized -- 5,000,000,000;
Class A shares outstanding -- 402,008,903;
Class B shares outstanding -- 630,095
Capital stock ................................... $ 4,026,390
Additional paid-in capital ...................... 398,612,608
------------
Net assets applicable to outstanding
units of capital ............................. $402,638,998
============
Net asset value, redemption and offering price
per share for Class A and Class B ................ $1.00
=====
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1996
Investment Income
Interest ......................................... $23,901,600
-----------
Expenses (Note 2):
Transfer agency and dividend disbursing ......... 1,709,514
Investment management fee ....................... 1,686,054
Accounting services fee ......................... 60,000
Custodian fees .................................. 54,208
Audit fees ...................................... 24,034
Legal fees ...................................... 9,098
Distribution fee - Class B ...................... 2,440
Service fee - Class B ........................... 872
Other ........................................... 227,656
-----------
Total expenses ................................ 3,773,876
-----------
Net investment income ........................ 20,127,724
-----------
Net increase in net assets resulting
from operations ........................... $20,127,724
===========
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
June 30,
-------------------------
1996 1995
------------- ------------
Increase in Net Assets
Operations:
Net investment income .............. $20,127,724 $ 15,702,325
------------ ------------
Net increase in net assets
resulting from operations ....... 20,127,724 15,702,325
------------ ------------
Dividends to shareholders
from net investment income:*
Class A ............................ (20,115,214) (15,702,325)
Class B ............................ (12,510) ---
------------ ------------
(20,127,724) (15,702,325)
------------ ------------
Capital share transactions:
Proceeds from sale of shares:
Class A (2,162,044,174 and
845,981,959 shares,
respectively) ...................2,162,044,174 845,981,959
Class B (1,209,660 and
0 shares, respectively) ......... 1,209,660 ---
Proceeds from reinvestment
of dividends:
Class A (19,534,491 and
15,306,048 shares, respectively). 19,534,491 15,306,048
Class B (11,555 and
0 shares, respectively) ......... 11,555 ---
Payments for shares redeemed:
Class A (2,148,369,622 and
809,407,787 shares,
respectively) ...................(2,148,369,622)(809,407,787)
Class B (591,120 and
0 shares, respectively) ......... (591,120) ---
------------ ------------
Net increase in net assets
resulting from capital
share transactions .............. 33,839,138 51,880,220
------------ ------------
Total increase .................. 33,839,138 51,880,220
Net Assets
Beginning of period ................. 368,799,860 316,919,640
------------ ------------
End of period .......................$402,638,998 $368,799,860
============ ============
Undistributed net investment
income ........................... $--- $---
==== ====
*See "Financial Highlights" on pages 51 - 52.
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended June 30,
----------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net investment
income ........... 0.0487 0.0465 0.0252 0.0251 0.0434
Less dividends
declared ......... (0.0487)(0.0465)(0.0252)(0.0251)(0.0434)
------ ------ ------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total return........ 5.01% 4.74% 2.55% 2.57% 4.41%
Net assets, end of
period (000
omitted) ......... $402,009$368,800$316,920$350,624$448,127
Ratio of expenses to
average net
assets ........... 0.91% 0.97% 1.04% 1.06% 0.99%
Ratio of net
investment income
to average net
assets ........... 4.89% 4.68% 2.51% 2.56% 4.36%
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout the Period:
For the
period
from 9/5/95
through
6/30/96*
--------
Net asset value,
beginning of
period ........... $1.00
------
Net investment
income ........... 0.0312
Less dividends
declared ......... (0.0312)
------
Net asset value,
end of period .... $1.00
=======
Total return........ 3.15%
Net assets, end of
period (000
omitted) ......... $630
Ratio of expenses to
average net
assets ........... 1.88%**
Ratio of net
investment income
to average net
assets ........... 3.76%**
*On September 5, 1995, the Fund began offering Class B shares to the
public. Fund shares outstanding prior to that date were designated
Class A shares.
**Annualized.
See notes to financial statements.
<PAGE
UNITED CASH MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 -- Significant Accounting Policies
United Cash Management, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Its investment objective is to seek maximum current income to the
extent consistent with stability of principal by investing in a portfolio of
money market instruments meeting specified quality standards. The following is
a summary of significant accounting policies consistently followed by the Fund
in the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles.
A. Security valuation -- The Fund invests only in money market securities with
maturities or irrevocable put options within one year. The Fund uses the
amortized cost method of security valuation which is accomplished by
valuing a security at its cost and thereafter assuming a constant
amortization rate to maturity of any discount or premium.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses, if any, are calculated on
the identified cost basis. Interest income is recorded on the accrual
basis.
C. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code.
Accordingly, no provision has been made for Federal income taxes.
D. Dividends to shareholders -- All of the Fund's net income is declared and
recorded by the Fund as dividends on each day to shareholders of record at
the time of the previous determination of net asset value. Dividends are
declared from the total of net investment income, plus or minus realized
gains or losses on portfolio securities. Since the Fund does not expect to
realize any long-term capital gains, it does not expect to pay any capital
gains distributions.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of a "Group" fee computed each day on the combined net asset values of
all of the funds in the United Group of mutual funds (approximately $14.3
billion of combined net assets at June 30, 1996) at annual rates of .51% of the
first $750 million of combined net assets, .49% on that amount between $750
million and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45%
between $2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion,
.40% between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund also pays WARSCO a monthly per account charge of $1.75 for each
shareholder account which was in existence at any time during the prior month
and $0.75 for each shareholder check it processed. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
The Fund has adopted a 12b-1 plan for Class B shares under which W&R,
principal underwriter and sole distributor of the Fund's shares, is compensated
in an amount calculated and payable daily up to 1% annually of the Fund's
average daily net assets for Class B shares. This fee consists of two elements:
(i) up to 0.75% may be paid to the Distributor (W&R) for distribution services
and distribution expenses including commissions paid by the Distributor to its
sales representatives and managers and (ii) up to 0.25% may be paid to reimburse
the Distributor for continuing payments made to the Distributor's
representatives and managers, its administrative costs in overseeing these
payments, and the expenses of WARSCO in providing certain personal services to
shareholders. During the period ended June 30, 1996, the Distributor received
$3,312 in 12b-1 payments. During this same period W&R paid no sales
commissions.
A contingent deferred sales charge may be assessed against a shareholder's
redemption amount of Class B shares and paid to the Distributor, W&R. The
purpose of the deferred sales charge is to compensate the Distributor for the
costs incurred by the Distributor in connection with the sale of a Fund's
shares. The amount of the deferred sales charge will be the following percent
of the total amount invested during a calendar year to acquire the shares or the
value of the shares redeemed, whichever is less. Redemption at any time during
the calendar year of investment and the first full calendar year after the
calendar year of investment, 3%; the second full calendar year, 2%; the third
full calendar year, 1%; and thereafter, 0%. All investments made during a
calendar year shall be deemed as a single investment during the calendar year
for purposes of calculating the deferred sales charge. The deferred sales
charge will not be imposed on shares representing payment of dividends or
distributions or on amounts which represent an increase in the value of the
shareholder's account resulting from capital appreciation above the amount paid
for shares purchased during the deferred sales charge period. During the period
ended June 30, 1996, the Distributor received $2,980 in deferred sales charges.
The Fund paid Directors' fees of $15,616.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Commencement of Multiclass Operations
On September 5, 1995, the Fund was authorized to offer investors a choice
of two classes of shares, Class A and Class B, each of which has equal rights as
to assets and voting privileges. Class A shares are not subject to a sales
charge on purchases or a contingent deferred sales charge on redemption; they
are not subject to a Rule 12b-1 Service Plan. A comprehensive discussion of the
terms under which shares of either class are offered is contained in the
Prospectus and the Statement of Additional Information for the Fund. The Fund
commenced multiclass operations on September 5, 1995.
Income and non-class specific expenses are allocated daily to each class of
shares based on the value of relative net assets as of the beginning of each day
adjusted for the prior day's capital share activity.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Cash Management, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Cash Management, Inc. (the
"Fund") at June 30, 1996, the results of its operations for the year then ended
and the changes in its net assets and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1996 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
August 5, 1996
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