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 November 6, 1998. The SAI is available free upon request to the Fund or
to Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone
number stated 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
November 6, 1998
UNITED CASH MANAGEMENT, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-366-5465
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.........................................3
EXPENSES........................................................4
FINANCIAL HIGHLIGHTS............................................6
PERFORMANCE.....................................................8
Explanation of Terms ..........................................8
ABOUT WADDELL & REED............................................9
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....................10
Investment Goal and Principles ...............................10
Securities and Investment Practices ..........................10
ABOUT YOUR ACCOUNT.............................................15
Ways to Set Up Your Account ..................................15
Buying Shares ................................................19
Minimum Investments ..........................................17
Adding to Your Account .......................................18
Selling Shares ...............................................18
Telephone Transactions .......................................26
Shareholder Services .........................................27
Personal Service ...........................................27
Reports ....................................................27
Exchanges ..................................................27
Automatic Transactions .....................................27
Distributions and Taxes ......................................28
Distributions ..............................................28
Taxes ......................................................29
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................31
WRIMCO and Its Affiliates ....................................32
Breakdown of Expenses ........................................33
Management Fee .............................................33
Other Expenses .............................................34
<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).
Management
fees 0.40% 0.40%
12b-1 fees None 0.99%2
Other expenses 0.50% 0.27%
Total Fund
operating
expenses 0.90% 1.66%
Example: You would pay the following expenses on
a $1,000 investment, assuming (1) 5% annual
return3 and (2) redemption at the end of each time
period:
Class Class
A B
----- -----
1 year $ 9 $ 47
3 years $ 29 $ 62
5 years $ 50 $ 90
10 years $111 $176
Example: You would pay the following expenses on
a $1,000 investment in the Class B shares of the
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.
2It 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."
3Use 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>
Fund, assuming (1) 5% annual return3 and (2) no
redemption at the end of each time period:
Class
B
-----
1 year $ 17
3 years $ 52
5 years $ 90
10 years $1764
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."
4Assumes the conversion of Class B shares into Class A shares after 8 years and,
therefore, reflects Class A expenses in years nine and ten. See "About the
Management and Expenses of the Fund."
<PAGE>
Financial Highlights
The following information has been audited in conjunction with the audits
of the Financial Statements of the Fund. Financial Statements for the fiscal
year ended June 30, 1998 and the Independent Auditors' Report of Deloitte &
Touche LLP thereon are included in the SAI and should be read in conjunction
with the Financial Highlights.
For a Class A share outstanding throughout each period:*
<TABLE>
For the fiscal year ended June 30,
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
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 ........... 0.0484 0.0472 0.0487 0.0465 0.0252 0.0251 0.0434 0.0665 0.0786 0.0805
Less dividends
declared ......... (0.0484) (0.0472) (0.0487) (0.0465) (0.0252) (0.0251) (0.0434) (0.0665) (0.0786) (0.0805)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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 ....... 4.93% 4.80% 5.01% 4.74% 2.55% 2.57% 4.41% 6.89% 8.18% 8.33%
Net assets, end of
period (000
omitted) ......... $532,840 $514,272 $402,009 $368,800 $316,920 $350,624 $448,127 $579,944 $563,893 $445,156
Ratio of expenses
to average net
assets ........... 0.89% 0.87% 0.91% 0.97% 1.04% 1.06% 0.99% 0.95% 0.95% 1.00%
Ratio of net investment
income to average net
assets ........... 4.84% 4.70% 4.89% 4.68% 2.51% 2.56% 4.36% 6.65% 7.86% 8.14%
*On September 5, 1995, Fund shares outstanding were designated Class A shares.
</TABLE>
<PAGE>
Financial Highlights
The following information has been audited in conjunction with the audits
of the Financial Statements of the Fund. Financial Statements for the fiscal
year ended June 30, 1998 and the Independent Auditors' Report of Deloitte &
Touche LLP thereon are included in the SAI and should be read in conjunction
with the Financial Highlights.
For a Class B share outstanding throughout each period:
For the
For the fiscal year period
ended June 30, from 9/5/95*
----------------------- through
1998 1997 6/30/96
-------- -------- --------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00
------ ------ ------
Net investment
income ........... 0.0403 0.0407 0.0312
Less dividends
declared ......... (0.0403) (0.0407) (0.0312)
------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00
======= ======= =======
Total return........ 4.10% 4.13% 3.15%
Net assets, end of
period (000
omitted) ......... $3,614 $3,521 $630
Ratio of expenses to
average net
assets ........... 1.71% 1.48% 1.88%**
Ratio of net
investment income
to average net
assets ........... 4.03% 4.14% 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 Composite Stock Price 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 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 the telephone number listed on the inside back
cover of this Prospectus.
<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,
a division of The McGraw-Hill Companies, Inc. ("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.
In accordance with Rule 2a-7, the Fund may invest in securities with a
remaining maturity of not more than 397 calendar days.
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.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy 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 and
the type of money market securities in which the Fund may invest are fundamental
policies. 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 ("U.S. Government Securities"). 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. In addition, the Fund may purchase unrated commercial
paper that is of comparable quality to paper with the required ratings.
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 does not currently intend to purchase the securities of any issuer
(other than securities issued or guaranteed by domestic or foreign governments
or political subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises that,
including predecessors, have a record of less than three years of continuous
operation. This restriction does not apply to any obligations issued or
guaranteed by the U.S. government or a state or local government authority, or
their respective agencies or instrumentalities, or to collateralized mortgage
obligations, other mortgage-related securities, asset-backed securities, indexed
securities or over-the-counter derivative financial instruments.
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 Fund may invest
in: 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;
obligations issued by foreign branches of U.S. banks; and other obligations
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.
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 (including guarantees provided by
foreign banks or foreign branches of domestic banks), all of which must be
denominated in U.S. dollars.
Mortgage-Backed and Other Asset-Backed Securities are bonds backed by
specific types of assets. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. Government mortgage-backed securities are issued or
guaranteed as to principal and interest (but not as to market value) by the
Government National Mortgage Association, Fannie Mae (formerly the Federal
National Mortgage Association), the Federal Home Loan Mortgage Corporation or
other government-sponsored enterprises. Other mortgage-backed securities are
sponsored or issued by private entities, including investment banking firms and
mortgage originators.
Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
Prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that investors receive, as well as the priority of their rights
to receive payments, are determined by the specific terms of the CMO class.
Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets securing the debt are different. These
underlying assets may be nearly any type of financial asset or receivable, such
as motor vehicle installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from credit cards.
Policies and Restrictions: The Fund may invest in mortgage-backed, asset-
backed and 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.
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 financial indicators such as other securities,
securities indices or interest rates, 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 may invest 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: 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 50% 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, with
respect to 75% of its total assets, purchase securities of any one issuer (other
than cash items and "Government securities" as defined in the 1940 Act), if
immediately after and as a result of such purchase, the value of the holdings of
the Fund in the securities of such issuer exceeds 5% of the value of the Fund's
total assets.
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 (other
than Roth IRAs and Education IRAs) 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 for
an investor and his or her spouse is $4,000 ($2,000 for each spouse) or, if
less, the couple's combined earned income for the taxable year.
. Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
. Roth IRAs enable an individual whose adjusted gross income (or combined
adjusted gross income, if married) does not exceed certain levels to make
non-deductible contributions up to $2,000 per year. Withdrawals of earnings
from a Roth IRA generally are not taxable if the account has been held at
least five years and the account holder has reached age 59 1/2 (or other
conditions are met).
. Education IRAs may be established for the benefit of a minor, and
contributions up to $500 per child per year may be made by any person whose
adjusted gross income does not exceed certain levels. Generally, withdrawals
used to pay the qualified higher education expenses of the beneficiary (or a
family member) are not taxable.
. 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 Plan, 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 and non-governmental tax-
exempt organizations 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.
. Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established
by small employers to contribute to their employees' retirement accounts and
involve fewer administrative requirements than 401(k) or other qualified
plans generally.
- -------------------------------------------------
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 free of Federal
transfer tax consequences. 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 1-800-366-5465, 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 NAVs 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 other taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the Internal Revenue Service.
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 stating
your account number, the account registration and that you wish to purchase
Class A shares of the Fund 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.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 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.
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 for
redemption 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
representing amounts not subject to the deferred sales charge (i.e., amounts
representing payment of dividends and distributions or capital appreciation),
then of shares purchased prior to the deferred sales charge period (i.e., held
for more than four years) 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. (The
Plan and this exclusion from the deferred sales charge do not apply to a one-
time withdrawal.)
. 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, one toll-free call, 1-800-366-5465, connects
you to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Services staff is
available to respond to your inquiries or update your account records. At
almost any time of the day or night, you may access TeleWaddell from a touch-
tone phone to:
. Obtain information about your accounts;
. Obtain price information about other funds in the United Group; or
. Request duplicate statements and reorder checks.
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 the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Fund. Call the telephone number listed above for Customer Service 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 ongoing 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
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 declared for a
particular day are paid to shareholders of record on the prior business day
except for dividends declared for Friday, Saturday and Sunday, which are paid to
shareholders of record on the preceding Thursday. Dividends for each class 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 of that class. 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 completely redeemed, any declared
but unpaid dividends on those shares will be paid 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
and net short-term capital gains) and net capital gains (the excess of net long-
term capital gains over net short-term capital losses), if any, that it
distributes to its shareholders.
There are certain tax requirements that the Fund must satisfy 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 generally are taxable to you as ordinary income whether received
in cash or paid in additional Fund shares. Distributions of the Fund's net
capital gains, if any, 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.
State and local income taxes. The portion of the dividends paid by the
Fund attributable to interest earned on its U.S. Government Securities generally
is not subject to state and local income taxes, although distributions by the
Fund to its shareholders of net realized gains on the disposition of those
securities are fully subject to those taxes. You should consult your tax
adviser to determine the taxability of dividends and other distributions by the
Fund in your state and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; see the SAI
for a more detailed discussion. 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. 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 Target/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.
Mira Stevovich is primarily responsible for the day-to-day management of
the portfolio of the Fund. Ms. Stevovich has held her Fund responsibilities
since May 1998. She is Vice President of WRIMCO, Vice President and Assistant
Treasurer of the Fund and Vice President and Assistant Treasurer of other
investment companies for which WRIMCO serves as investment manager. Ms.
Stevovich has served as the Assistant 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 March 1987. 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 acts as the principal underwriter and distributor of the
variable life insurance and variable annuity policies issued by United Investors
Life Insurance Company for which Target/United Funds, Inc. is the underlying
investment vehicle.
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
Waddell & Reed Financial, Inc., a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
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 $19.9 billion as of June 30, 1998. Management fees for the fiscal
year ended June 30, 1998 were 0.40% 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.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, 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 extraordinary expenses including
litigation and indemnification relative to litigation.
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 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.
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.
<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 (800) 366-5465
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Cash Management, Inc.
PROSPECTUS
November 6, 1998
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
High Income Fund
International Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
Science and Technology Fund
Total Return Fund
NUP1010(11-98)
printed on recycled paper
<PAGE>
UNITED CASH MANAGEMENT, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
November 6, 1998
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 November 6, 1998, 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............ 16
Purchase, Redemption and Pricing of Shares.......... 21
Directors and Officers.............................. 30
Payments to Shareholders............................ 36
Taxes .............................................. 37
Portfolio Transactions and Brokerage................ 38
Other Information................................... 39
Appendix A.......................................... 41
Financial Statements ............................... 45
<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, 1998, the date of the most recent
balance sheet included in the Prospectus, was 4.96% and 3.59%, respectively, and
the effective yield calculated for the same period was 5.09% and 3.66%,
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 Composite Stock Price 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. In accordance with Rule
2a-7, the Fund may invest in securities with a remaining maturity of not more
than 397 calendar days. 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,
Fannie Mae (formerly, the Federal National Mortgage Association), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), 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 Fannie Mae, 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, a division of
The McGraw-Hill Companies, Inc. ("S&P"), or Prime-1 or Prime-2 by Moody's
Investors Service, Inc. ("MIS") or, if not rated, of comparable quality and
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.
Specific Securities and Investment Practices
Mortgage-Backed and Asset-Backed Securities
Mortgage-Backed Securities. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are collectively referred to
in this SAI as "CMOs." The U.S. Government mortgage-backed securities in which
the Fund may invest include mortgage-backed securities issued or guaranteed as
to the payment of principal and interest (but not as to market value) by Ginnie
Mae, Fannie Mae or Freddie Mac. Other mortgage-backed securities are issued by
private issuers, generally originators of and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. Payments of principal and interest (but
not the market value) of such private mortgage-backed securities may be
supported by pools of mortgage loans or other mortgage-backed securities that
are guaranteed, directly or indirectly, by the U.S. Government or one of its
agencies or instrumentalities, or they may be issued without any government
guarantee of the underlying mortgage assets but with some form of non-government
credit enhancement. These credit enhancements do not protect investors from
changes in market value.
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. The Fund may purchase mortgage-
backed securities issued by both government and non-government entities such as
banks, mortgage lenders, or other financial institutions.
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 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.
Timely payment of principal and interest on pass-through securities of
Ginnie Mae (but not those of Freddie Mac or Fannie Mae) 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 Mortgage-Backed 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 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.
The Fund has not in the past invested and has no present intention to
invest in these types of securities.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed above.
However, the underlying assets securing the debt are not first lien mortgage
loans or interests therein, but include assets such as motor vehicle installment
sales contracts, other installment sale contracts, home equity loans, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use of
trusts or special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to a certain amount and for a certain time
period by a letter of credit or pool insurance policy issued by a financial
institution unaffiliated with the issuer, or other credit enhancements may be
present. The value of asset-backed securities may also depend on the
creditworthiness of the servicing agent for the loan pool, the originator of the
loans or the financial institution providing the credit enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed Securities.
The yield characteristics of mortgage-backed and asset-backed securities differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a
pool of mortgage loans are influenced by a variety of economic, geographic,
social and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are likely to experience
substantial prepayments. Such securities, however, often provide that for a
specified time period the issuers will replace receivables in the pool that are
repaid with comparable obligations. If the issuer is unable to do so, repayment
of principal on the asset-backed securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the mortgage-
backed securities, and this delay reduces the effective yield to the holder of
such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools of
fixed rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield.
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. In other
words, 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) ("Section 4(2) paper") of the Securities Act of 1933, as amended
(the "1933 Act"). 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.
The Fund may also invest in other securities that are subject to legal or
contractual restrictions on resale because they have not been registered under
the 1933 Act or are otherwise subject to contractual restrictions on resale.
These securities are generally referred to as restricted securities. Restricted
securities generally can be sold in privately negotiated transactions, pursuant
to an exemption from registration under the 1933 Act, or in a registered public
offering. Where registration is required, the Fund may be obligated to pay all
or part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent the Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which the Fund
seeks to invest need not be listed or admitted to trading on a foreign or
domestic exchange and may be less liquid than listed securities. See "Illiquid
Investments."
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)
restricted securities 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 financial indicators such
as other securities, securities indices or interest rates. 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. 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,
obligations of foreign branches of domestic banks, and other obligations
guaranteed by a bank in whose obligations the Fund may invest. 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) With respect to 75% of its total assets, purchase securities of any
one issuer (other than cash items and "Government securities" as
defined in the 1940 Act) if immediately after and as a result of such
purchase, the value of the holdings of the Fund in the securities of
such issuer exceeds 5% of the value of the Fund's total assets; 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,
except that 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 and other obligations consistent with
its goal and its other investment policies and restrictions; 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) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(vii) Sell securities short or buy securities on margin; also, the Fund may
not engage in arbitrage transactions;
(viii) Engage in the underwriting of securities; or
(ix) Borrow to increase income, except 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. 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.
Waddell & Reed Financial, Inc.
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 Waddell & Reed Financial, Inc.
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 Target/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 acts as principal underwriter and distributor for
variable life insurance and variable annuity policies issued by United Investors
Life Insurance Company for which Target/United Funds, Inc. is the underlying
investment vehicle.
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,
1998, 1997 and 1996 were $2,047,383, $1,910,434 and $1,686,054, 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, 1998, 1997 and
1996 were $62,500, $60,000 and $60,000, 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, 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. For the fiscal year ended June 30,
1998, the Fund paid (or accrued) $22,080 and $6,181 to the Distributor as
distribution fees and service fees, respectively, under the Class B Plan. The
distribution fees were paid to compensate the Distributor for its expenses
relating to sales force compensation, providing prospectuses and sales
literature to prospective investors, advertising, sales processing, field office
expenses and home office sales management in connection with the distribution of
Class B shares of the Fund. The service fees were paid to compensate the
Distributor for providing personal services to the Fund's Class B shareholders
and for the maintenance of Class B accounts.
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.
For the Fund's fiscal year ended June 30, 1998, the Distributor earned
deferred sales charges in the amount of $20,559 with respect to the Fund's Class
B shares.
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.
Deloitte & Touche LLP, Kansas City, Missouri, the Fund's independent
accountants, audits the Fund's financial statements.
Year 2000 Issue
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by WRIMCO and the Fund's other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." WRIMCO is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Fund's other, major
service providers. Although there can be no assurances, WRIMCO believes these
steps will be sufficient to avoid any adverse impact on the Fund.
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, Martin Luther
King, Jr. 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
stating 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. 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, 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. See "Payments to Shareholders -- General" for information regarding
dividend payment.
Special arrangements may be made by Waddell & Reed, Inc. with 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.
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 through the Flexible Withdrawal
Service (the "Service") regular monthly, quarterly, semiannual or annual
payments by redeeming shares on an ongoing basis. Applicable forms to start the
Service are available through Waddell & Reed, Inc.
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 the value at the offering price.
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 having a
value of at least $10,000.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. 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 select the
percentage); or
3. 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 under the Service are made by
redeeming shares in your account, 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. You may, 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 model or 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 a traditional IRA, an
investor can contribute each year up to 100% of his or her earned income, up to
an annual maximum of $2,000 (provided the investor has not reached age 70 1/2).
For a married couple, the annual maximum is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the taxable year even if one
spouse had no earned income. Generally, 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. However, a married investor who is not an active participant, files
jointly with his or her spouse and whose combined adjusted gross income does not
exceed $150,000 is not affected by the spouse's active participant status.
An investor may also use a traditional IRA to receive a rollover
contribution that is either (a) a direct rollover distribution 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 a traditional 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.
Roth IRAs. Investors whose adjusted gross income (or combined adjusted
gross income, if married) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for an
investor whose adjusted gross income does not exceed $100,000 (and who is not a
married person filing a separate return), certain distributions from traditional
IRAs may be rolled over to a Roth IRA and any of the investor's traditional IRAs
may be converted into a Roth IRA; these rollover distributions and conversions
are, however, subject to Federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject
to Federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions or conversions of
a traditional IRA, the rollover or conversion occurred more than five years
prior to the withdrawal) and the account holder has reached age 59 1/2 (or
certain other conditions apply).
Education IRAs. Although not technically for retirement savings, Education
IRAs provide a vehicle for saving for a child's higher education. An Education
IRA may be established for the benefit of any minor, and any person whose
adjusted gross income does not exceed certain levels may contribute up to $500
to an Education IRA (or to each of multiple Education IRAs), provided that no
more than $500 may be contributed for any year to Education IRAs for the same
beneficiary. Contributions are not deductible and may not be made after the
beneficiary reaches age 18; however, earnings accumulate tax-free, and
withdrawals are not subject to tax if used to pay the qualified higher education
expenses of the beneficiary (or a member of his or her family).
Simplified Employee Pension (SEP) plans. Employers can make contributions
to SEP-IRAs established for employees. An employer may contribute up to 15% of
compensation or $24,000, whichever is less, per year for each employee.
Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer
with 100 or fewer employees who does not sponsor another active retirement plan
may sponsor a SIMPLE to contribute to its employees' retirement accounts. A
SIMPLE plan can be funded by either an IRA or a 401(k) plan. In general, an
employer can choose to match employee contributions dollar-for-dollar (up to 3%
of an employee's compensation) or may contribute to all eligible employees 2% of
their compensation, whether or not they defer salary to their retirement plans.
SIMPLE plans involve fewer administrative requirements than 401(k) or other
qualified plans generally.
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, Target/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.
KEITH A. TUCKER*
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, Chief Executive
Officer, Chief Financial Officer and Principal Financial Officer of Waddell &
Reed Financial, Inc.; President, Chairman of the Board of Directors and Chief
Executive Officer of Waddell & Reed Financial Services, Inc.; Chairman of the
Board of Directors of WRIMCO, Waddell & Reed, Inc., Waddell & Reed Services
Company, Waddell & Reed Development, Inc., a business development company, and
Waddell & Reed Distributors, Inc.; formerly, President of the Fund and each of
the other funds in the Fund Complex; formerly, Vice Chairman of the Board of
Directors of Torchmark Corporation; formerly, Vice Chairman of the Board of
Directors, Chief Executive Officer and President of United Investors Management
Company; formerly, Chairman of the Board of Directors of Waddell & Reed Asset
Management Company, formerly an affiliate of United Investors Management
Company; formerly, Director of Vesta Insurance Group, Inc.; formerly, Director
of Southwestern Life Corporation; formerly, partner in Trivest, a private
investment concern; formerly, Director of Atlantis Group, Inc., a diversified
company. Date of birth: February 11, 1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President, JoDill Corp., an agricultural company; President and Director of
Dillingham Enterprises Inc.; formerly, Director and consultant, McDougal
Construction Company; formerly, Instructor at Central Missouri State University;
formerly, Board of Police Commissioners, Kansas City, Missouri; formerly, Senior
Vice President-Sales and Marketing, Garney Companies, Inc., a specialty utility
contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
525 Middlefield Road, Suite 200
Menlo Park, California 94025
President of Hewlett Foundation and Chairman of George S. and Delores Dori
Eccles Foundation. Director of First Security Corp., a bank holding company,
and Director of Fluor Corp., a company with interests in coal. Date of birth:
March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas. Daughter of Ronald K. Richey, Director of the Fund
and each of the other funds in the Fund Complex. Date of birth: July 29, 1953.
JOHN F. HAYES*
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; Director of Central Properties, Inc.; Chairman of the Board of
Directors, Gilliland & Hayes, P.A., a law firm; formerly, President, Gilliland &
Hayes, P.A. Date of birth: December 11, 1919.
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. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired. Date of birth: April 27, 1928.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Director of the Fund and each of the other funds in the Fund Complex;
Director of Waddell & Reed Financial, Inc.; Chairman of the Executive Committee
and Director of Torchmark Corporation; Chairman of the Board of Directors of
Vesta Insurance Group, Inc.; Director of Full House Resorts, Inc., a developer
of resorts and gaming casinos; formerly, Chairman of the Board of Directors of
United Investors Life Insurance Company; formerly, Chairman of the Board of
Directors of the Fund and each of the other funds in the Fund Complex; formerly,
Chairman of the Board of Directors and Chief Executive Officer of Torchmark
Corporation; formerly, Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc.; formerly, Chairman of the Board of Directors of United
Investors Management Company. Father of Linda K. Graves, Director of the Fund
and each of the other funds in the Fund Complex. Date of birth: June 16, 1926.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm. Date of
birth: April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City. Date of birth: January 1,
1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan, a fertilizer company. Date
of birth: July 16, 1920.
Robert L. Hechler
President and Principal Financial Officer of the Fund and each of the other
funds in the Fund Complex; Executive Vice President, Chief Operating Officer and
Director of Waddell & Reed Financial, Inc.; Vice President, Chief Operating
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.; President, Director and
Treasurer of Waddell & Reed Services Company; President, Treasurer and Director
of Waddell & Reed Distributors, Inc.; President of Waddell & Reed Development,
Inc., a business development company; formerly, Vice President of the Fund and
each of the other funds in the Fund Complex; formerly, Director and Treasurer of
Waddell & Reed Asset Management Company. Date of birth: November 12, 1936.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
President, Chief Investment Officer, Treasurer and Director of Waddell & Reed
Financial, Inc.; 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; Director of Waddell & Reed Development, Inc., a business development
company. Formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company. Date of birth:
December 8, 1942.
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. Date of birth: July 18, 1942.
John M. Holliday
Vice President of the Fund and nine other funds in the Fund Complex; Senior
Vice President of WRIMCO; formerly, Senior Vice President of Waddell & Reed
Asset Management Company; formerly, Senior Vice President of Waddell & Reed,
Inc. Date of birth: June 11, 1935.
Mira Stevovich
Vice President of the Fund and one other fund in the Fund Complex; Vice
President of WRIMCO. Date of birth: July 30, 1953.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
The Directors who may be deemed to be interested persons, as defined in the
1940 Act, 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 or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but he has no
authority or responsibility with respect to management of the Fund. Messrs.
Doyle Patterson, Jay B. Dillingham and Henry L. Bellmon retired as Directors of
the Fund and of each of the funds in the Fund Complex and elected a position as
Director Emeritus.
The funds in the United Group, Target/United Funds, Inc. and Waddell & Reed
Funds, Inc. pay to each Director a total of $48,000 per year, plus $2,500 for
each meeting of the Board of Directors attended plus reimbursement of expenses
of attending such meeting (prior to January 1, 1998, the funds in the United
Group, Target/United Funds, Inc. and Waddell & Reed Funds, Inc. paid to each
Director a fee of $44,000 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, Target/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size.
During the Fund's fiscal year ended June 30, 1998, the Fund's Directors
received the following fees for service as a director:
COMPENSATION TABLE
Total
Aggregate Compensation
Compensation From Fund
From and Fund
Director Fund Complex*
- -------- ------------ ------------
Keith A Tucker $ 0 $ 0
James M. Concannon 1,314 53,500
John A. Dillingham 1,314 53,500
David P. Gardner 0 0
Linda Graves 1,314 53,500
John F. Hayes 1,314 53,500
Glendon E. Johnson 1,288 52,500
William T. Morgan 1,314 53,500
Ronald K. Richey 0 0
Frank J. Ross, Jr. 1,314 53,500
Eleanor B. Schwartz 1,314 53,500
Frederick Vogel III 1,314 53,500
Paul S. Wise 1,314 53,500
*No pension or retirement benefits have been accrued as a part of Fund expenses.
Mr. David P. Gardner was elected as a Director on August 19, 1998. The
officers are paid by Waddell & Reed, Inc. or its affiliates.
Shareholdings
As of September 30, 1998, all of the Fund's Directors and officers as a
group owned less than 1% of the outstanding shares of the Fund. The following
table sets forth information with respect to the Fund, as of September 30, 1998,
regarding the beneficial ownership of the classes of the Fund's shares.
Name and Address Shares owned
of Record or Beneficially
Beneficial Owner Class or of Record Percent
- ------------------- ----- ------------ -------
CS First Boston Corp. Class A 34,669,416 5.66%
Attn Robert Plaza
5 World Trade Center
7th Floor
New York NY 10048
Don Cartner Trustee Class B 302,070 5.46
CPSP Westport Research Assoc
FBO Unallocated Assets
Qualified 401(k) Plan
6102 Arlington
Raytown MO 64133
Bruce N. Jackson & Class B 290,757 5.26
Donna L. Jackson Co-ttees
U/A dated November 15, 1997
P. O. Box 8173
Fresno CA 93747
Fiduciary Trust Co NH Cust Class B 284,423 5.15
IRA of Robert Ross
FBO Robert Ross Rollover
1 Gold St. Apt 7C
Hartford CT 06103
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 net investment income, which is derived
from the interest and earned discount on the securities the Fund holds, less
expenses (which will vary by class) and amortization of any premium. The second
source is net realized capital gains, which are derived from the proceeds
received from the Fund's sale of securities at a price higher than the Fund's
tax basis (usually cost) in such securities, less losses from sales of
securities at a price lower than the Fund's basis therein; these gains are
expected to be short-term capital gains.
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 net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) ("Distribution
Requirement") 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) 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 ("50% Diversification Requirement"); and (3) 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 pay sufficient dividends and 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 or WRIMCO may otherwise combine orders for the Fund
with those of other funds in the United Group, Target/United Funds, Inc. and
Waddell & Reed Funds, Inc. or other accounts for which it has investment
discretion. 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, except where the combined
order is not filled completely. In this case, WRIMCO will ordinarily allocate
the transaction pro rata based on the orders placed. 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.
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 has investment discretion.
Subject to the foregoing considerations, WRIMCO may also consider sales of
the Fund as a factor in the selection of broker-dealers to execute portfolio
transactions. No allocation of brokerage or principal business is made to
provide any other benefits to WRIMCO.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO 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.
As of June 30, 1998, the Fund owned Merrill Lynch and Co., Inc. and J. P.
Morgan & Co. Incorporated debt securities in the aggregate amounts of
$15,999,833 and $5,995,400, respectively. Merrill Lynch & Co., Inc. and J. P.
Morgan & Co. Incorporated are regular brokers 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.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two classes of shares: Class A and Class B. 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 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, a division of The McGraw-Hill Companies, Inc. 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, a division of The McGraw-Hill Companies, Inc. 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, a division of The McGraw Hill Companies, Inc. 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, 1998
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit
Domestic - 6.71%
Bankers Trust New York Corp.:
5.95%, 9-9-98 ......................... $11,000 $10,992,925
5.61%, 3-19-99 ........................ 10,000 9,997,193
Morgan Guaranty Trust Company of New York,
5.8%, 7-28-98 ......................... 15,000 14,996,087
Total ................................. 35,986,205
Yankee - 10.25%
Banque Nationale de Paris - Chicago,
5.73%, 2-11-99 ........................ 10,000 10,000,000
Societe Generale - New York:
5.55%, 2-9-99 ......................... 15,000 14,985,418
5.5712%, 5-26-99 ...................... 5,000 4,996,626
Svenska Handelsbanken - New York,
5.74%, 6-1-99 ......................... 10,000 9,991,432
Westpac Banking Corp. - New York,
5.55%, 1-20-99 ........................ 15,000 14,986,006
Total ................................. 54,959,482
Total Certificates of Deposit - 16.96% 90,945,687
Commercial Paper - 1.12%
J.P. Morgan & Co., Incorporated,
5.52%, 7-6-98 ............................ 6,000 5,995,400
Notes - 3.35%
NationsBank Corp.,
5.57%, 6-25-99 ........................ 10,000 9,995,283
Wachovia Bank, N.A.,
5.895%, 10-2-98 ....................... 8,000 7,992,505
Total ................................. 17,987,788
TOTAL BANK OBLIGATIONS - 21.43% $ 114,928,875
(Cost: $114,928,875)
See Notes to Schedule of Investments on page 51.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS
Commercial Paper
Chemicals and Allied Products - 0.24%
Air Products and Chemicals Inc.,
5.55%, 9-4-98 ......................... $ 1,300 $ 1,286,973
Electric, Gas and Sanitary Services - 10.50%
Allegheny Power System Inc.:
5.52%, 7-20-98 ........................ 13,000 12,962,127
5.54%, 7-20-98 ........................ 6,291 6,272,606
Georgia Power Co.,
5.55%, 7-6-98 ......................... 19,000 18,985,354
Idaho Power Co.:
5.62%, 7-9-98 ......................... 1,300 1,298,376
5.58%, 7-16-98 ........................ 2,724 2,717,667
Questar Corp.:
5.56%, 7-10-98 ........................ 6,000 5,991,660
5.6%, 7-21-98 ......................... 1,675 1,669,789
5.61%, 7-30-98 ........................ 2,000 1,990,962
5.63%, 8-7-98 ......................... 4,500 4,473,961
Total ................................. 56,362,502
Engineering and Management Services - 2.78%
Halliburton Co.:
5.62%, 7-28-98 ........................ 5,000 4,978,925
5.62%, 8-7-98 ......................... 10,000 9,942,239
Total ................................. 14,921,164
Food and Kindred Products - 0.06%
General Mills, Inc.,
5.5152%, Master Note .................. 311 311,000
Furniture and Fixtures - 2.91%
Johnson Controls Inc.,
6.35%, 7-1-98 ......................... 15,600 15,600,000
See Notes to Schedule of Investments on page 51.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
General Merchandise Stores - 4.65%
Dillard Investment Co. Inc.:
6.75%, 7-1-98 ......................... $ 1,140 $ 1,140,000
6.3%, 7-2-98 .......................... 7,500 7,498,688
5.75%, 7-7-98 ......................... 3,675 3,671,478
5.78%, 7-7-98 ......................... 3,500 3,496,628
5.85%, 7-7-98 ......................... 4,185 4,180,920
5.78%, 7-20-98 ........................ 5,000 4,984,747
Total ................................. 24,972,461
Metal Mining - 0.19%
BHP Finance (USA) Inc.,
5.73%, 7-16-98 ........................ 1,000 997,613
Nondepository Institutions - 1.62%
Associates Financial Services Co. of Puerto
Rico Inc. (Associates Corp. of North
America, Guarantor):
5.55%, 7-6-98 ......................... 1,400 1,398,921
5.55%, 7-29-98 ........................ 4,000 3,982,733
Island Finance Puerto Rico Inc.,
5.51%, 7-8-98 ......................... 3,300 3,296,464
Total ................................. 8,678,118
Personal Services - 1.22%
Block Financial Corp.:
5.55%, 8-21-98 ........................ 1,600 1,587,420
5.53%, 8-27-98 ........................ 5,000 4,956,221
Total ................................. 6,543,641
Security and Commodity Brokers - 0.19%
Merrill Lynch & Co., Inc.,
6.0%, 7-2-98 .......................... 1,000 999,833
Total Commercial Paper - 24.36% 130,673,305
Commercial Paper (backed by irrevocable bank
letter of credit) - 1.41%
Electric, Gas and Sanitary Services
CommEd Fuel Co. Inc.,
5.53%, 8-14-98 ........................ 7,612 7,560,551
Notes
Auto Repair, Services and Parking - 3.17%
PHH Corporation:
5.5963%, 2-5-99 ....................... 5,000 4,999,707
5.59%, 2-10-99 ........................ 5,000 4,994,947
5.61%, 3-11-99 ........................ 7,000 6,992,098
Total ................................. 16,986,752
See Notes to Schedule of Investments on page 51.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Notes (Continued)
Electric, Gas and Sanitary Services - 2.79%
Baltimore Gas and Electric Company,
5.6175%, 9-1-98 ....................... $15,000 $ 15,000,000
Nondepository Institutions - 2.61%
General Electric Capital Corp.,
5.5625%, 9-8-98 ....................... 14,000 13,993,564
Real Estate - 0.34%
Trap Rock Industries, Inc. (CoreStates Bank, N.A.),
5.6712%, 7-1-98 ....................... 1,825 1,825,000
Security and Commodity Brokers - 2.79%
Merrill Lynch & Co., Inc.,
5.78%, 4-27-99 ........................ 15,000 15,000,000
Wholesale Trade -- Durable Goods - 0.93%
Caterpillar Financial Services Corp.,
5.6875%, 7-22-98 ...................... 5,000 5,000,189
Total Notes - 12.63% 67,805,505
TOTAL CORPORATE OBLIGATIONS - 38.40% $206,039,361
(Cost: $206,039,361)
MUNICIPAL OBLIGATIONS
California - 7.89%
California Pollution Control Financing Authority,
Environmental Improvement Revenue Bonds:
(Air Products and Chemicals, Inc./ Wilmington
Facility), Taxable Series 1997A (Air Products
and Chemicals, Inc.),
5.63%, 7-13-98 ........................ 11,500 11,500,000
(Shell Martinez Refining Company Project),
Series 1996 (Taxable), (Shell Oil Company),
5.6%, 9-2-98 .......................... 10,000 10,000,000
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
5.65%, 9-1-98 ......................... 16,000 16,000,000
Community Redevelopment Agency of the City of
Visalia, California, East Visalia Redevelopment
Project, Variable Interest Short Term Adjustable
Securities (Bank of Tokyo, Mitsubishi),
5.76%, 7-2-98.......................... 4,830 4,830,000
Total ................................. 42,330,000
See Notes to Schedule of Investments on page 51.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Colorado - 1.23%
Panorama Metropolitan District, Arapahoe
County, Colorado (Taxable/Tax Exempt),
Series 1997A (Banque Nationale de Paris,
San Francisco Branch),
6.05%, 12-1-98 ........................ $ 4,575 $ 4,575,000
Kit Carson County, Colorado, Architectural
Development Revenue Bonds (Taxable), (Midwest
Farms, L.L.C. Project), Series 1997 (Norwest
Bank Minnesota, National Association),
5.75%, 7-2-98 ......................... 2,000 2,000,000
Total ................................. 6,575,000
Indiana - 2.98%
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project),
5.57%, 8-7-98 ......................... 16,000 16,000,000
Kentucky - 1.50%
City of Bardstown, Kentucky, Taxable Variable
Rate Demand Industrial Revenue Bonds, Series 1994
(R.J. Tower Corporation Project), (Comerica Bank),
5.69%, 7-2-98 ......................... 8,035 8,035,000
Louisiana - 2.98%
Industrial Development Board of the Parish
Of Calcasieu, Inc., Environmental Revenue
Bonds (CITGO Petroleum Corporation Project),
Series 1996 (Taxable),(ABN AMRO Bank N.V.),
5.6%, 8-7-98 .......................... 16,000 16,000,000
New Jersey - 2.51%
New Jersey Economic Development Authority,
Federally Taxable Variable Rate Demand/
Fixed Rate Revenue Bonds (The Morey
Organization, Inc. Project), Series of 1997
(CoreStates Bank, N.A.),
5.75%, 7-1-98.......................... 13,470 13,470,000
See Notes to Schedule of Investments on page 51.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
New York - 2.25%
The City of New York, General Obligation Bonds,
Fiscal 1995 Series B, Taxable Adjustable Rate
Bonds (Bayerische Landesbank Girozentrale,
New York Branch),
5.63%, 7-20-98 ........................ $ 8,500 $ 8,500,000
Town of Hempstead, Industrial Development Agency,
Variable Rate Demand Taxable Industrial Development
Revenue Bonds, Series 1996 (1500 Hempstead TPK,
LLC Facility), (The Bank of New York),
5.76%, 7-2-98 ......................... 3,590 3,590,000
Total ................................. 12,090,000
North Carolina - 0.33%
Wake Forest University, Taxable Variable Rate
Demand Bonds, Series 1997 (Wachovia Bank, N.A.),
5.61%, 7-1-98 ......................... 1,800 1,800,000
Ohio - 2.80%
City of Cleveland, Ohio, Subordinated Income Tax,
Variable Rate Refunding Bonds, Series 1994
(Toronto-Dominion Bank, Houston Branch),
5.62%, 7-8-98 ......................... 15,000 15,000,000
Pennsylvania - 4.48%
Montgomery County Industrial Development
Authority:
Federally Taxable Variable Rate Demand
Revenue Bonds (Neose Technologies,
Inc. Project), Series B of 1997 (CoreStates
Bank, N.A.),
5.75%, 7-1-98 ......................... 7,900 7,900,000
Federally Taxable Variable Rate Demand/
Fixed Rate Revenue Bonds (Collegeville
Inn Project), Series of 1996 (CoreStates Bank,
N.A.),
5.75%, 7-1-98 ......................... 2,430 2,430,000
Taxable Fixed Rate/Variable Rate
Demand Revenue Bonds (410 Horsham
Associates Project), Series of 1995
(Meridian Bank),
5.75%, 7-1-98 ......................... 1,480 1,480,000
See Notes to Schedule of Investments on page 51.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Pennsylvania (Continued)
Berks County Industrial Development Authority
(Commercial Facilities Project), Series
B of 1995 (Meridian Bank),
5.75%, 7-1-98 ......................... $ 8,390 $ 8,390,000
Philadelphia Authority for Industrial Development,
Variable/Fixed Rate Federally Taxable
Economic Development Bonds (Mothers Work,
Inc.), Series of 1995 (Meridian Bank),
5.75%, 7-1-98 ......................... 3,825 3,825,000
Total ................................. 24,025,000
South Dakota - 0.47%
Central Plains Clinic Ltd., Floating Rate
Taxable Bonds, Series 1996 (Cooperatieve
Centrale Raiffeisen-Borenleenbank B.A.,
"Rabobank Nederland", New York Branch),
5.65%, 7-27-98 ........................ 2,500 2,500,000
Texas - 3.99%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
5.5696%, 8-4-98........................ 16,000 15,915,838
Gulf Coast Waste Disposal Authority, Pollution
Control Revenue Bonds (Amoco Oil Company
Project), Taxable Series 1995,
5.57%, 7-7-98 ......................... 5,480 5,480,000
Total ................................. 21,395,838
TOTAL MUNICIPAL OBLIGATIONS - 33.41% $179,220,838
(Cost: $179,220,838)
TOTAL INVESTMENT SECURITIES - 93.24% $500,189,074
(Cost: $500,189,074)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 6.76% 36,265,075
NET ASSETS - 100.00% $536,454,149
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, 1998
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value (Note 1) ........ $500,189
Cash ............................................ 292
Receivables:
Fund shares sold ................................ 40,119
Interest ........................................ 3,962
Prepaid insurance premium ........................ 18
--------
Total assets .................................. 544,580
--------
Liabilities
Payable to Fund shareholders ..................... 7,567
Dividends payable ................................ 298
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 165
Accrued accounting services fee (Note 2) ......... 6
Accrued management fee (Note 2) .................. 5
Accrued service fee (Note 2) ..................... 1
Other ............................................ 84
--------
Total liabilities ............................. 8,126
--------
Total net assets ............................. $536,454
========
Net Assets
$0.01 par value capital stock, authorized -- 5,000,000;
Class A shares outstanding - 532,840
Class B shares outstanding - 3,614
Capital stock ................................... $ 5,365
Additional paid-in capital ...................... 531,089
--------
Net assets applicable to outstanding
units of capital ............................. $536,454
========
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, 1998
(In Thousands)
Investment Income
Interest and amortization (Note 1B) .............. $29,702
-------
Expenses (Note 2):
Investment management fee ....................... 2,047
Transfer agency and dividend disbursing -
Class A ........................................ 2,001
Class B ....................................... 5
Custodian fees .................................. 119
Accounting services fee ......................... 63
Distribution fee - Class B ...................... 22
Legal fees ...................................... 16
Audit fees ...................................... 11
Service fee - Class B ........................... 6
Other ........................................... 362
-------
Total expenses ................................ 4,652
-------
Net investment income ........................ 25,050
-------
Net increase in net assets resulting
from operations ........................... $25,050
=======
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the fiscal year ended
June 30,
-------------------------
1998 1997
------------- ------------
Increase in Net Assets
Operations:
Net investment income .............. $ 25,050 $ 22,264
-------- --------
Net increase in net assets
resulting from operations ....... 25,050 22,264
-------- --------
Dividends to shareholders
from net investment income:*
Class A (24,935) (22,156)
Class B (115) (108)
-------- --------
(25,050) (22,264)
-------- --------
Capital share transactions:**
Proceeds from sale of shares:
Class A .......................... 3,626,568 3,102,133
Class B .......................... 7,455 14,994
Proceeds from reinvestment
of dividends:
Class A .......................... 23,831 21,290
Class B .......................... 109 95
Payments for shares redeemed:
Class A .......................... (3,631,832) (3,011,159)
Class B .......................... (7,470) (12,199)
-------- --------
Net increase in net assets
resulting from capital
share transactions .............. 18,661 115,154
-------- --------
Total increase .................. 18,661 115,154
Net Assets
Beginning of period ................. 517,793 402,639
-------- --------
End of period ....................... $536,454 $517,793
======== ========
Undistributed net investment
income ........................... $--- $---
==== ====
*See "Financial Highlights" on pages 55 - 56.
**The number of shares transacted during the periods corresponds to the
amounts included in this statement because shares are recorded at $1.00 per
share.
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,
------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net investment
income ........... 0.0484 0.0472 0.0487 0.0465 0.0252
Less dividends
declared ......... (0.0484)(0.0472)(0.0487)(0.0465)(0.0252)
------ ------ ------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total return........ 4.93% 4.80% 5.01% 4.74% 2.55%
Net assets, end of
period (000
omitted) ......... $532,840$514,272$402,009$368,800$316,920
Ratio of expenses to
average net
assets ........... 0.89% 0.87% 0.91% 0.97% 1.04%
Ratio of net
investment income
to average net
assets ........... 4.84% 4.70% 4.89% 4.68% 2.51%
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the fiscal year period
ended June 30, from 9/5/95*
----------------------- through
1998 1997 6/30/96
-------- -------- --------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00
------ ------ ------
Net investment
income ........... 0.0403 0.0407 0.0312
Less dividends
declared ......... (0.0403) (0.0407) (0.0312)
------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00
======= ======= =======
Total return........ 4.10% 4.13% 3.15%
Net assets, end of
period (000
omitted) ......... $3,614 $3,521 $630
Ratio of expenses to
average net
assets ........... 1.71% 1.48% 1.88%**
Ratio of net
investment income
to average net
assets ........... 4.03% 4.14% 3.76%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
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 397 days. 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 Subchapter M of 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 $19.9
billion of combined net assets at June 30, 1998) 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, 1998, 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, 1998, the Distributor received $20,559 in deferred sales charges.
The Fund paid Directors' fees of $18,261, which are included in other
expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and Waddell & Reed Financial, Inc., a holding company, and a direct subsidiary
of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- 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.
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>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Cash Management, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Cash Management, Inc. (the "Fund") as of
June 30, 1998, and the related statements of operations for the fiscal year then
ended and changes in net assets for each of the fiscal years in the two-year
period then ended, and the financial highlights for each of the fiscal years in
the five-year period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June
30, 1998 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United Cash
Management, Inc. as of June 30, 1998, the results of its operations, the changes
in its net assets and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
August 7, 1998
