WADDELL & REED ADVISORS CASH MANAGEMENT, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
June 30, 2000
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 Waddell & Reed Advisors Cash Management, Inc. (the "Fund"),
formerly, United Cash Management, Inc., dated June 30, 2000, 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
Investment Strategies, Policies and Practices....... 3
Investment Management and Other Services............ 19
Purchase, Redemption and Pricing of Shares.......... 24
Directors and Officers.............................. 34
Payments to Shareholders............................ 40
Taxes .............................................. 41
Portfolio Transactions and Brokerage................ 42
Other Information................................... 44
Appendix A.......................................... 46
Financial Statements ............................... 50
Waddell & Reed Advisors 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
company organized as a Maryland corporation on February 13, 1979.
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, Class B shares, Class C
Shares, Waddell & Reed Money Market B Shares (formerly know as Class B) and
Waddell & Reed Money Market C shares as calculated above for the seven days
ended December 31, 1999, the date of the most recent balance sheet included
in the Prospectus, was 5.38%, 4.09%, 4.09%, 4.49% and 4.09%, respectively,
and the effective yield calculated for the same period was 5.53%, 4.17%,
4.17%, 4.59% and 4.17%, 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.
Effective March 24, 2000, Waddell & Reed Money Market B shares were
combined into and redesignated as Waddell & Reed Money Market C shares.
Effective June 30, 2000, Waddell & Reed Money Market C shares are closed to
all investments other than reinvested dividends.
Performance Rankings and Other Information
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. In connection with a ranking, the Fund may provide
additional information, such as the particular category to which it
related, 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.
Performance information for the Fund may be accompanied by information
about market conditions and other factors that affected the Fund's
performance for the period(s) shown.
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.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and
policies the Fund's investment manager, Waddell & Reed Investment
Management Company ("WRIMCO"), may employ and the types of instruments in
which the Fund may invest, 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, or use them to the full extent permitted by the Fund's
investment policies and restrictions. WRIMCO buys an instrument or uses a
technique only if it believes that doing so will help the Fund achieve its
goal. See "Investment Restrictions and Limitations" for a listing of the
fundamental and non-fundamental (e.g., operating) investment restrictions
and policies of the Fund.
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 total 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 total assets, with investment in such securities of any one
issuer being limited to the greater of 1% of the Fund's total 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 ("U.S. Government
securities") are high quality debt instruments issued or guaranteed as to
principal or interest by the U.S. Treasury or an agency or instrumentality
of the U.S. Government. These securities include Treasury Bills (which
mature within one year of the date they are issued), Treasury Notes (which
have maturities of one to ten years) and Treasury Bonds (which generally
have maturities of more than ten years). All such 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 (also known as 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 WRIMCO is
satisfied that the credit risk involved is minimal. The Fund intends to
invest in U.S. Government Securities when there is a limited availability
of other obligations and instruments.
(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." 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 the 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.
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.
For example, interest-only ("IO") classes are entitled to receive all
or a portion of the interest, but none (or only a nominal amount) of the
principal payments, from the underlying mortgage assets. If the mortgage
assets underlying an IO experience greater than anticipated principal
prepayments, then the total amount of interest allocable to the IO class,
and therefore the yield to investors, generally will be reduced. In some
instances, an investor in an IO may fail to recoup all of the investor's
initial investment, even if the security is guaranteed by the U.S.
Government or considered to be of the highest quality. Conversely,
principal-only ("PO") classes are entitled to receive all or a portion of
the principal payments, but none of the interest, from the underlying
mortgage assets. PO classes are purchased at substantial discounts from
par, and the yield to investors will be reduced if principal payments are
slower than expected. IOs, POs and other CMOs involve special risks, and
evaluating them requires special knowledge.
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. Changes in the rate or "speed" of these
payments can cause the value of the mortgage backed securities to fluctuate
rapidly. 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.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically structured in
a manner that provides any of a wide variety of investment characteristics,
such as yield, effective maturity and interest rate sensitivity. As market
conditions change, however, and especially during periods of rapid or
unanticipated changes in market interest rates, the attractiveness of some
CMO classes and the ability of the structure to provide the anticipated
investment characteristics may be reduced. These changes can result in
volatility in the market value and in some instances reduced liquidity, of
the CMO class.
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.
In either case payment and delivery for the securities take place at a
future date. 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. When purchasing securities on a when
issued or delayed-delivery basis, the Fund assumes the rights and risks of
ownership, including the risk of price and yield fluctuations. 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. When
the Fund sells a security on a delayed-delivery basis, the Fund does not
participate in further gains or losses with respect to the security. 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. If the
other party to a delayed-delivery transaction fails to deliver or pay for
the securities, the Fund could miss a favorable price or yield opportunity,
or could suffer a loss.
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
Securities loans may be made on a short-term or long-term basis for
the purpose of increasing the Fund's income. If the Fund lends securities,
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 lent the
securities. The Fund also receives additional compensation. Under the
Fund's current securities lending procedures, the Fund may lend securities
only to broker-dealers and financial institutions deemed creditworthy by
WRIMCO.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). At
the time of each loan, the Fund must receive collateral equal to no less
than 100% of the market value of the securities loaned. 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
lent on each day the loan is outstanding. If the market value of the lent
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
lent. If the market value of the securities decreases, the borrower is
entitled to return of the excess collateral.
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.
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.
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.
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.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements.
The Fund will not enter into a repurchase transaction that will cause more
than 10% of its net assets to be invested in illiquid investments, which
include repurchase agreements not terminable within seven days. See
"Illiquid Investments." 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 will
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.
Restricted Securities
Restricted securities are securities that are subject to legal or
contractual restrictions on resale. However, restricted securities
generally can be resold in privately negotiated transactions, pursuant to
an exemption from registration under the Securities Act of 1933, as amended
("1933 Act"), or in a registered public offering. For example, 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 1933 Act. 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.
Where registration of a security 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. Certain restricted securities, e.g., Section 4(2)
paper, may be determined to be liquid in accordance with guidelines adopted
by the Board of Directors. 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
Illiquid investments are investments that cannot be sold or otherwise
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. 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, illiquid investments do not include any obligations payable
at principal amount plus accrued interest on demand or within seven days
after demand.
If through a change in values, net assets, or other circumstances, the
Fund were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
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,
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 performance of indexed securities depends to
a great extent on the performance of the security or other instrument to
which they are indexed and may also be influenced by interest rate changes
in the United States and abroad. At the same time, indexed securities are
subject to the credit risks associated with the issuer of the security and
their values may decline substantially if the issuer's creditworthiness
deteriorates. Indexed securities may be more volatile than the underlying
investments. 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 and Limitations
Certain of the Fund's investment restrictions and other limitations
are described in this SAI. The following are the Fund's fundamental
investment limitations set forth in their entirety, which, like the Fund's
goal and the types of money market securities in which the Fund may invest,
cannot be changed without shareholder approval. For this purpose,
shareholder approval means the approval, at a meeting of Fund shareholders,
by the lesser of (1) the holders of 67% or more of the Fund's shares
represented at the meeting, if more than 50% of the Fund's outstanding
shares are present in person or by proxy or (2) more than 50% of the Fund's
outstanding shares. 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;
(iv) 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;
(v) 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 to the
extent allowed, and in accordance with the requirements, under
the 1940 Act and enter into repurchase agreements except as
indicated above (see "Repurchase Agreements" above);
(vi) Invest for the purpose of exercising control or management of
other companies;
(vii) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(viii) Sell securities short or buy securities on margin; also, the Fund
may not engage in arbitrage transactions;
(ix) Engage in the underwriting of securities;
(x) 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 total assets; or
(xi) Issue senior securities.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder approval:
(i) The Fund may not purchase the securities of any one issuer (other
than U.S. Government securities) if, as a result of such
purchase, more than 5% of its total assets would be invested in
the securities of any one issuer, as determined in accordance
with Rule 2a-7. The Fund may not invest more than 5% of its
total assets in securities rated in the second highest rating
category by the requisite rating organization(s) or comparable
unrated securities, with investments in such securities of any
one issuer (except U.S. Government securities) limited to the
greater of 1% of the Fund's total assets or $1,000,000, as
determined in accordance with Rule 2a-7.
(ii) 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.
(iii) The Fund does not intend to invest more than 25% of its total
assets in a combination of foreign bank obligations.
(iv) The Fund may not purchase a security if, as a result, more than
10% of its net assets would consist of illiquid investments.
(v) The Fund does not intend to invest more than 50% of its total
assets in Section 4(2) paper determined to be liquid in
accordance with guidelines adopted by the Board of Directors.
(vi) The Fund does not currently intend to invest in 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
instrumentalities, or to CMOs, other mortgage-related securities,
asset-backed securities, indexed securities or over-the-counter
derivative instruments.
(vii) The Fund will not invest in any security whose interest rate
or principal amount to be repaid, or timing of repayments,
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 currency other than U.S. dollars.
An investment policy or limitation that states a maximum percentage of
the Fund's assets that may be so invested or prescribes quality standards
is typically applied immediately after, and based on, the Fund's
acquisition of an asset. Accordingly, a subsequent change in the asset's
value, net assets, or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment
policies and limitations.
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 WRIMCO or an affiliate of WRIMCO 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, which is a wholly owned subsidiary of
Waddell & Reed Financial, Inc., a publicly held company. The address of
these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217.
Waddell & Reed, Inc. and its predecessors have served as investment
manager to each of the registered investment companies in the Waddell &
Reed Advisors Funds (formerly, the United Group of Mutual Funds) 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 W&R Funds, Inc. (formerly, Waddell & Reed Funds, Inc.) since
its inception in September 1992. Waddell & Reed, Inc. serves as principal
underwriter for the investment companies in the Waddell & Reed Advisors
Funds and W&R Funds, Inc. and acts as principal underwriter and distributor
for variable life insurance and variable annuity policies 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, preparation of prospectuses for existing
shareholders, preparation of proxy statements and certain shareholder
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, 1999, 1998 and 1997
were $2,476,181, $2,047,383 and $1,910,434, 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, with respect to Class A
shares, 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. For Class B, Class C and Waddell
& Reed Money Market C shares, the Fund pays the agent a monthly fee of
$1.75 for each account which was in existence during any portion of the
immediately preceding month. 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; charges of any sub-agent used by Agent in performing
services under the Shareholder Servicing Agreement; 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, 1999, 1998
and 1997 were $70,000, $62,500 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.
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.
These and other expenses of Waddell & Reed, Inc. are not covered by
any sales charge on Class A shares of the Fund. The contingent deferred
sales charge ("CDSC"), if any, imposed on Class B shares, Class C shares or
Waddell & Reed Money Market C shares is designed to compensate Waddell &
Reed, Inc. for distribution of these shares.
As described in the Prospectus, Waddell & Reed, Inc. reallows to
selling broker-dealers a portion of the sales charge paid for purchases of
Class A shares. On shares of funds in the Waddell & Reed Advisors Funds
that are sold with sales charges, a major portion of the CDSC for these
shares is paid to Waddell & Reed, Inc.'s financial advisors and managers.
Waddell & Reed, Inc. may compensate its financial advisors as to purchases
for which there is no sales or deferred sales charge.
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 Plans adopted by the Fund with respect to Class B,
Class C and Waddell & Reed Money Market C shares, respectively, the Fund
pays the Distributor daily a distribution fee not to exceed, on an annual
basis, 0.75% of the net assets of the affected class and a service fee not
to exceed, on an annual basis, 0.25% of the net assets of the affected
class.
The Distributor offers Class A, Class B and Class C shares of the Fund
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. Each Plan and the Agreement contemplate that the Distributor may
be compensated for these distribution efforts with respect to the shares of
the affected class through the distribution fee. The sales force may be
paid continuing compensation based on the value of the shares of the
affected class 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
these shareholders through telephonic means and written communications.
For the fiscal year ended June 30, 1999, the Fund paid (or accrued) $43,397
and $11,638 to the Distributor as distribution fees and service fees,
respectively, under the Waddell & Reed Money Market B Plan (formerly, 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 Waddell & Reed Money
Market B shares of the Fund. The service fees were paid to compensate the
Distributor for providing personal services to the Fund's Waddell & Reed
Money Market B shareholders and for the maintenance of Waddell & Reed Money
Market B accounts.
The only Directors or interested persons, as defined in the 1940 Act,
of the Fund who have a direct or indirect financial interest in the
operation of a Plan are the officers and Directors who are also officers of
either Waddell & Reed, Inc. or its affiliate(s) or who are shareholders of
Waddell & Reed Financial, Inc., the indirect parent company of Waddell &
Reed, Inc. Each Plan is anticipated to benefit the Fund and its
shareholders of the affected class through Waddell & Reed, Inc.'s
activities not only to distribute the shares of the affected class but also
to provide personal services to shareholders of that class and thereby
promote the maintenance of their accounts with the Fund. The Fund
anticipates that shareholders of a particular class may benefit to the
extent that Waddell & Reed's activities are successful in increasing the
assets of the Fund, through increased sales or reduced redemptions, or a
combination of these, and reducing a shareholder's share of Fund and class
expenses. Increased Fund assets may also provide greater resources with
which to pursue the goal of the Fund. Further, continuing sales of shares
may also reduce the likelihood that it will be necessary to liquidate
portfolio securities, in amounts or at times that may be disadvantageous to
the Fund, to meet redemption demands. In addition, the Fund anticipates
that the revenues from the Plan will provide Waddell & Reed, Inc. with
greater resources to make the financial commitments necessary to continue
to improve the quality and level of services to the Fund and the
shareholders of the affected class.
The Plans 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 Waddell & Reed Money Market B
Plan was also approved by the Distributor as the sole shareholder of the
Waddell & Reed Money Market B shares of the Fund at the time.
Among other things, each 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 shares of the affected class, 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, 1999, the Distributor earned
deferred sales charges in the amount of $ with respect to the Waddell &
Reed Money Market B shares.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., 928 Grand Boulevard, Kansas
City, Missouri. In general, the Custodian is responsible for holding the
Fund's cash and securities. Deloitte & Touche LLP, 1010 Grand Boulevard,
Kansas City, Missouri, the Fund's independent auditors, audits the Fund's
financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The value of each share of a class of the Fund is the net asset value
("NAV") of the applicable class. The Fund is designed so that the value of
each share of each class of the Fund (the NAV per share) will remain fixed
at $1.00 per share except under extraordinary circumstances, although this
may not always be possible. This NAV per share is what you pay for shares
and what you receive when you redeem them prior to the application of the
CDSC, if any, to Class B, Class C and Waddell & Reed Money Market C shares.
The NAV 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 NAV 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 NAV per
share based upon available market quotations (see above) and the NAV 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 NAV 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, Class B and Class C shares, initial investments must be
at least $500 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."
Effective March 24, 2000, Waddell & Reed Money Market B shares were
combined into and redesignated as Waddell & Reed Money Market C shares.
Effective June 30, 2000, Waddell & Reed Money Market C shares are closed to
all investments other than reinvested dividends.
How to Open an Account
If you are purchasing Class A shares, you can make an initial
investment of $500 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.; ABA Number
101000695, for the account of Waddell & Reed Number 9800007978, Special
Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number; (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.
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, registration, the
particular class and stating that you wish the enclosed check, etc. to be
used for the purchase of the stated shares of Waddell & Reed Advisors 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.; ABA Number
101000695, for the account of Waddell & Reed Number 9800007978, Special
Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
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 NAV 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.
Class B and Class C shares may be directly purchased by mail only.
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,
Class C or Waddell & Reed Money Market C shares. Shareholdings are
recorded on the Fund's books whether or not a certificate is issued.
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. Class B or
Class C shares redeemed under the Service are not subject to a CDSC.
Applicable forms to start the Service are available through Waddell & Reed
Services Company.
The maximum amount of the withdrawal for monthly, quarterly,
semiannual and annual withdrawals is 2%, 6%, 12% and 24% respectively of
the value of your account at the time the Service is established. The
withdrawal proceeds are not subject to the deferred sales charge, but only
within these percentage limitations. The minimum withdrawal is $50. The
Service, and this exclusion from the deferred sales charge, does not apply
to a one-time withdrawal.
If you own Class A, Class B or Class C shares, to qualify for the
Service you must have invested at least $10,000 in shares which you still
own of any of the funds in the Waddell & Reed Advisors Funds; or, you must
own Class A, Class B or Class C shares having a value of at least $10,000.
The value for this purpose is the value at the offering price.
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 the 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 of a class 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,
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 Waddell &
Reed Advisors Funds or the W&R Funds, Inc. (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 Waddell & Reed Advisors Funds or the W&R Funds, Inc., without payment
of any additional sales charge.
In addition, you may specify a dollar amount of Class A shares of the
Fund to be automatically exchanged each month into Class A shares of any
other fund in the Waddell & Reed Advisors Funds, provided you already own
shares of the fund. The shares which you designate for automatic exchange
into any fund must be worth at least $100, which may be allocated among
funds in the Waddell & Reed Advisors Funds, provided each fund receives a
value of at least $25.
Class B and Class C Share Exchanges
You may exchange Class B or Class C shares of the Fund for
corresponding shares of another fund in the Waddell & Reed Advisors Funds
and/or W&R Funds, Inc. without charge.
You may specify a dollar amount of Class B or Class C shares of the
Fund to be automatically exchanged each month into Class B or Class C
shares of any other fund in the Waddell & Reed Advisors Funds, provided you
already own Class B or Class C shares, as applicable, of the fund. The
shares which you designate for automatic exchange into any fund must be
worth at least $100, which may be allocated among funds in the Waddell &
Reed Advisors Funds, provided each fund receives a value of at least $25.
The redemption of the Fund's Class B or Class C shares 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 the shares acquired in the exchange, those acquired shares are treated
as having been purchased when the original redeemed shares were purchased.
Waddell & Reed Money Market C Share Exchanges
You may exchange Waddell & Reed Money Market C shares for Class C
shares of W&R Funds, Inc. without charge.
You may specify a dollar amount of Waddell & Reed Money Market C
shares to be automatically exchanged each month into Class C shares of any
of the funds of W&R Funds, Inc., provided you already own Class C shares of
the fund in W&R Funds, Inc. The Class C shares that you designate for
automatic exchange must be worth at least $100, which may be allocated
among funds in W&R Funds, Inc., 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.
The redemption of Waddell & Reed Money Market C 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 shares acquired in the exchange, those acquired shares are
treated as having been purchased when the original redeemed shares were
purchased.
Effective June 30, 2000, exchanges into Waddell & Reed Money Market C
shares are not permitted.
General Exchange Information
When you exchange shares, the total shares you receive will have the
same aggregate NAV 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 Waddell & Reed Advisors Funds and/or W&R Funds, Inc., can in most
instances, be eliminated or modified at any time and any such exchange may
not be accepted.
Retirement Plans
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 Waddell & Reed Advisors Funds or W&R 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 (or, to
any combination of Roth and traditional IRAs). 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 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 $25,500, 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 plan 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, generally, than 401(k) or other
qualified plans.
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.
Pension and Profit-Sharing Plans, including 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.
Redemptions
The Prospectus gives information as to expedited and regular
redemption procedures. Redemptions of Class A shares by telephone or fax
must be equal to at least $1,000.00. Redemption payments are made within
seven days from receipt of request 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 NAV. 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 NAV during any 90-day period for any
one shareholder.
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 NAV of such shares (taken at cost
or value as the Board of Directors may determine) is less than $250. The
Board intends to compel redemptions of accounts, except for retirement plan
accounts, in which the total NAV is less than $250. Shareholders have 60
days from the date on which the NAV falls below $250 to bring the NAV 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 NAV 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 majority of the Directors are not affiliated with Waddell &
Reed, Inc.
The principal occupation during the past five years of each Director
and officer is stated below. Each of the persons listed through and
including Mr. Vogel is a member of the Fund's Board of Directors. The
other persons are officers of the Fund but are not Board members. For
purposes of this section, the term "Fund Complex" includes each of the
registered investment companies in the Waddell & Reed Advisors Funds,
Target/United Funds, Inc. and W&R 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 and Director of Waddell & Reed Financial, Inc.;
President, Chairman of the Board of Directors, Director and Chief Executive
Officer of Waddell & Reed Financial Services, Inc.; Chairman of the Board
of Directors and Director of WRIMCO, Waddell & Reed, Inc. and Waddell &
Reed Services Company; formerly, President of each of the funds in the Fund
Complex; formerly, Chairman of the Board of Directors of Waddell & Reed
Asset Management Company, a former affiliate of Waddell & Reed Financial,
Inc. 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 of 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, Member of the Board of Police Commissioners,
Kansas City, Missouri; formerly, Senior Vice President-Sales and Marketing
of Garney Companies, Inc., a specialty utility contractor. Date of birth:
January 9, 1939.
DAVID P. GARDNER
263 West 3rd Avenue
San Mateo, California 94402
Chairman and Chief Executive Officer of George S. and Delores Dor'e
Eccles Foundation; Director of First Security Corp., a bank holding
company, and Director of Fluor Corp., a company with interests in coal;
formerly, President of Hewlett Foundation. Date of birth: March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, Partner, Levy and Craig, P.C., a law
firm. Date of birth: July 29, 1953.
JOSEPH HARROZ, JR.
125 South Creekdale Drive
Norman, Oklahoma 73072
General Counsel of the Board of Regents at the University of Oklahoma;
Adjunct Professor of Law at the University of Oklahoma College of Law;
Managing Member, Harroz Investments, L.L.C.; formerly, Vice President for
Executive Affairs of the University of Oklahoma; formerly, Attorney with
Crowe & Dunlevy, a law firm. Date of birth: January 17, 1967.
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; Chairman of the Board of Directors, Gilliland & Hayes, P.A., a
law firm; formerly, President of Gilliland & Hayes, P.A.; formerly,
Director of Central Properties, Inc. Date of birth: December 11, 1919.
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.; Executive 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.; Director and Treasurer of Waddell & Reed Services
Company; Chairman of the Board of Directors, Chief Executive Officer,
President and Director of Fiduciary Trust Company of New Hampshire, an
affiliate of Waddell & Reed, Inc.; Director of Legend Group Holdings, LLC,
Legend Advisory Corporation, Legend Equities Corporation, Advisory Services
Corporation, The Legend Group, Inc. and LEC Insurance Agency, Inc.;
formerly, Vice President of each of the funds in the Fund Complex;
formerly, Director and Treasurer of Waddell & Reed Asset Management
Company; formerly, President of Waddell & Reed Services 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, and Director of Waddell &
Reed Financial, Inc.; Executive 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; Chairman of the Board of Directors of
Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO; formerly,
President, Chief Executive Officer, Chief Investment Officer and Director
of Waddell & Reed Asset Management Company. Date of birth: December 8,
1942.
GLENDON E. JOHNSON
13635 Deering Bay Drive
Unit 284
Miami, Florida 33158
Retired; formerly, Director and Chief Executive Officer of John Alden
Financial Corporation and its subsidiaries. Date of birth: February 19,
1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of
each of the funds in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in
the Fund Complex then in existence on April 30, 1993); formerly, President,
Director and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.;
formerly, Chairman of the Board of Directors of Waddell & Reed Services
Company. Date of birth: April 27, 1928.
RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of
Kansas City; Director and Vice President of Network Rehabilitation
Services; Board Member, Member of Executive Committee and Finance Committee
of Truman Medical Center; formerly, Employment Counselor and Director of
McCue-Parker Center. Date of birth: August 3, 1934.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm;
Director of Columbian Bank and Trust. Date of birth: April 9, 1953.
ELEANOR B. SCHWARTZ
1213 West 95th Court, Chartwell 4
Kansas City, Missouri 64114
Professor of Business Administration, University of Missouri-Kansas
City; formerly, 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.
Daniel C. Schulte
Vice President, Assistant Secretary and General Counsel of the Fund
and each of the other funds in the Fund Complex; Vice President, Secretary
and General Counsel of Waddell & Reed Financial, Inc.; Senior Vice
President, Secretary and General Counsel of Waddell & Reed Financial
Services Company, Waddell & Reed, Inc., WRIMCO and Waddell & Reed Services
Company; Secretary and Director of Fiduciary Trust Company of New
Hampshire, an affiliate of Waddell & Reed, Inc.; formerly, Assistant
Secretary of Waddell & Reed Financial, Inc.; formerly, an attorney with
Klenda, Mitchell, Austerman & Zuercher, L.L.C. Date of birth: December 8,
1965.
Kristen A. Richards
Vice President, Secretary and Associate General Counsel of the Fund
and each of the other funds in the Fund Complex; Vice President and
Associate General Counsel of WRIMCO; formerly, Assistant Secretary of the
Fund and each of the other funds in the Fund Complex; formerly, Compliance
Officer of WRIMCO. Date of birth: December 2, 1967.
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.
Mira Stevovich
Vice President and Assistant Treasurer of the Fund, Vice President of
one other fund in the Fund Complex and Assistant Treasurer of all Funds 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 of the Fund's underwriter, Waddell & Reed, Inc. or WRIMCO
are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, whereby an incumbent Director who has attained the age of 70 may,
or if elected on or after May 31, 1993 and has attained the age of 75 must,
resign his or her position as Director and, unless he or she elects
otherwise, will serve as Director Emeritus provided the Director has served
as a Director of the Funds for at least five years which need not have been
consecutive. 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 or she has no authority or
responsibility with respect to management of the Fund. Messrs. Henry L.
Bellmon, Jay B. Dillingham, Doyle Patterson, Ronald K. Richey and Paul S.
Wise retired as Directors of the Fund and of each of the funds in the Fund
Complex, and each serves as Director Emeritus.
The funds in the Waddell & Reed Advisors Funds, Target/United Funds,
Inc. and W&R Funds, Inc. pay to each Director effective October 1, 1999, an
annual base fee of $50,000, plus $3,000 for each meeting of the Board of
Directors attended and effective January 1, 2000, an annual base fee of
$52,000 plus $3,250 for each meeting of the Board of Directors attended,
plus reimbursement of expenses for attending such meeting 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 &
Red, Inc. (Prior to October 1, 1999, the funds in the Waddell & Reed
Advisors Funds, Target/United Funds, Inc. and W&R Funds, Inc. paid to each
Director and annual base fee of $48,000 plus $2,500 for each meeting of the
Board of Directors attended). The fees to the Directors are divided among
the funds in the Waddell & Reed Advisors Funds, Target/United Funds, Inc.
and W&R Funds, Inc. based on the funds' relative size.
During the Fund's fiscal year ended June 30, 1999, 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*
-------- ------------ ------------
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon 1,518 58,500
John A. Dillingham 1,518 58,500
David P. Gardner 1,109 41,500
Linda K. Graves 1,518 58,500
Joseph Harroz, Jr. 1,075 41,500
John F. Hayes 1,518 58,500
Glendon E. Johnson 1,531 59,000
William T. Morgan 1,518 58,500
Ronald C. Reimer 1,071 41,500
Frank J. Ross, Jr. 1,518 58,500
Eleanor B. Schwartz 1,531 59,000
Frederick Vogel III 1,531 59,000
*No pension or retirement benefits have been accrued as a part of Fund
expenses.
The officers are paid by Waddell & Reed, Inc. or its affiliates.
Shareholdings
As of May 31, 2000, 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 May
31, 2000, 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
------------------- ----- ------------ -------
Kenneburt & Co. Class A 53,449,819 7.23%
P. O. Box 11426
Birmingham Al 35202-1426
Fiduciary Trust Co NH Cust Class B 359,823 11.26%
IRA Rollover
FBO Dennis J Dachille
300 Arrowhead Dr
Elizabeth PA 15037-9641
Fiduciary Tr Co NH Cust Class B 193,464 6.05%
IRA Rollover
FBO Maurice S Whit3e
68 Fairview St
Carlisle PA 17013-3120
Fiduciary Tr co NH Cust Class B 294,381 9.21%
IRA Rollover
FBO Richard V Snyder
3011 Green St
Harrisburg PA 17110-1235
Fiduciary Tr Co NH Cust W&R Money 681,027 6.08%
IRA Rollover Market C
FBO David L Price
6403 Whisper Wood Ln
Harrisburg PA 17112-1880
George Montgomery Class C 47,296 5.82%
11946 Duran Canyon Ct
Houston TX 77067-1048
Franklin J Brenner (TOD) Class C 76,893 9.47%
743 Miramar Dr
Fullerton CA 92831-1928
Fiduciary Tr Co NH Cust Class C 145,120 17.87%
IRA Rollover
FBO Daniel T Glunt
928 Little Bardfield Rd
Webster NY 14580-8932
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 NAV 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. However, a total dividend
and/or distribution amount less than five dollars will be automatically
paid in shares of the Fund of the same class as that with respect to which
they were paid. 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 NAV. The NAV 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 youreceive 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 NAV next
calculated 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
The Fund has qualified for treatment since inception as a regulated
investment company ("RIC") under the Code, so that it is relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital
gains and net gains from certain foreign currency transactions) that it
distributes to its shareholders. To continue to qualify for treatment as a
RIC, the Fund must distribute to its shareholders for each taxable year at
least 90% of its investment company taxable income ("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.
If the Fund failed to qualify for treatment as a RIC for any taxable
year, (a) it would be taxed as an ordinary corporation on the full amount
of its taxable income for that year (even if it distributed that income to
its shareholders) and (b) the shareholders would treat all distributions
out of its earnings and profits, including distributions of net capital
gains as dividends (that is, ordinary income). In addition, the Fund
could be required to recognize unrealized gains, pay substantial taxes and
interest, and make substantial distributions before requalifying for RIC
treatment.
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 Waddell & Reed Advisors Funds, Target/United
Funds, Inc. and W&R Funds, Inc. or other accounts for which it has
investment discretion, including accounts affiliated with WRIMCO. WRIMCO,
at its discretion, may aggregate such orders. Under current written
procedures, 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, for a transaction
not involving an initial public offering (_IPO_), WRIMCO will ordinarily
allocate the transaction pro rata based on the orders placed, subject to
certain variances provided for in the written procedures. For a partially
filled IPO order, subject to certain variances specified in the written
procedures, WRIMCO generally allocates the shares as follows: the IPO
shares are initially allocated pro rata among the included funds and/or
advisory accounts grouped according to investment objective, based on
relative total assets of each group; and the shares are then allocated
within each group pro rata based on relative total assets of the included
funds and/or advisory accounts, except that (a) within a group having a
small cap-related investment objective, shares are allocated on a
rotational basis after taking into account the impact of the anticipated
initial gain on the value of the included fund or advisory account and (b)
within a group having a mid-cap-related investment objective, shares are
allocated based on the portfolio manager's judgment, including but not
limited to such factors as the fund's or advisory account's investments
strategies and policies, cash availability, any minimum investment policy,
liquidity, anticipated term of the investment and current securities
positions.
In all cases, WRIMCO seeks to implement its allocation procedures to
achieve a fair and equitable allocation of securities among its funds and
other advisory accounts. Sharing in large transactions could affect the
price the Fund pays or receives or the amount it buys or sells. As well, a
better negotiated commission may be available through combined orders.
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 seek "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 execution and/or
research services and other services including pricing or quotation
services directly or through others ("research and brokerage 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, 1999, the Fund owned J. P. Morgan & Co. Incorporated
securities in the aggregate amount of $19,997,826. J. P. Morgan & Co.
Incorporated is a regular broker of the Fund.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics under Rule 17j-1 of the 1940 Act that permits their respective
directors, officers and employees to invest in securities, including
securities that may be purchased or held by the Fund. The Code of Ethics
subjects covered personnel to certain restrictions that include prohibited
activities, pre-clearance requirements and reporting obligations.
OTHER INFORMATION
The Shares of the Fund
The Fund offers three classes of shares: Class A, Class B and Class
C. Waddell & Reed Money Market C shares are closed to all investments
other than re-invested dividends. 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, Class C and Waddell & Reed Money Market C shares are subject to a
CDSC and to an ongoing distribution and service fee; Class B shares that
have been held by a shareholder for eight years will convert automatically,
8 years after the month in which the shares were purchased, to Class A
shares of the Fund, and such conversion will be made, without charge or
fee, on the basis of the relative NAVs 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 four classes,
dividends and liquidation proceeds of Class B, Class C and Waddell & Reed
Money Market C 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. Shares are fully paid and
nonassessable when purchased.
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 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 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 time which 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.
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.
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit _ 2.46%
Yankee
Bank Austria - New York,
5.11%, 4-25-00 ........................ $10,000 $ 9,991,304
UBS AG - Stamford, Connecticut,
5.35%, 5-30-00 ........................ 10,000 9,990,801
Total ................................. 19,982,105
Commercial Paper - 6.50%
Abbey National North America:
6.055%, 1-18-00 ....................... 17,500 17,449,962
5.9%, 3-7-00 .......................... 15,000 14,837,750
Dresdner U.S. Finance Inc.,
6.23%, 1-10-00 ........................ 2,000 1,996,885
Toronto-Dominion Holdings USA Inc.,
6.9%, 1-10-00 ......................... 18,500 18,468,088
Total ................................. 52,752,685
Commercial Paper (backed by irrevocable bank
letter of credit) - 1.20%
Banca Serfin S.A. (Barclays Bank PLC),
5.96%, 6-5-00 ......................... 10,000 9,741,733
Notes _ 7.88%
Banc One Corp.,
6.5188%, 1-10-00 ...................... 14,000 14,000,000
First Bank of South Dakota (U.S. Bank
National Association),
6.5325, 1-19-00 ....................... 10,000 10,005,338
Harris Trust and Savings Bank,
5.05%, 2-17-00 ........................ 13,000 12,999,133
J.P. Morgan & Co., Incorporated,
6.4288%, 1-6-00 ....................... 10,000 9,998,953
Wells Fargo & Company,
5.31%, 4-3-00 ......................... 17,000 16,996,816
Total ................................. 64,000,240
TOTAL BANK OBLIGATIONS _ 18.04% $146,476,763
(Cost: $146,476,763)
CORPORATE OBLIGATIONS
Commercial Paper
Communication - 0.61%
U S WEST Communications Inc.,
7.1%, 1-13-00 ......................... 5,000 4,988,167
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Electric, Gas and Sanitary Services _ 6.76%
Allegheny Energy Inc.,
5.82%, 2-28-00 ........................ $ 5,000 $ 4,953,117
Bay State Gas Co.,
6.75%, 1-28-00 ........................ 17,000 16,913,938
Questar Corp.:
5.82%, 1-14-00 ........................ 6,000 5,987,390
5.85%, 1-14-00 ........................ 5,000 4,989,438
5.9%, 1-19-00 ......................... 8,500 8,474,925
6.05%, 1-21-00 ........................ 4,100 4,086,219
6.0%, 1-27-00 ......................... 9,500 9,458,833
Total ................................. 54,863,860
Food and Kindred Products - 5.26%
General Mills, Inc.,
6.345%, Master Note ................... 32,800 32,800,000
Golden Peanut Co.,
5.93%, 2-29-00 ........................ 10,000 9,902,814
Total ................................. 42,702,814
Nondepository Institutions _ 5.63%
Associates Capital Corp. PLC (Associates
First Capital Corporation),
6.01%, 1-14-00 ........................ 5,000 4,989,149
Associates Financial Services Co. of
Puerto Rico Inc. (Associates Corp. of
North America),
5.97%, 2-18-00 ........................ 10,000 9,920,400
Associates First Capital B.V. (Associates
First Capital Corporation):
5.8%, 1-10-00 ......................... 6,500 6,490,575
6.0%, 1-10-00 ......................... 9,500 9,485,750
General Electric Capital Corporation,
5.93%, 3-7-00 ......................... 15,000 14,836,925
Total ................................. 45,722,799
Oil and Gas Extraction - 3.62%
Arco British Ltd. (Atlantic Richfield Co.):
6.1%, 1-19-00 ......................... 10,000 9,969,500
6.05%, 1-21-00 ........................ 19,500 19,434,458
Total ................................. 29,403,958
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Personal Services - 3.92%
Block Financial Corp.:
6.15%, 1-12-00 ........................ $10,000 $ 9,981,208
6.2%, 1-28-00 ......................... 10,000 9,953,500
6.15%, 2-29-00 ........................ 12,000 11,879,050
Total ................................. 31,813,758
Total Commercial Paper _ 25.80% 209,495,356
Commercial Paper (backed by irrevocable bank
letter of credit) - 0.61%
Oil and Gas Extraction
Louis Dreyfus Corp. (ABN-AMRO Bank N.V.),
5.96%, 1-31-00 ........................ 5,000 4,975,167
Notes
Amusement and Recreation Services - 1.23%
Walt Disney Company (The),
5.6%, 4-17-00 ......................... 10,000 10,009,754
Communication - 2.46%
AT&T Corp.,
6.1363%, 1-13-00 ...................... 10,000 9,997,880
Tele-Communications, Inc. (AT&T Corp.),
7.375%, 2-15-00 ....................... 10,000 10,012,431
Total ................................. 20,010,311
Electric, Gas and Sanitary Services _ 3.32%
Baltimore Gas and Electric Company,
6.11%, 3-1-00 ......................... 27,000 26,999,724
Food Stores - 1.85%
Albertson's Inc.,
6.4425%, 1-14-00 ...................... 15,000 14,996,803
General Merchandise Stores - 0.62%
Wal-Mart Stores, Inc.,
5.65%, 2-1-00 ......................... 5,000 5,001,751
Industrial Machinery and Equipment - 0.55%
AP Knitting Elements, Inc. (Wachovia Bank, N.A.),
6.49%, 1-5-00 ......................... 4,500 4,500,000
Insurance Carriers - 1.05%
Atlantic American Corporation (Wachovia Bank, N.A.),
6.49%, 1-5-00 ......................... 8,500 8,500,000
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Notes (Continued)
Miscellaneous Retail - 1.17%
Todd Shopping Center, L.L.C., Taxable
Variable Rate Demand Bonds, Series 1999
(Wachovia Bank, N.A.),
6.49%, 1-5-00 ......................... $ 9,500 $ 9,500,000
Nondepository Institutions - 9.71%
Associates Corp. of North America:
6.4103%, 1-31-00 ...................... 8,500 8,497,490
6.375%, 8-15-00 ....................... 2,250 2,252,899
Caterpillar Financial Services Corp.:
5.93%, 6-1-00 ......................... 16,500 16,510,118
8.875%, 6-1-00 ........................ 3,000 3,043,447
Ford Motor Credit Company:
8.375%, 1-15-00 ....................... 9,000 9,010,266
6.375%, 10-6-00 ....................... 4,000 4,006,193
General Electric Capital Corporation,
6.66%, 5-1-00 ......................... 8,700 8,728,162
General Motors Acceptance Corporation:
7.875%, 3-15-00 ....................... 2,700 2,714,444
6.875%, 6-7-00 ........................ 10,000 10,051,514
Transamerica Finance Corporation,
6.215%, 3-2-00 ........................ 14,000 14,000,000
Total ................................. 78,814,533
Real Estate - 0.15%
Trap Rock Industries, Inc. (First Union National Bank),
6.8%, 1-5-00 .......................... 1,225 1,225,000
Total Notes _ 22.11% 179,557,876
TOTAL CORPORATE OBLIGATIONS _ 48.52% $394,028,399
(Cost: $394,028,399)
MUNICIPAL OBLIGATIONS
California _ 5.17%
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
6.2%, 1-19-00 ......................... 29,000 29,000,000
Oakland-Alameda County Coliseum Authority, Lease
Revenue Bonds (Oakland Coliseum Arena Project),
1996 Series A-1 Variable Rate Lease Revenue Bonds
(Taxable), (Canadian Imperial Bank of Commerce),
6.3%, 1-18-00 ......................... 13,000 13,000,000
Total ................................. 42,000,000
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Colorado _ 0.25%
Kit Carson County, Colorado, Architectural
Development Revenue Bonds (Taxable), (Midwest
Farms, L.L.C. Project), Series 1997 (Norwest
Bank Minnesota, National Association),
6.5%, 1-6-00 .......................... $ 2,000 $ 2,000,000
Indiana _ 1.50%
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project),
6.2%, 1-11-00 ......................... 12,200 12,200,000
Kentucky - 1.48%
City of Bardstown, Kentucky, Taxable Variable Rate
Demand Industrial Revenue Bonds:
Series 1994 (R.J. Tower Corporation Project),
(Comerica Bank),
6.55%, 1-6-00 ......................... 8,035 8,035,000
Series 1995 (R.J. Tower Corporation Project),
(Comerica Bank),
6.55%, 1-6-00 ......................... 4,000 4,000,000
Total ................................. 12,035,000
Louisiana _ 10.14%
Industrial Development Board of the Parish
Of Calcasieu, Inc., Environmental Revenue
Bonds (CITGO Petroleum Corporation Project),
Series 1996 (Taxable), (Westdeutsche
Landesbank Girozentrale):
6.0%, 1-14-00 ......................... 20,000 20,000,000
6.0%, 1-20-00 ......................... 13,000 13,000,000
Industrial District No. 3 of the Parish of West
Baton Rouge, State of Louisiana, Variable Rate
Demand Revenue Bonds, Series 1995 (Taxable),
(The Dow Chemical Company Project):
6.25%, 1-26-00 ........................ 21,150 21,150,000
6.07%, 1-21-00 ........................ 10,000 10,000,000
Gulf Coast Industrial Development Authority,
Environmental Facilities Revenue Bonds
(CITGO Petroleum Corporation Project), Taxable
Series 1998 (Royal Bank of Canada),
6.25%, 1-26-00 ........................ 18,200 18,200,000
Total ................................. 82,350,000
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Massachusetts - 0.48%
Massachusetts Industrial Finance Agency, Taxable
Revenue Bonds (Southcoast Nursing and
Rehabilitation Center Partnership Issue -
Series 1997), (Fleet National Bank),
6.8%, 1-5-00 .......................... $ 3,900 $ 3,900,000
Mississippi - 0.74%
Mississippi Business Finance Corporation,
Taxable Adjustable Mode, Industrial Development
Revenue Bonds (BenchCraft Project), Series 1999
(Wachovia Bank, N.A.),
6.49%, 1-5-00 ......................... 6,000 6,000,000
New Jersey _ 1.49%
New Jersey Economic Development Authority,
Federally Taxable Variable Rate Demand/
Fixed Rate Revenue Bonds (The Morey
Organization, Inc. Project), Series of 1997
(First Union National Bank),
6.8%, 1-5-00........................... 12,135 12,135,000
New York _ 2.56%
The City of New York, General Obligation Bonds,
Fiscal 1995 Series B, Taxable Adjustable Rate
Bonds (Bayerische Landesbank Girozentrale,
New York Branch),
5.8%, 2-1-00 .......................... 10,000 10,000,000
Dutchess County Industrial Development Agency,
Taxable Variable Rate Demand Civic Facility
Revenue Bonds, Series 1999-C (St. Francis'
Hospital, Poughkeepsie, New York Civic Facility),
(The Bank of New York),
6.5%, 1-6-00 .......................... 4,000 4,000,000
Putnam Hospital Center, Multi-Mode Revenue Bonds,
Series 1999 (The Bank of New York),
6.5%, 1-5-00 .......................... 3,500 3,500,000
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),
6.5%, 1-6-00 .......................... 3,260 3,260,000
Total ................................. 20,760,000
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
North Carolina - 0.22%
Wake Forest University, Taxable Variable Rate
Demand Bonds, Series 1997 (Wachovia Bank, N.A.),
6.49%, 1-5-00 ......................... $ 1,800 $ 1,800,000
Pennsylvania _ 2.80%
Montgomery County Industrial Development
Authority, Federally Taxable Variable
Rate Demand Revenue Bonds (Neose
Technologies, Inc. Project), Series
B of 1997 (First Union National Bank),
6.8%, 1-5-00 .......................... 10,960 10,960,000
Berks County Industrial Development Authority
(Commercial Facilities Project), Series
B of 1995 (First Union National Bank),
6.8%, 1-5-00 .......................... 8,145 8,145,000
Philadelphia Authority for Industrial Development,
Variable/Fixed Rate Federally Taxable
Economic Development Bonds (Mother's Work, Inc.),
Series of 1995 (Fleet Financial Group Inc.),
6.75%, 1-5-00 ......................... 3,635 3,635,000
Total ................................. 22,740,000
Texas _ 1.52%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
5.63%, 3-7-00 ......................... 12,500 12,370,952
Virginia - 0.76%
Virginia Health Services, Inc., Taxable
Variable Rate Demand Bonds, Series 1998
(Wachovia Bank, N.A.),
6.49%, 1-5-00 ......................... 6,200 6,200,000
Washington - 1.79%
Wenatchee Valley Clinic, P.S.,
Floating Rate Taxable Bonds, Series 1998
(U.S. Bank National Association),
6.5%, 1-6-00 .......................... 14,500 14,500,000
TOTAL MUNICIPAL OBLIGATIONS _ 30.90% $250,990,952
(Cost: $250,990,952)
OTHER GOVERNMENT SECURITY - 1.22%
Commercial Paper (backed by irrevocable bank
letter of credit)
Mexico
United Mexican States (Barclays Bank PLC),
6.08%, 2-1-00 ......................... 10,000 $ 9,947,644
(Cost: $9,947,644)
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITY - 1.11%
Federal Home Loan Bank,
6.163%, 1-5-00 ........................ $ 9,000 $ 9,000,000
(Cost: $9,000,000)
TOTAL INVESTMENT SECURITIES _ 99.79% $810,443,758
(Cost: $810,443,758)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.21% 1,677,064
NET ASSETS - 100.00% $812,120,822
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.
UNITED CASH MANAGEMENT, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value (Note 1) ........ $810,444
Cash ............................................ 867
Receivables:
Fund shares sold ................................ 9,220
Interest ........................................ 6,029
Prepaid insurance premium ........................ 21
--------
Total assets .................................. 826,581
--------
Liabilities
Payable to Fund shareholders ..................... 10,637
Dividends payable ................................ 3,545
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 236
Accrued management fee (Note 2) .................. 8
Accrued accounting services fee (Note 2) ......... 7
Accrued service fee (Note 2) ..................... 2
Other ............................................ 25
--------
Total liabilities ............................. 14,460
--------
Total net assets ............................. $812,121
========
Net Assets
$0.01 par value capital stock, authorized -- 5,000,000;
Class A shares outstanding _ 800,130
Class B shares outstanding _ 2,638
Class C shares outstanding _ 160
Waddell & Reed Money Market Class B shares
outstanding _ 8,641
Waddell & Reed Money Market Class C shares
outstanding _ 552
Capital stock ................................... $ 8,121
Additional paid-in capital ...................... 804,000
--------
Net assets applicable to outstanding
units of capital ............................. $812,121
========
Net asset value, redemption and offering price
per share for all classes ........................ $1.00
=====
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended DECEMBER 31, 1999
(In Thousands)
Investment Income
Interest and amortization (Note 1B) .............. $20,368
-------
Expenses (Note 2):
Investment management fee ....................... 1,468
Transfer agency and dividend disbursing:
Class A ........................................ 1,279
Class B ....................................... 1
Class C ....................................... ---
Waddell & Reed Class B ........................ 8
Waddell & Reed Class C ........................ ---
Custodian fees .................................. 38
Accounting services fee ......................... 36
Distribution fee:
Class B ....................................... 3
Class C ....................................... ---
Waddell & Reed Class B ........................ 23
Waddell & Reed Class C ........................ 1
Service fee:
Class B ....................................... 1
Class C ....................................... ---
Waddell & Reed Class B ........................ 7
Waddell & Reed Class C ........................ ---
Legal fees ...................................... 20
Audit fees ...................................... 7
Other ........................................... 177
-------
Total expenses ................................ 3,069
-------
Net investment income ........................ 17,299
-------
Net increase in net assets resulting
from operations ........................... $17,299
=======
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the For the
six months fiscal year
ended ended
December 31, June 30,
1999 1999
------------ -----------
Increase in Net Assets
Operations:
Net investment income .............. $ 17,299 $ 28,632
-------- --------
Net increase in net assets
resulting from operations ....... 17,299 28,632
-------- --------
Dividends to shareholders
from net investment income:*
Class A ............................ (17,158) (28,425)
Class B ............................ (17) ---
Class C ............................ (1) ---
Waddell & Reed Class B ............. (119) (207)
Waddell & Reed Class C ............. (4) ---
-------- --------
(17,299) (28,632)
-------- --------
Capital share transactions (Note 3) . 140,353 135,314
-------- --------
Total increase ...................... 140,353 135,314
Net Assets
Beginning of period ................. 671,768 536,454
-------- --------
End of period ....................... $812,121 $671,768
======== ========
Undistributed net investment
income ........................... $--- $---
==== ====
*See "Financial Highlights" on pages - .
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
six
months For the fiscal year ended June 30,
ended ----------------------------------
12/31/99 1999 1998 1997 1996 1995
-------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
Net investment
income ........... 0.0241 0.0455 0.0484 0.0472 0.0487 0.0465
Less dividends
declared ......... (0.0241)(0.0455)(0.0484)(0.0472)(0.0487)(0.0465)
------ ------ ------ ------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= =======
Total return........ 2.47% 4.67% 4.93% 4.80% 5.01% 4.74%
Net assets, end of
period (in
millions) ........ $800 $667 $533 $514 $402 $369
Ratio of expenses to
average net
assets ........... 0.83%* 0.83% 0.89% 0.87% 0.91% 0.97%
Ratio of net
investment income
to average net
assets ........... 4.72%* 4.54% 4.84% 4.70% 4.89% 4.68%
*Annualized.
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from 9/9/99*
through
12/31/99
--------
Net asset value,
beginning of
period ........... $1.00
------
Net investment
income ........... 0.0120
Less dividends
declared ......... (0.0120)
------
Net asset value,
end of period .... $1.00
=======
Total return........ 1.21%
Net assets, end of
period (in
millions) ........ $3
Ratio of expenses to
average net
assets ........... 1.65%**
Ratio of net
investment income
to average net
assets ........... 4.25%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from 9/9/99*
through
12/31/99
--------
Net asset value,
beginning of
period ........... $1.00
------
Net investment
income ........... 0.0119
Less dividends
declared ......... (0.0119)
------
Net asset value,
end of period .... $1.00
=======
Total return........ 1.20%
Net assets, end of
period (in
thousands) ....... $160
Ratio of expenses to
average net
assets ........... 1.81%**
Ratio of net
investment income
to average net
assets ........... 4.13%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Waddell & Reed Money Market Class B Shares*
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
six For the fiscal period
months year ended June 30, from 9/5/95*
ended --------------------- through
12/31/99 1999 1998 1997 6/30/96
-------- ------ ------ ------ -------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net investment
income ........... 0.0196 0.0371 0.0403 0.0407 0.0312
Less dividends
declared ......... (0.0196)(0.0371)(0.0403)(0.0407) (0.0312)
------ ------ ------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total return........ 2.00% 3.79% 4.10% 4.13% 3.15%
Net assets, end of
period (in
millions) ........ $9 $5 $4 $4 $1
Ratio of expenses to
average net
assets ........... 1.70%***1.60% 1.71% 1.48% 1.88%**
Ratio of net
investment income
to average net
assets ........... 3.90%***3.77% 4.03% 4.14% 3.76%**
*Formerly known as United Cash Management Class B shares.
**Commencement of operations.
***Annualized.
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Waddell & Reed Money Market Class C Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from 10/7/99*
through
12/31/99
--------
Net asset value,
beginning of
period ........... $1.00
------
Net investment
income ........... 0.0095
Less dividends
declared ......... (0.0095)
------
Net asset value,
end of period .... $1.00
=======
Total return........ 0.96%
Net assets, end of
period (in
thousands) ....... $500
Ratio of expenses to
average net
assets ........... 1.66%**
Ratio of net
investment income
to average net
assets ........... 4.23%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 is payable by the Fund at the annual rate of 0.40%
of net assets. 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
Under the Shareholder Servicing Agreement, with respect to Class
A, Class B, Class C and Waddell & Reed Money Market B shares, the Fund
pays WARSCO a monthly fee of $1.75 for each shareholder account which
was in existence at any time during the prior month and, for Class A
shares, $.75 for each shareholder check it processes. For Waddell &
Reed Money Market C shares, the Fund pays WARSCO a monthly fee equal
to 1/12th of .15 of 1% of the average daily net assets for the
preceding month. The Fund also reimburses W&R and WARSCO for certain
out-of-pocket costs.
The Fund has adopted 12b-1 plans for Class B, Class C, Waddell &
Reed Money Market B and Waddell & Reed Money Market C shares. Under
the plans, the Fund pays W&R daily a distribution fee not to exceed,
on an annual basis, 0.75% of the net assets of the affected class and
a service fee not to exceed, on an annual basis, 0.25% of the net
assets of the affected class. During the period ended December 31,
1999, W&R paid no sales commissions.
A contingent deferred sales charge (_CDSC_) may be assessed
against a shareholder's redemption amount of Class B, Class C, Waddell
& Reed Money Market B and Waddell & Reed Money Market C shares,
respectively, and paid to W&R. The purpose of the deferred sales
charge is to compensate W&R for the costs incurred by W&R in
connection with the sale of Fund shares.
With respect to Class B shares, the amount of the CDSC 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 first calendar
year of investment, 5%; the second calendar year, 4%; the third
calendar year, 3%; the fourth calendar year, 3%; the fifth calendar
year, 2%; the sixth calendar year, 1% and thereafter, 0%.
For Waddell & Reed Money Market Class B 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 next calendar year
after the calendar year of investment, 3%; the third calendar year,
2%; the fourth 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.
If Class C shares or Waddell & Reed Money Market Class C shares
are sold within 12 months of buying these shares, a 1% CDSC will be
imposed. The deferred sales charge will not be imposed on shares
representing payment of dividends or distributions during the deferred
sales charge period. During the period ended December 31, 1999, the
Distributor received $330, $178, $6,419 and $23 in deferred sales
charges from Class B, Class C, Waddell & Reed Money Market B and
Waddell & Reed Money Market C shares, respectively.
The Fund paid Directors' fees of $13,158, which are included in
other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding
company, and a direct subsidiary of Waddell & Reed Financial Services,
Inc., a holding company.
NOTE 3 -- Multiclass Operations
The Fund offers five classes of shares: Class A, Class B, Class
C, Waddell & Reed Money Market B and Waddell & Reed Money Market C.
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, Class C,
Waddell & Reed Money Market B and Waddell & Reed Money Market C shares
are subject to a CDSC and to an ongoing distribution and service fee;
Class B shares that have been held by a shareholder for seven years
will convert automatically, at the end of the seventh calendar year
following the first year of purchase, 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. A comprehensive discussion
of the terms under which shares of each class are offered is contained
in the Prospectus and the Statement of Additional Information for the
Fund.
Income, non-class specific expenses, and realized and unrealized
gains and losses are allocated daily to each class of shares based on
the value of their relative net assets as of the beginning of each day
adjusted for the prior day's capital share activity.
Transactions in capital stock are summarized below. Dollar
amounts are in thousands. The number of shares transacted during the
periods corresponds to the dollar amounts included in this table
because shares are recorded at $1.00 per share.
For the For the
six months fiscal year
ended ended
December 31, June 30,
1999 1999
------------ ------------
Value issued from sale
of shares:
Class A ............ $1,708,736 $2,528,520
Class B ............. 3,810 ---
Class C ............. 277 ---
Waddell & Reed Class B 7,888 12,293
Waddell & Reed Class C 740 ---
Value issued from
reinvestment of dividends:
Class A ............ 16,150 27,258
Class B ............. 16 ---
Class C ............. 1 ---
Waddell & Reed Class B 119 195
Waddell & Reed Class C 4 ---
Value redeemed:
Class A ............ (1,591,911) (2,421,463)
Class B ............. (1,188) ---
Class C ............. (118) ---
Waddell & Reed Class B (3,979) (11,489)
Waddell & Reed Class C (192) ---
-------- ----------
Increase in
outstanding capital $140,353 $ 135,314
======== ==========
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 December 31, 1999, and the related statement of
operations for the six-month period then ended, the statements of
changes in net assets for the six-month period then ended and the
fiscal year ended June 30, 1999, and the financial highlights for the
six-month period ended December 31, 1999, and for each of the five
fiscal years in the period ended June 30, 1999. 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 as of December 31, 1999, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of United Cash Management, Inc. as of December 31,
1999, the results of its operations for the six-month period then
ended, the changes in its net assets for the six-month period then
ended and the fiscal year ended June 30, 1999, and the financial
highlights for the six-month period ended December 31, 1999, and for
each of the five fiscal years in the period ended June 30, 1999, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1999
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit
Domestic - 0.74%
Morgan Guaranty Trust Company of New York,
5.09%, 9-27-99 ........................ $ 5,000 $ 4,999,534
Yankee _ 2.98%
Bank Austria - New York,
5.11%, 4-25-2000 ...................... 10,000 9,988,780
UBS AG - Stamford, Connecticut,
5.35%, 5-30-2000 ...................... 10,000 9,993,101
Total ................................. 19,981,881
Total Certificates of Deposit - 3.72% 24,981,415
Commercial Paper - 1.64%
Wells Fargo & Company,
4.82%, 7-14-99 ........................ 11,000 10,980,854
Commercial Paper (backed by irrevocable bank
letter of credit) - 2.21%
Banco Serfin S.A. (Barclays Bank PLC),
5.32%, 8-26-99 ........................ 15,000 14,875,867
Notes _ 10.06%
Abbey National Treasury Services PLC,
5.64%, 7-15-99 ........................ 10,000 9,998,551
Harris Trust and Savings Bank,
5.05%, 2-17-2000 ...................... 13,000 12,995,739
J.P. Morgan & Co., Incorporated:
4.8425%, 7-7-99 ....................... 10,000 9,999,903
4.9025%, 7-6-2000 ..................... 10,000 9,997,923
Shawmut National Corporation
(Fleet Financial Group Inc.),
8.625%, 12-15-99 ...................... 7,500 7,617,046
Wells Fargo & Company,
5.31%, 4-3-2000 ....................... 17,000 16,981,731
Total ................................. 67,590,893
TOTAL BANK OBLIGATIONS _ 17.63% $118,429,029
(Cost: $118,429,029)
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS
Commercial Paper
Chemicals and Allied Products - 1.48%
Monsanto Company:
4.86%, 7-20-99 ........................ $ 3,000 $ 2,992,305
4.87%, 8-18-99 ........................ 5,000 4,967,533
4.87%, 8-19-99 ........................ 2,000 1,986,743
Total ................................. 9,946,581
Electric, Gas and Sanitary Services _ 10.29%
Central Illinois Light Co.:
5.07%, 7-21-99 ........................ 2,952 2,943,685
5.07%, 7-26-99 ........................ 1,110 1,106,092
5.07%, 7-30-99 ........................ 2,726 2,714,866
Idaho Power Co.,
5.5%, 7-8-99 .......................... 1,785 1,783,091
OGE Energy Corp.:
5.13%, 7-2-99 ......................... 8,500 8,498,789
5.55%, 7-8-99 ......................... 11,550 11,537,536
Questar Corp.:
4.93%, 7-2-99 ......................... 12,000 11,998,357
5.33%, 7-2-99 ......................... 1,000 999,852
4.95%, 7-9-99 ......................... 10,700 10,688,230
5.05%, 7-16-99 ........................ 4,900 4,889,690
Southern California Edison Co.,
4.86%, 7-19-99 ........................ 12,000 11,970,840
Total ................................. 69,131,028
Engineering and Management Services - 1.54%
Halliburton Co.,
5.01%,7-23-99 ......................... 10,400 10,368,159
Food and Kindred Products - 0.03%
General Mills, Inc.,
5.075%, Master Note ................... 170 170,000
Food Stores - 1.94%
Albertson's Inc.,
4.9%, 7-6-99 .......................... 13,000 12,991,153
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Industrial Machinery and Equipment - 0.74%
Deere & Company,
4.99%, 7-19-99 ........................ $ 5,000 $ 4,987,525
Insurance Carriers - 0.74%
Transamerica Finance Corp.,
4.84%, 7-20-99 ........................ 5,000 4,987,228
Nondepository Institutions _ 4.89%
Associates Financial Services Co. of
Puerto Rico Inc. (Associates Corp. of North America),
4.87%, 8-17-99 ........................ 22,000 21,860,123
General Electric Capital Corporation,
4.86%, 7-15-99 ........................ 6,000 5,988,660
IBM Credit Corp.,
5.125%, 7-1-99 ........................ 5,000 5,000,000
Total ................................. 32,848,783
Paper and Allied Products - 1.56%
Sonoco Products Co.,
5.8%, 7-1-99........................... 2,500 2,500,000
Westvaco Corp.,
4.85%, 7-8-99 ......................... 8,000 7,992,456
Total ................................. 10,492,456
Total Commercial Paper _ 23.21% 155,922,913
Commercial Paper (backed by irrevocable bank
letter of credit)
Chemicals and Allied Products - 1.35%
Formosa Plastics Corp. U.S.A. (Bank of America NT & SA),
4.81%, 7-23-99 ........................ 9,100 9,073,251
Electric, Gas and Sanitary Services - 0.97%
CommEd Fuel Co. Inc. (First National Bank of Chicago),
5.1%, 7-7-99 .......................... 6,532 6,526,448
Oil and Gas Extraction - 2.23%
Louis Dreyfus Corp. (ABN-AMRO Bank N.V.):
4.92%, 7-6-99 ......................... 5,000 4,996,583
4.93%, 7-7-99 ......................... 10,000 9,991,783
Total ................................. 14,988,366
Total Commercial Paper (backed by irrevocable bank
letter of credit) - 4.55% 30,588,065
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Notes
Chemicals and Allied Products - 0.47%
Air Products and Chemicals, Inc.,
8.22%, 12-7-99 ........................ $ 3,100 $ 3,140,684
Electric, Gas and Sanitary Services _ 4.02%
Baltimore Gas and Electic Company,
4.9713%, 9-1-99 ....................... 27,000 26,999,703
General Merchandise Stores - 0.75%
Wal-Mart Stores, Inc.,
5.65%, 2-1-2000 ....................... 5,000 5,015,145
Insurance Carriers - 1.26%
Atlantic American Corporation (Wachovia Bank, N.A.),
5.22%, 7-7-99 ......................... 8,500 8,500,000
Motion Pictures - 1.49%
Walt Disney Company (The),
5.6%, 4-17-2000 ....................... 10,000 10,027,382
Nondepository Institutions - 11.48%
American General Finance Corporation,
7.2%, 7-15-99 ......................... 1,800 1,801,463
Associates Corp. of North America,
5.0965%, 7-29-99 ...................... 8,500 8,494,925
Caterpillar Financial Services Corp.:
5.93%, 6-1-2000 ....................... 7,500 7,542,398
8.875%, 6-1-2000 ...................... 3,000 3,094,403
Deere (John) Capital Corp.,
6.43%, 8-9-99 ......................... 10,000 10,006,614
Ford Motor Credit Company,
8.375%, 1-15-2000 ..................... 9,000 9,147,964
General Electric Capital Corporation,
6.66%, 5-1-2000 ....................... 8,700 8,772,590
General Motors Acceptance Corporation:
8.4%, 10-15-99 ........................ 10,270 10,358,044
7.875%, 3-15-2000 ..................... 2,700 2,750,233
6.875%, 6-7-2000 ...................... 10,000 10,109,525
Norwest Financial Inc.,
6.2%, 9-15-99 ......................... 5,000 5,010,877
Total ................................. 77,089,036
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Notes (Continued)
Real Estate - 0.20%
Trap Rock Industries, Inc. (First Union National Bank),
5.3%, 7-7-99 .......................... $ 1,330 $ 1,330,000
Total Notes _ 19.67% 132,101,950
TOTAL CORPORATE OBLIGATIONS _ 47.43% $318,612,928
(Cost: $318,612,928)
MUNICIPAL OBLIGATIONS
California _ 10.42%
California Pollution Control Financing Authority,
Environmental Improvement Revenue Bonds:
Shell Martinez Refining Company Project,
Series 1996 (Taxable) (Shell Oil Company):
4.93%, 7-1-99 ......................... 23,000 23,000,000
4.92%, 7-14-99 ........................ 5,000 5,000,000
Air Products and Chemicals, Inc./ Wilmington
Facility, Taxable Series 1997A (Air Products
and Chemicals, Inc.),
5.0%, 7-7-99 .......................... 13,000 13,000,000
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
5.075%, 8-11-99 ....................... 21,000 21,000,000
Oakland-Alameda County Coliseum Authority,
Lease Revenue Bonds (Oakland Coliseum Arena
Project), 1996 Series A-1 Variable Rate Lease
Revenue Bonds (Taxable) (Canadian Imperial Bank of
Commerce),
5.0%, 8-3-99 .......................... 8,000 8,000,000
Total ................................. 70,000,000
Colorado _ 0.98%
Panorama Metropolitan District, Arapahoe
County, Colorado (Taxable/Tax Exempt),
Series 1997A (Banque Nationale de Paris,
San Francisco Branch),
5.65%, 12-1-99 ........................ 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),
5.35%, 7-1-99 ......................... 2,000 2,000,000
Total ................................. 6,575,000
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1999
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Indiana _ 3.77%
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project):
4.93%, 7-1-99 ......................... $16,000 $ 16,000,000
4.9%, 7-14-99 ......................... 9,300 9,300,000
Total ................................. 25,300,000
Kentucky - 1.79%
City of Bardstown, Kentucky, Taxable Variable Rate
Demand Industrial Revenue Bonds:
Series 1994 (R.J. Tower Corporation Project),
(Comerica Bank),
5.15%, 7-1-99 ......................... 8,035 8,035,000
Series 1995 (R.J. Tower Corporation Project),
(Comerica Bank),
5.15%, 7-1-99 ......................... 4,000 4,000,000
Total ................................. 12,035,000
Louisiana _ 10.64%
Industrial Development Board of the Parish
Of Calcasieu, Inc., Environmental Revenue
Bonds (CITGO Petroleum Corporation Project),
Series 1996 (Taxable) (West Deutsche Bank),
5.25%, 7-29-99 ........................ 31,800 31,800,000
Industrial District No. 3 of the Parish of West
Baton Rouge, State of Louisiana, Variable Rate
Demand Revenue Bonds Series 1995 (Taxable),
(The Dow Chemical Company Project),
5.1%, 8-5-99 .......................... 23,200 23,200,000
Gulf Coast Industrial Development Authority,
Environmental Facilities Revenue Bonds
(CITGO Petroleum Corporation Project), Taxable
Series 1998 (Royal Bank of Canada),
4.92%, 7-7-99 ......................... 16,500 16,500,000
Total ................................. 71,500,000
New Jersey _ 1.90%
New Jersey Economic Development Authority,
Federally Taxable Variable Rate Demand/
Fixed Rate Revenue Bonds (The Morey
Organization, Inc. Project), Series of 1997
(First Union National Bank),
5.3%, 7-7-99........................... 12,775 12,775,000
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1999
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
New York _ 1.99%
The City of New York, General Obligation Bonds,
Fiscal 1995 Series B, Taxable Adjustable Rate
Bonds (Bayerische Landesbank Girozentrale,
New York Branch),
5.145%, 8-5-99 ........................ $10,000 $ 10,000,000
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),
5.19%, 7-1-99 ......................... 3,370 3,370,000
Total ................................. 13,370,000
North Carolina - 0.27%
Wake Forest University, Taxable Variable Rate
Demand Bonds, Series 1997 (Wachovia Bank, N.A.),
5.22%, 7-7-99 ......................... 1,800 1,800,000
Pennsylvania _ 3.41%
Montgomery County Industrial Development
Authority, Federally Taxable Variable
Rate Demand Revenue Bonds (Neose
Technologies, Inc. Project), Series
B of 1997 (First Union National Bank),
5.3%, 7-7-99 .......................... 11,035 11,035,000
Berks County Industrial Development Authority
(Commercial Facilities Project), Series
B of 1995 (First Union National Bank),
5.2%, 7-7-99 .......................... 8,160 8,160,000
Philadelphia Authority for Industrial Development,
Variable/Fixed Rate Federally Taxable
Economic Development Bonds (Mother's Work, Inc.),
Series of 1995 (Fleet Financial Group Inc.),
5.2%, 7-7-99 .......................... 3,730 3,730,000
Total ................................. 22,925,000
Texas _ 2.37%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
4.993%, 8-2-99 ........................ 16,000 15,928,988
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1999
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Washington - 2.19%
Wenatchee Valley Clinic, P.S.,
Floating Rate Taxable Bonds, Series 1998
(U.S. Bank National Association),
5.2%, 7-1-99 .......................... 14,700 14,700,000
TOTAL MUNICIPAL OBLIGATIONS _ 39.73% $266,908,988
(Cost: $266,908,988)
UNITED STATES GOVERNMENT SECURITY - 0.30%
Federal Farm Credit Bank,
5.24%, 9-29-99 ........................ 2,000 $ 2,000,000
(Cost: $2,000,000)
TOTAL INVESTMENT SECURITIES _ 105.09% $705,950,945
(Cost: $705,950,945)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (5.09%) (34,182,639)
NET ASSETS - 100.00% $671,768,306
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.
UNITED CASH MANAGEMENT, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value (Note 1) ........ $705,951
Receivables:
Fund shares sold ................................ 6,193
Interest ........................................ 4,273
Prepaid insurance premium ........................ 18
--------
Total assets .................................. 716,435
--------
Liabilities
Payable to Fund shareholders ..................... 42,033
Due to custodian ................................. 2,044
Dividends payable ................................ 273
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 202
Accrued management fee (Note 2) .................. 8
Accrued accounting services fee (Note 2) ......... 6
Accrued service fee (Note 2) ..................... 1
Other ............................................ 100
--------
Total liabilities ............................. 44,667
--------
Total net assets ............................. $671,768
========
Net Assets
$0.01 par value capital stock, authorized -- 5,000,000;
Class A shares outstanding _ 667,155
Class B shares outstanding _ 4,613
Capital stock ................................... $ 6,718
Additional paid-in capital ...................... 665,050
--------
Net assets applicable to outstanding
units of capital ............................. $671,768
========
Net asset value, redemption and offering price
per share for Class A and Class B ................ $1.00
=====
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1999
(In Thousands)
Investment Income
Interest and amortization (Note 1B) .............. $33,893
-------
Expenses (Note 2):
Investment management fee ....................... 2,476
Transfer agency and dividend disbursing -
Class A ........................................ 2,242
Class B ....................................... 7
Custodian fees .................................. 106
Accounting services fee ......................... 70
Distribution fee - Class B ...................... 43
Service fee - Class B ........................... 12
Audit fees ...................................... 11
Legal fees ...................................... 8
Other ........................................... 286
-------
Total expenses ................................ 5,261
-------
Net investment income ........................ 28,632
-------
Net increase in net assets resulting
from operations ........................... $28,632
=======
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the fiscal year ended
June 30,
-------------------------
1999 1998
------------- ------------
Increase in Net Assets
Operations:
Net investment income .............. $ 28,632 $ 25,050
---------- ----------
Net increase in net assets
resulting from operations ....... 28,632 25,050
---------- ----------
Dividends to shareholders
from net investment income:*
Class A ............................ (28,425) (24,935)
Class B ............................ (207) (115)
---------- ----------
(28,632) (25,050)
---------- ----------
Capital share transactions:**
Proceeds from sale of shares:
Class A .......................... 2,528,520 3,626,568
Class B .......................... 12,293 7,455
Proceeds from reinvestment
of dividends:
Class A .......................... 27,258 23,831
Class B .......................... 195 109
Payments for shares redeemed:
Class A .......................... (2,421,463) (3,631,832)
Class B .......................... (11,489) (7,470)
---------- ----------
Net increase in net assets
resulting from capital
share transactions .............. 135,314 18,661
---------- ----------
Total increase .................. 135,314 18,661
Net Assets
Beginning of period ................. 536,454 517,793
---------- ----------
End of period ....................... $ 671,768 $ 536,454
========== ==========
Undistributed net investment
income ........................... $--- $---
==== ====
*See "Financial Highlights" on pages - .
**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.
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,
------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net investment
income ........... 0.0455 0.0484 0.0472 0.0487 0.0465
Less dividends
declared ......... (0.0455)(0.0484)(0.0472)(0.0487)(0.0465)
------ ------ ------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total return........ 4.67% 4.93% 4.80% 5.01% 4.74%
Net assets, end of
period (in
millions) ........ $667 $533 $514 $402 $369
Ratio of expenses to
average net
assets ........... 0.83% 0.89% 0.87% 0.91% 0.97%
Ratio of net
investment income
to average net
assets ........... 4.54% 4.84% 4.70% 4.89% 4.68%
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the fiscal period
year ended June 30, from 9/5/95*
--------------------- through
1999 1998 1997 6/30/96
------ ------ ------ -------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------
Net investment
income ........... 0.0371 0.0403 0.0407 0.0312
Less dividends
declared ......... (0.0371)(0.0403)(0.0407) (0.0312)
------ ------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00 $1.00
======= ======= ======= =======
Total return........ 3.79% 4.10% 4.13% 3.15%
Net assets, end of
period (in
millions) ........ $5 $4 $4 $1
Ratio of expenses to
average net
assets ........... 1.60% 1.71% 1.48% 1.88%**
Ratio of net
investment income
to average net
assets ........... 3.77% 4.03% 4.14% 3.76%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
UNITED CASH MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
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. Until June 30, 1999, the fee consisted 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 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. Beginning June 30, 1999, the fee is payable
by the Fund at the annual rate of 0.40% of net assets. 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, 1999, 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 Fund 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, 1999, the Distributor
received $21,305 in deferred sales charges.
The Fund paid Directors' fees of $22,765, which are included in
other expenses.
W&R is a subsidiary of 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
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.
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, 1999, and the related statement of
operations for the fiscal year then ended, the statements of changes
in net assets for each of the two fiscal years in the period then
ended, and the financial highlights for each of the five fiscal years
in the 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 as of June 30, 1999, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of United Cash Management, Inc. as of June 30,
1999, the results of its operations for the fiscal year then ended,
the changes in its net assets for each of the two fiscal years in the
period then ended, and the financial highlights for each of the five
fiscal years in the period then ended in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
-------------------------
Deloitte & Touche LLP
Kansas City, Missouri
August 6, 1999
