United
Asset Strategy
Fund, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1996
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
SEPTEMBER 30, 1996
Dear Shareholder:
This report relates to the operation of United Asset Strategy Fund, Inc.
for the fiscal year ended September 30, 1996. The discussion, graphs and tables
contained in this report will provide you with information regarding the Fund's
performance during that period.
The past fiscal year was characterized by moderate economic growth,
relatively low inflation and slowing growth rates for domestic corporate
earnings. Interest rates experienced substantial volatility during the past
fiscal year. Various economic indicators displayed conflicting signs of both
strength and weakness in the U.S. economy, creating uncertainty in the domestic
financial markets. Internationally, despite low interest rates, economic growth
in Japan and Europe remained modest and unemployment continued to plague many
European countries.
The Fund maintained a widely diversified allocation of investments during
the past fiscal year. We focused on preservation of capital and the prudent
selection of stocks that represented good value to the Fund, but possessed
modest risk of depreciating in value. Unfortunately, lower risk value-oriented
stocks experienced disappointing performance in the financial market environment
that prevailed during much of the past fiscal year.
The strategies and techniques we applied resulted in an overall
underperformance by the Fund as compared to the indexes charted on the following
page. Those indexes reflect the performance of securities that generally
represent the stock market (the S&P 500 Index), one-month certificates of
deposit (Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit),
the bond market (the Lehman Brothers Aggregate Bond Index) and the universe of
portfolios with similar investment objectives (the Lipper Flexible Portfolio
Universe Average). A variety of indexes is presented because the Fund invests
in stocks, bonds and other instruments.
We expect that U.S. economic growth may experience a slowdown relative to
recent years. Given these anticipated economic conditions, the Fund intends to
continue focusing on investments in companies with highly assured earnings
prospects. As the next fiscal year begins, we anticipate maintaining a
relatively low exposure to U.S. stocks, which appear to be generally overvalued,
and focusing instead on investments in international stocks, U.S. government
bonds, U.S. industrial bonds and high quality short-term securities.
Thank you for your continued confidence.
Respectfully,
James D. Wineland
Manager, United Asset Strategy Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
UNITED ASSET STRATEGY FUND, INC.,
THE S&P 500 INDEX,
THE LEHMAN BROTHERS AGGREGATE BOND INDEX,
THE SALOMON BROTHERS SHORT-TERM INDEX FOR 1 MONTH CERTIFICATES OF DEPOSIT,
AND THE LIPPER FLEXIBLE PORTFOLIO UNIVERSE AVERAGE
Salomon
Brothers
United LehmanShort-Term Lipper
Asset Brothers Index Flexible
StrategyS&PAggregatefor 1 monthPortfolio
Fund, 500 BondCertificatesUniverse
Inc. Index Indexof Deposit Average
------------------------------------------------
4/1/95 Purchase 9,425 10,000 10,000 10,000 10,000
9/30/95 10,27111,825 10,818 10,301 11,321
9/30/96 10,22114,230 11,346 10,883 12,702
==== United Asset Strategy Fund(1)(2) -- $10,221
++++ S&P 500 Index (1) -- $14,230
**** Lehman Brothers Aggregate Bond Index (1) -- $11,346
*--*--Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit
(1)-- $10,883
---- Lipper Flexible Portfolio Universe Average (1) -- $12,702
(1)Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the S&P 500
Index (including income), Lehman Brothers Aggregate Bond Index, Salomon
Brothers Short-Term Index for One Month Certificates of Deposit and Lipper
Flexible Portfolio Universe Average are not available, the investments in
the Fund, Indexes and Lipper Universe were effected as of March 31, 1995.
(2)The value of the investment in the Fund is impacted by the sales load at
the time of the investment and by the ongoing expenses of the Fund.
Annual Average Total Return *
Class A** Class Y
-----------------------------
Year Ended
9/30/96 -6.21% -0.21%
1+ Years Ended
9/30/96*** 1.67% N/A
Life of Class Y**** N/A -0.02%
*Total return for the Class Y shares may be greater than that of the Class A
shares because the Fund's Class Y shares are not subject to a sales load or
12b-1 fees.
**Performance data quoted represents past performance and is based on
deduction of a 5.75% sales load on the initial purchase in each of the two
periods. Investment return and principal value will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
***3/9/95 (inception) through 9/30/96.
****9/27/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 9/30/96.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United Asset Strategy Fund, Inc.
PORTFOLIO STRATEGY:
Stocks 40% OBJECTIVE: High total return with
(can range from 10-60%) reduced risk over the
long-term.
Bonds 40%
(can range from 20-60%) STRATEGY: Invests in stocks, bonds
and short-term
Short-Term Instruments 20% instruments, both in the
(can range from 0-70%) United States and abroad, which are
allocated in a mix that varies based on
the current outlook for the different
markets. (May purchase securities
subject to repurchase agreements. May
invest in certain options, futures and
other hedging techniques.)
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Asset Strategy
Fund from time to time.
Moving into cash reserve positions at
times thought to be near a major stock
market peak allows the Fund the
opportunity to capture profits and
attempts to cushion the impact of market
declines. The added flexibility
provided by our CASH RESERVES STRATEGY
has from time to time been an important
element in our past success and, when
deemed appropriate, may be used in the
management of the portfolio in the
future.
FOUNDED: 1995
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY
(MARCH, JUNE, SEPTEMBER, DECEMBER)
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 1996
- -------------------------------------------
DIVIDENDS PAID $0.15
======
CAPITAL GAINS DISTRIBUTION $0.01
======
NET ASSET VALUE ON
9/30/96 $5.24 adjusted to:$5.25 (A)
9/30/95 5.42
-----
CHANGE PER SHARE $(0.17)
=====
(A)This number includes the capital gains distribution of $0.01 paid in December
1995 added to the actual net asset value on September 30, 1996.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load** Sales Load***
- ------ ----------- ------------
1-year period ended 9-30-96 -6.21% -0.49%
Period from 3-9-95*
through 9-30-96 1.67% 5.59%
*Initial public offering of the Fund.
**Performance data quoted represents past performance and is based on
deduction of 5.75% sales load on the initial purchase in each of the two
periods.
***Performance data quoted in this column represents past performance without
taking into account the sales load deducted on an initial purchase.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1996, the Fund had net assets totaling $32,158,160 invested in
a diversified portfolio of:
33.35% Common Stocks
29.05% Cash and Cash Equivalents
19.98% United States Government Securities
17.62% Corporate Debt Securities
As a shareholder of United Asset Strategy Fund, Inc., for every $100 you had
invested on September 30, 1996, your Fund owned:
$33.35 Common Stocks
29.05 Cash and Cash Equivalents
19.98 United States Government Securities
17.62 Corporate Debt Securities
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS
Business Services - 5.79%
Broderbund Software, Inc.* ............. 40,000 $ 1,150,000
Maxis, Inc.* ........................... 50,000 712,500
Total ................................. 1,862,500
Chemicals and Allied Products - 5.19%
Genentech, Inc.* ....................... 3,500 185,063
IMC Global, Inc. ....................... 17,500 684,687
Nalco Chemical Company ................. 22,000 797,500
Total ................................. 1,667,250
Communication - 4.49%
Nokia Corporation, Series A, ADS ....... 17,500 774,375
360 Communications Company* ............ 28,500 669,750
Total ................................. 1,444,125
Electronic and Other Electric Equipment - 3.18%
QUALCOMM Incorporated* ................. 24,000 1,023,000
Food and Kindred Products - 4.36%
Seagram Company Ltd. (The) ............. 20,000 747,500
Whitbread and Company, Public
Limited Company (A) ................... 60,000 655,933
Total ................................. 1,403,433
Heavy Construction, Excluding Building - 2.01%
Koninklijke Boskalis Westminster N.V. (A) 33,150 646,735
Holding and Other Investment Offices - 3.67%
Grupo Financiero Banamex Accival,
S.A. de C.V., B, CPO shares (#) (A)* .. 310,000 669,715
Grupo Financiero Banamex Accival,
S.A. de C.V., L (#) (A)* .............. 9,300 18,982
LTC Properties, Inc. ................... 30,000 491,250
Total ................................. 1,179,947
Oil and Gas Extraction - 2.01%
Enron Oil & Gas Company ................ 26,000 646,750
Petroleum and Coal Products - 2.65%
Kerr-McGee Corporation ................. 14,000 852,250
TOTAL COMMON STOCKS - 33.35% $10,725,990
(Cost: $10,511,383)
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Amusement and Recreation Services - 2.85%
Trump Atlantic City Associates,
11.25%, 5-1-2006 ...................... $ 930 $ 916,050
Communication - 6.20%
MFS Communications Company, Inc.,
0.0%, 1-15-2006 (B) ................... 1,500 1,050,000
Viacom International, Inc.,
9.125%, 8-15-99 ....................... 925 945,813
Total ................................. 1,995,813
Electronic and Other Electric Equipment - 2.28%
VLSI Technology, Inc., Convertible,
8.25%, 10-1-2005 ...................... 800 733,504
Instruments and Related Products - 0.16%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 50 51,000
Paper and Allied Products - 3.96%
Buckeye Cellulose Corporation:
8.5%, 12-15-2005 ...................... 1,000 972,500
9.25%, 9-15-2008 ...................... 300 300,000
Total ................................. 1,272,500
Security and Commodity Brokers - 2.17%
Salomon Inc.,
7.625%, 5-15-99 (Exchangeable) ........ 650 698,450
TOTAL CORPORATE DEBT SECURITIES - 17.62% $ 5,667,317
(Cost: $5,719,690)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.875%, 2-28-97 ....................... 270 271,604
6.125%, 5-31-97 ....................... 2,000 2,005,940
7.25%, 2-15-98 ........................ 270 274,387
7.125%, 2-29-2000 ..................... 270 276,242
7.5%, 2-15-2005 ....................... 270 284,132
9.125%, 5-15-2018 ..................... 2,700 3,312,549
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 19.98% $ 6,424,854
(Cost: $6,417,150)
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Commercial Paper
Auto Repair, Services and Parking - 3.35%
PHH Corp.,
5.33%, 10-15-96 ....................... 1,080 1,077,761
Depository Institutions - 6.88%
Svenska Handelsbanken,
5.5%, 10-18-96 ........................ 1,400 1,396,364
U.S. Bancorp,
Master Note ........................... 816 816,000
Total ................................. 2,212,364
Electric, Gas and Sanitary Services - 4.34%
Questar Corp.,
5.39%, 10-24-96 ....................... 1,400 1,395,179
Food and Kindred Products - 4.49%
General Mills, Inc.,
Master Note ........................... 1,445 1,445,000
Personal Services - 1.98%
Block Financial Corp.,
5.35%, 11-14-96 ....................... 640 635,815
Wholesale Trade - Nondurable Goods - 4.50%
Sara Lee Corporation,
Master Note ........................... 1,446 1,446,000
Total Commercial Paper - 25.54% 8,212,119
Commercial Paper (backed by irrevocable
bank letter of credit) - 3.62%
Stone, Clay and Glass Products
Cemex S.A. (Credit Suisse),
5.37%, 10-8-96 ........................ 1,165 1,163,784
TOTAL SHORT-TERM SECURITIES - 29.16% $9,375,903
(Cost: $9,375,903)
TOTAL INVESTMENT SECURITIES - 100.11% $32,194,064
(Cost: $32,024,126)
LIABILITIES, NET OF
CASH AND OTHER ASSETS - (0.11%) (35,904)
NET ASSETS - 100.00% $32,158,160
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1996
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $32,194,064
Cash ............................................ 17,907
Receivables:
Dividends and interest .......................... 295,961
Fund shares sold ................................ 91,825
Unamortized organization expenses (Note 2) ....... 34,671
Prepaid insurance premium ........................ 1,080
-----------
Total assets .................................. 32,635,508
-----------
Liabilities
Payable for investment securities purchased ...... 235,996
Payable for Fund shares redeemed ................. 182,294
Organization expenses payable .................... 34,671
Accrued service fee .............................. 10,900
Accrued transfer agency and dividend
disbursing ...................................... 8,748
Accrued accounting services fee .................. 1,667
Other liabilities ................................ 3,072
-----------
Total liabilities ............................. 477,348
-----------
Total net assets ............................. $32,158,160
===========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 61,370
Additional paid-in capital ...................... 32,184,182
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 95,096
Accumulated undistributed net realized loss on
investment transactions ...................... (352,426)
Net unrealized appreciation in value of
investments at end of period ................... 169,938
-----------
Net assets applicable to outstanding
units of capital ............................. $32,158,160
===========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.24
Class Y .......................................... $5.24
Capital shares outstanding
Class A .......................................... 6,073,955
Class Y .......................................... 63,017
Capital shares authorized .......................... 1,000,000,000
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1996
Investment Income
Income:
Interest ........................................ $1,298,720
Dividends ....................................... 126,814
----------
Total income .................................. 1,425,534
----------
Expenses (Notes 2 and 3):
Investment management fee ....................... 218,333
Transfer agency and dividend disbursing - Class A 90,326
Registration fees ............................... 64,802
Service fee - Class A ........................... 56,568
Accounting services fee ......................... 19,167
Audit fees ...................................... 10,026
Amortization of organization expenses ........... 9,906
Custodian fees .................................. 5,487
Legal fees ...................................... 4,785
Shareholder servicing - Class Y ................. 346
Other ........................................... 39,251
----------
Total expenses ................................ 518,997
----------
Net investment income ........................ 906,537
----------
Realized and Unrealized Loss on Investments
Realized net loss on securities .................. (351,313)
Realized net loss on foreign currency
transactions .................................... (4,247)
----------
Realized net loss on investments ................ (355,560)
Unrealized depreciation in value of investments
during the period ............................... (618,911)
----------
Net loss on investments ....................... (974,471)
----------
Net decrease in net assets resulting
from operations ............................ $( 67,934)
==========
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year
ended September 30,
-----------------------------
1996 1995
Increase in Net Assets -------------- ------------
Operations:
Net investment income ............ $ 906,537 $ 222,045
Realized net gain (loss) on
investments .................... (355,560) 26,268
Unrealized appreciation
(depreciation) ................. (618,911) 788,849
----------- -----------
Net increase (decrease) in net assets
resulting from operations ..... (67,934) 1,037,162
----------- -----------
Dividends to shareholders:*
From net investment income
Class A ........................ (867,732) (154,855)
Class Y ........................ (6,712) ---
In excess of realized gains on securities transactions
Class A ........................ (27,304) ---
Class Y ........................ (17) ---
----------- -----------
(901,765) (154,855)
----------- -----------
Capital share transactions:
Proceeds from sale of shares:
Class A (3,452,074 and 4,404,105
shares, respectively) ......... 18,415,374 22,935,757
Class Y (69,480 and 629
shares, respectively) ......... 370,529 3,431
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (170,139 and 28,710
shares, respectively) ......... 892,867 154,505
Class Y (1,281 and 0
shares, respectively) ......... 6,728 ---
Payments for shares redeemed:
Class A (1,656,072 and 345,001
shares, respectively) ......... (8,764,002) (1,825,037)
Class Y (8,373 and 0
shares, respectively) ......... (44,600) ---
----------- -----------
Net increase in net assets
resulting from capital
share transactions ............ 10,876,896 21,268,656
----------- -----------
Total increase ................ 9,907,197 22,150,963
Net Assets
Beginning of period ............... 22,250,963 100,000
----------- -----------
End of period, including undistributed
net investment income of $95,096
and $67,250, respectively ........ $32,158,160 $22,250,963
=========== ===========
*See "Financial Highlights" on pages 13 - 14.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For period
the fiscal from
year 3/9/95
ended through
9/30/96 9/30/95*
------- -------
Net asset value,
beginning of period $5.42 $5.00
----- -----
Income from investment operations:
Net investment
income .......... 0.15 0.07
Net realized and
unrealized gain (loss)
on investments... (0.17) 0.40
----- -----
Total from investment
operations ........ (0.02) 0.47
----- -----
Less distributions:
Dividends from net
investment income (0.15) (0.05)
Distribution from
capital gains.... (0.01) (0.00)
----- -----
Total distributions. (0.16) (0.05)
----- -----
Net asset value,
end of period ..... $5.24 $5.42
===== =====
Total return** ..... -0.49% 9.42%
Net assets, end of period
(000 omitted) .... $31,828 $22,248
Ratio of expenses to
average net assets 1.68% 1.64%
Ratio of net investment
income to average net
assets ............ 2.93% 3.71%
Portfolio
turnover rate ..... 91.06% 9.32%
Average commission
rate paid ......... $0.0440
*The Fund's inception date is August 25, 1994; however, since the Fund
did not have investment activity or incur expenses prior to the date of
public offering, the per share information is for a capital share
outstanding for the period from March 9, 1995 (initial public offering)
through September 30, 1995. Ratios have been annualized.
**Total return calculated without taking into account the sales load
deducted on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
fiscal period
year from 9/27/95
ended through
9/30/96 9/30/95*
-------- --------
Net asset value,
beginning of period $5.42 $5.41
----- -----
Income from investment
operations:
Net investment
income .......... 0.16 0.00
Net realized and
unrealized gain
(loss) on
investments...... (0.17) 0.01
----- -----
Total from investment
operations ........ (0.01) 0.01
----- -----
Less distributions:
Dividends from net
investment
income........... (0.16) (0.00)
Distribution from
capital gains.... (0.01) (0.00)
----- -----
Total distributions. (0.17) (0.00)
----- -----
Net asset value,
end of period ..... $5.24 $5.42
===== =====
Total return ....... -0.21% 0.18%
Net assets, end of
period (000
omitted) ......... $330 $3
Ratio of expenses
to average net
assets ............ 1.29% 0.00%
Ratio of net
investment income
to average net
assets ............ 3.43% 0.00%
Portfolio
turnover rate ..... 91.06% 9.32%**
Average commission
rate paid ......... $0.0440
*On September 12, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class A shares.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 -- Significant Accounting Policies
United Asset Strategy Fund, Inc. (the "Fund") is registered under the In-
vestment Company Act of 1940 as a diversified, open-end management investment
company. Its investment objective is to provide a high total return with
reduced risk over the long term through investments in stocks, bonds and short-
term instruments. 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 -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using Nasdaq (National Association of Securities Dealers Automated
Quotations System) which provides information on bid and asked or closing
prices quoted by major dealers in such stocks. Restricted securities and
securities for which market quotations are not readily available are valued
at fair value as determined in good faith under procedures established by
and under the general supervision of the Fund's Board of Directors. Short-
term debt securities are valued at amortized cost, which approximates
market.
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 are calculated on the
identified cost basis. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on the accrual basis. See Note 4 --
Investment Security Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translations arise from changes in currency exchange rates. The
Fund combines fluctuations from currency exchange rates and fluctuations in
market value when computing net realized and unrealized gain or loss from
investments.
D. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 5 -- Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards. At September 30, 1996, $4,247 was reclassified between
accumulated undistributed net investment income and accumulated
undistributed net realized gain on investment transactions.
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 -- Organization
The Fund, a Maryland corporation, was organized on August 25, 1994 and was
inactive (except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and the registration
of its shares under the Securities Act of 1933) until March 9, 1995 (the date of
the initial public offering.)
On February 23, 1995, Waddell & Reed, Inc. ("W&R") purchased for investment
20,000 shares of the Fund at their net asset value of $5.00 per share.
The Fund's organizational expenses in the amount of $49,530 were advanced
to the Fund by W&R and are an obligation to be paid by it. These expenses are
being amortized and are payable evenly over 60 months following the date of the
initial public offering. In the event that all or a part of W&R's initial
investment in the Fund's shares is redeemed prior to the full reimbursement of
these organizational expenses, the Fund's obligation to make further
reimbursement will cease.
NOTE 3 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the annual rate of .30% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $14.7 billion of
combined net assets at September 30, 1996) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and 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
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month
($1.0208 per account prior to April 1, 1996), plus $0.30 for each account on
which a dividend or distribution of cash or shares had a record date in that
month. With respect to Class Y shares, the Fund pays WARSCO a monthly fee at an
annual rate of .15% of the average daily net assets of the class for the
preceding month. The Fund also reimburses W&R and WARSCO for certain out-of-
pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions for Class A shares (which are not an expense of
the Fund) of $717,578, out of which W&R paid sales commissions of $406,918 and
all expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Service Plan for Class A shares adopted by the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay monthly a
fee to W&R in an amount not to exceed .25% of the Fund's average annual net
assets. The fee is to be paid to reimburse W&R for amounts it expends in
connection with the provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $593.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 4 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $27,130,667 while proceeds from maturities and sales
aggregated $19,820,974. Purchases of short-term securities aggregated
$97,393,810 while proceeds from maturities and sales aggregated $93,737,973.
There were no purchases or sales of U.S. Government securities during the period
ended September 30, 1996.
For Federal income tax purposes, cost of investments owned at September 30,
1996 was $32,024,126, resulting in net unrealized appreciation of $169,938, of
which $720,611 related to appreciated securities and $550,673 related to
depreciated securities.
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund incurred capital losses of
$12,518 during its fiscal year ended September 30, 1996, which are available to
offset future realized capital gain net income for Federal income tax purposes
through September 30, 2004.
Internal Revenue Code regulations permit the Fund to defer into its next
fiscal year net capital losses incurred between each November 1 and the end of
its next fiscal year ("post-October losses"). From November 1, 1995 through
September 30, 1996, the Fund incurred net capital losses of $338,796 which have
been deferred to the fiscal year ending September 30, 1997.
NOTE 6 -- Multiclass Operations
On September 12, 1995, the Fund was authorized to offer investors a choice
of two classes of shares, Class A and Class Y, each of which has equal rights as
to assets and voting privileges. Class Y shares are not subject to a sales
charge on purchases; they are not subject to a Rule 12b-1 Service Plan and have
a separate transfer agency and dividend disbursement services fee structure. 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, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Asset Strategy Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Asset Strategy Fund, Inc.
(the "Fund") at September 30, 1996, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
each of the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
November 8, 1996
<PAGE>
INCOME TAX INFORMATION
The amounts of the distributions below, multiplied by the number of shares owned
by you on the record dates, will give you the total amounts to be reported in
your Federal income tax return for the years in which they were received or
reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
-----------------------------------------------
For Individuals For Corporations
----------------- -----------------------------
Record Ordinary Long-Term Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital Gain
- --------- ----- ---------------------------------------------------
Class A
12-15-95 $0.052 $0.0520 $--- $0.0099 $0.0421 $---
3-15-96 0.030 .0300 --- .0025 .0275 ---
6-14-96 0.030 .0300 --- .0025 .0275 ---
9-13-96 0.040 .0400 --- .0034 .0366 ---
------- ------- ------- ------- ------- -------
Total $0.152 $0.1520 $--- $0.0183 $0.1337 $---
======= ======= ======= ======= ======= =======
Class Y
12-15-95 $0.054 $0.0540 $--- $0.0103 $0.0437 $---
3-15-96 0.034 .0340 --- .0029 .0311 ---
6-14-96 0.034 .0340 --- .0029 .0311 ---
9-13-96 0.045 .0450 --- .0038 .0412 ---
------- ------- ------- ------- ------- -------
Total $0.167 $0.1670 $--- $0.0199 $0.1471 $---
======= ======= ======= ======= ======= =======
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the tax
treatment of dividends and distributions from the Fund.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Jay B. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Doyle Patterson, Kansas City, Missouri
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Sharon K. Pappas, Vice President and Secretary
James D. Wineland, Vice President
This report is submitted for the general information of the shareholders of
United Asset Strategy Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United Asset Strategy Fund, Inc. current prospectus.
To all IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from an IRA unless you make a written election not to
have taxes withheld. The election may be made by submitting forms provided by
Waddell & Reed, Inc. which can be obtained from your Waddell & Reed
representative or by submitting Internal Revenue Service form W-4P. Once made,
an election can be revoked by providing written notice to Waddell & Reed, Inc.
If you elect not to have tax withheld you may be required to make payments of
estimated tax. Penalties may be imposed by the IRS if withholding and estimated
tax payments are not adequate.
<PAGE>
The United Group of Mutual Funds
United Cash Management, Inc.
United Government Securities Fund, Inc.
United Bond Fund
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Continental Income Fund, Inc.
United Retirement Shares, Inc.
United Asset Strategy Fund, Inc.
United Income Fund
United Accumulative Fund
United Vanguard Fund, Inc.
United New Concepts Fund, Inc.
United Science and Technology Fund
United International Growth Fund, Inc.
United Gold & Government Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(913) 236-1303
Our INTERNET address is:
http://www.waddell.com
NUR1017A(9-96)
printed on recycled paper
