United
Asset Strategy
Fund, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1997
<PAGE>
MANAGER'S LETTER
SEPTEMBER 30, 1997
- ----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of United Asset Strategy Fund, Inc.
for the fiscal year ended September 30, 1997. The discussion, graphs and tables
contained in this report will provide you with information regarding the Fund's
performance during that period.
Several factors affected the Fund's performance during the past fiscal
year. Relatively strong economic growth, low inflation and a large flow of
money into U.S. equity mutual funds during much of the year positively impacted
the equity market. Uncertainty regarding Federal Reserve policy and a currency
crisis in southeast Asia, among other factors, injected some volatility into the
financial markets.
In February, the Fund switched from having one manager to having two
managers; one to focus on equity investments and one to concentrate on fixed
income investments. In July, the shareholders voted to remove the restrictions
regarding the maximum percentage of the Fund's assets that were permitted to be
invested in stocks and bonds. Following the change of managers in February, the
Fund's exposure to stocks was greatly increased based upon the expectation that
the equity market would outperform the other asset classes in 1997. On the
fixed income side, we reduced the Fund's longer-term Treasury bond holdings and
replaced them with lower-rated domestic and foreign bonds (including those in
emerging markets) with shorter maturities and higher yields in an effort to
generate income and to protect against interest rate increases.
The strategies and techniques we applied resulted in the performance of the
Fund remaining above that of the fixed income indexes charted on the following
page and below that of the equity and mutual fund indexes. 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 Salomon
Brothers Broad Investment Grade 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. The Fund's underperformance as compared with the equity and
mutual fund indexes resulted largely from its low exposure to equity investments
during the first part of the year. We have chosen to use the Salomon Brothers
Index beginning with this year's Annual Report to reflect the performance of the
bond market, instead of the Lehman Brothers Index that had been presented in
prior years. We believe that the Salomon Brothers Index provides a more
accurate basis for comparing the Fund's performance to the performance of the
types of fixed income securities in which the Fund invests. Both indexes are
presented on the following page in this year's Annual Report for comparison
purposes.
As the next fiscal year begins, the U.S. economy remains strong. A
continued strong economy and an expected tight labor market could put upward
pressure on inflation. The Federal Reserve has intimated that it may respond to
such events by increasing interest rates. On the fixed income side, we do not
expect emerging market bonds to repeat their success of the past year, but could
well provide yield above bonds issued by U.S. companies. In the environment of
anticipated higher interest rates, we will continue to concentrate on shorter
duration bonds, supplemented by higher quality, higher yielding emerging market
bonds. Consistent with our view of the capital market for the next fiscal year,
we expect to maintain our equity exposure at approximately fifty to sixty
percent of the Fund's total portfolio.
Thank you for your continued confidence.
Respectfully,
Michael L. Avery
Daniel J. Vrabac
Managers, United Asset Strategy Fund, Inc.
<PAGE>
Comparison of Change in Value of $10,000 Investment in
United Asset Strategy Fund, Inc. Class A Shares,
The S&P 500 Composite Stock Price Index
The Lehman Brothers Aggregate Bond Index,
The Salomon Brothers Broad Investment Grade Debt,
The Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit, and
The Lipper Flexible Portfolio Universe Average
Salomon
S&P Salomon Brothers
500 Lehman Brothers Short-Term Lipper
United Composite Brothers Broad Index Flexible
Asset Stock Aggregate Investmentfor 1 monthPortfolio
Strategy Price Bond Grade CertificatesUniverse
Fund Index Index Debt of Deposit Average
--------- --------- --------- -----------------------------
04/01/95
Purchase$9,425 $10,000 $10,000 $10,000 $10,000 $10,000
09/30/9510,271 11,825 10,818 10,667 10,301 11,321
09/30/9610,221 14,230 11,346 11,195 10,883 12,702
09/30/9712,006 19,992 12,452 12,282 11,494 15,735
====United Asset Strategy Fund* -- $12,006
++++ S&P 500 Index** -- $19,992
****Lehman Brothers Aggregate Bond Index** -- $12,452
*+*+ Salomon Brothers Broad Investment Grade
Debt** -- $12,282
*-*-Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit** -
- - $11,494
-+-+Lipper Flexible Portfolio Universe Average** -- $15,735
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**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 above
indexes (including income) are not available, investment in the indexes was
effected as of March 31, 1995.
Annual Average Total Return +
Class A++ Class Y
-----------------------------
Year Ended
9/30/97 10.71% 17.93%
2+ Years Ended
9/30/97+++ 7.56% N/A
Life of Class Y++++ N/A 8.73%
+ 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
three 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 9/30/97.
++++9/27/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 9/30/97.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United Asset Strategy Fund, Inc.
PORTFOLIO STRATEGY:
Stocks 70% OBJECTIVE: High total return over
(can range from 0-100%) the long-term.
Bonds 25%
(can range from 0-100%) STRATEGY: Invests in stocks, bonds
and short-term
Short-Term Instruments 5% instruments, both in the
(can range from 0-100%) 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 and futures.)
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. For more
information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
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, 1997
- --------------------------------------------
DIVIDENDS PAID $0.15
=====
NET ASSET VALUE ON
9/30/97 $5.99
9/30/96 5.24
-----
CHANGE PER SHARE $0.75
=====
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 9-30-97 10.71% 17.46%
Period from 3-9-95*
through 9-30-97 7.56% 10.07%
*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, 1997, the Fund had net assets totaling $28,542,744 invested in
a diversified portfolio of:
58.68% Common Stocks
21.73% Corporate Debt Securities
8.40% Cash and Cash Equivalents
6.94% United States Government Securities
4.25% Other Government Securities
As a shareholder of United Asset Strategy Fund, Inc., for every $100 you had
invested on September 30, 1997, your Fund owned:
$58.68 Common Stocks
21.73 Corporate Debt Securities
8.40 Cash and Cash Equivalents
6.94 United States Government Securities
4.25% Other Government Securities
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 1.42%
Payless ShoeSource, Inc. ............... 6,800 $ 405,872
Auto Repair, Services and Parking - 2.39%
Avis Rent A Car, Inc.* ................. 10,000 238,750
The Hertz Corp, Class A ................ 11,800 444,707
Total ................................. 683,457
Business Services - 7.50%
BISYS Group, Inc. (The)* ............... 6,700 215,023
BMC Software, Inc.* .................... 7,500 485,385
Intuit Inc.* ........................... 9,000 289,125
J. D. Edwards* ......................... 13,000 437,125
McAfee Associates, Inc.* ............... 8,300 439,900
Oracle Systems Corporation* ............ 7,500 273,510
Total ................................. 2,140,068
Chemicals and Allied Products - 5.43%
American Home Products Corporation ..... 4,200 306,600
BetzDearborn Inc. ...................... 6,500 444,438
Imperial Chemical Industries plc ADR ... 8,200 542,225
Monsanto Company ....................... 6,600 257,400
Total ................................. 1,550,663
Communication - 5.41%
AT&T Corporation ....................... 10,500 465,276
Clear Channel Communications, Inc.* .... 6,300 408,712
SBC Communications Inc. ................ 10,900 668,988
Total ................................. 1,542,976
Depository Institutions _ 2.87%
BankAmerica Corporation ................ 4,200 307,910
Norwest Corporation .................... 3,800 232,750
U. S. Bancorp. ......................... 2,900 279,850
Total ................................. 820,510
Electric, Gas and Sanitary Services - 1.40%
Duke Energy Corp. ...................... 8,100 400,439
Food and Kindred Products - 1.00%
CPC International Inc. ................. 1,500 138,937
ConAgra, Inc. .......................... 2,200 145,200
Total ................................. 284,137
Forestry - 1.64%
Weyerhaeuser Company ................... 7,900 469,063
Furniture and Fixtures - 1.71%
Lear Corporation* ...................... 9,900 487,575
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS (Continued)
General Merchandise Stores - 3.73%
Federated Department Stores, Inc.* ..... 10,500 $ 452,813
Wal-Mart Stores, Inc. .................. 16,700 611,637
Total ................................. 1,064,450
Health Services - 0.89%
Centennial HealthCare Corporation* ..... 11,000 254,375
Industrial Machinery and Equipment - 4.33%
Case Corporation ....................... 4,700 313,137
Compaq Computer Corporation* ........... 3,900 291,525
New Holland NV ......................... 4,900 144,550
Parker Hannifin Corporation ............ 10,800 486,000
Total ................................. 1,235,212
Instruments and Related Products - 1.32%
General Motors Corporation, Class H .... 5,700 376,912
Miscellaneous Retail - 1.23%
Costco Companies, Inc.* ................ 9,300 349,615
Paper and Allied Products - 2.44%
Champion International Corporation ..... 4,200 255,935
Mead Corporation (The) ................. 6,100 440,725
Total ................................. 696,660
Personal Services - 1.87%
Equity Corporation International* ...... 22,900 533,845
Petroleum and Coal Products - 4.38%
Mobil Corporation ...................... 8,200 606,800
Royal Dutch Petroleum Company .......... 11,600 643,800
Total ................................. 1,250,600
Railroad Transportation - 1.83%
Burlington Northern Santa Fe Corporation 2,800 270,550
Union Pacific Corporation .............. 4,000 250,748
Total ................................. 521,298
Transportation by Air - 1.68%
Southwest Airlines Co. ................. 15,000 479,055
Transportation Equipment - 2.40%
Hayes Wheels International, Inc.* ...... 10,800 367,200
Sundstrand Corporation ................. 5,500 316,938
Total ................................. 684,138
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS (Continued)
Wholesale Trade - Durable Goods _ 1.81%
Motorola, Inc. ......................... 7,200 $ 517,500
TOTAL COMMON STOCKS - 58.68% $16,748,420
(Cost: $14,601,674)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 1.73%
The BOC Group, Inc.,
5.875%, 1-29-2001 ..................... $ 500 493,800
Depository Institutions _ 3.59%
Banco de Inversion y Comercio Exterior S.A.,
9.375%, 12-27-2000 (A) ................ 500 523,750
Banco Nacional de Comercio Exterior, S.N.C.,
7.5%, 7-1-2000 ........................ 500 500,625
Total ................................. 1,024,375
Electric, Gas and Sanitary Services - 1.81%
Companhia Paranaense de Energia-COPEL,
9.75%, 5-2-2005 (A) ................... 500 516,250
Fabricated Metal Products - 0.18%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 50 52,000
Food and Kindred Products - 7.15%
Cervejarias Kaiser S. A.,
8.875%, 9-26-2005 (A) ................. 500 501,250
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-2006 ...................... 500 527,750
JG Summit Holdings, Inc.,
8.0%, 5-6-2002 (A) .................... 500 483,125
Pepsi-Gemex, S.A. de C.V.,
9.75%, 3-30-2004 ...................... 500 528,125
Total ................................. 2,040,250
Industrial Machinery and Equipment - 1.75%
Tyco International Ltd.,
6.5%, 11-1-2001 ....................... 500 500,515
Paper and Allied Products - 1.78%
Buckeye Cellulose Corporation,
8.5%, 12-15-2005 ...................... 500 507,500
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Primary Metal Industries - 1.88%
Ispat Mexicana, S.A. de C.V.,
10.375%, 3-15-2001 (A) ................ $ 500 $ 535,625
Stone, Clay and Glass Products - 1.86%
Vicap, S.A. de C.V.,
10.25%, 5-15-2002 (A) ................. 500 531,250
TOTAL CORPORATE DEBT SECURITIES - 21.73% $ 6,201,565
(Cost: $6,074,685)
OTHER GOVERNMENT SECURITIES
Argentina - 1.83%
Republic of Argentina (The),
9.25%, 2-23-2001 ...................... 500 522,500
Mexico - 2.42%
United Mexican States,
6.97%, 8-12-2000 ...................... 700 691,250
TOTAL OTHER GOVERNMENT SECURITIES - 4.25% $1,213,750
(Cost: $1,176,781)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
7.04%, 1-2-2003 ....................... 500 499,610
7.035%, 8-20-2004 ..................... 430 428,254
6.5%, 2-15-2023 ....................... 5,000 1,053,250
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 6.94% $ 1,981,114
(Cost: $2,066,099)
SHORT-TERM SECURITIES
Electric, Gas and Sanitary Services - 3.50%
Pacificorp,
5.51%, 10-6-97 ........................ 1,000 999,235
Fabricated Metal Products - 0.92%
Danaher Corporation,
5.6563% Master Note ................... 263 263,000
Food and Kindred Products - 0.39%
General Mills, Inc.,
5.5113% Master Note ................... 111 111,000
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Textile Mill Products - 1.75%
Sara Lee Corporation,
5.5063% Master Note ................... $ 499 $ 499,000
TOTAL SHORT-TERM SECURITIES - 6.56% $ 1,872,235
(Cost: $1,872,235)
TOTAL INVESTMENT SECURITIES - 98.16% $28,017,084
(Cost: $25,791,474)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 1.84% 525,660
NET ASSETS - 100.00% $28,542,744
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) As of September 30, 1997, the following restricted securities were owned:
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
Banco de Inversion y
Comercio Exterior S.A.,
9.375%, 12-27-2000 2-18-97 $500$ 520,000 $ 523,750
Cervejarias Kaiser S.A.,
8.875%, 9-26-2005 9-16-97 500 498,450 501,250
Companhia Paranaense de Energia-COPEL
9.75%, 5-2-2005 4-22-97 500 498,090 516,250
Ispat Mexicana, S.A. de C.V.,
10.375%, 3-15-2001 3-17-97 500 505,625 535,625
JG Summit Holdings, Inc.,
8.0%, 5-6-2002 5-19-97 500 494,375 483,125
Vicap, S.A. de C.V.,
10.25%, 5-15-2002 6-18-97 500 516,000 531,250
---------- ----------
$3,032,540 $3,091,250
========== ==========
The total market value of restricted securities represents 10.83% of the
total net assets at September 30, 1997.
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, 1997
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $28,017,084
Cash ............................................ 4,166
Receivables:
Investment securities sold ...................... 592,331
Dividends and interest .......................... 220,894
Fund shares sold ................................ 105,376
Unamortized organization expenses (Note 2) ....... 24,765
Prepaid insurance premium ........................ 1,452
-----------
Total assets .................................. 28,966,068
-----------
Liabilities
Payable for investment securities purchased........ 294,252
Payable to Fund shareholders ..................... 78,902
Organization expenses payable .................... 24,765
Accrued transfer agency and dividend
disbursing (Note 3) ............................. 12,025
Accrued service fee (Note 3) ..................... 8,265
Accrued accounting services fee (Note 3) ......... 1,667
Accrued management fee (Note 3) .................. 543
Other liabilities ................................ 2,905
-----------
Total liabilities ............................. 423,324
-----------
Total net assets ............................. $28,542,744
===========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 47,678
Additional paid-in capital ...................... 24,797,234
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 137,194
Accumulated undistributed net realized gain on
investment transactions ...................... 1,335,028
Net unrealized appreciation in value of
investments ................................... 2,225,610
-----------
Net assets applicable to outstanding
units of capital ............................. $28,542,744
===========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.99
Class Y .......................................... $5.99
Capital shares outstanding
Class A .......................................... 4,714,148
Class Y .......................................... 53,668
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, 1997
Investment Income
Income (Note 1B):
Interest and amortization ....................... $1,136,553
Dividends ....................................... 202,391
----------
Total income .................................. 1,338,944
----------
Expenses (Notes 2 and 3):
Investment management fee ....................... 205,329
Transfer agency and dividend disbursing - Class A 94,371
Service fee - Class A ........................... 51,568
Registration fees ............................... 34,645
Prospectus typesetting............................. 30,298
Accounting services fee ......................... 20,000
Audit fees ...................................... 11,096
Amortization of organization expenses ........... 9,906
Legal fees ...................................... 8,519
Custodian fees .................................. 6,629
Shareholder servicing - Class Y ................. 1,829
Other ........................................... 22,289
----------
Total expenses ................................ 496,479
----------
Net investment income ........................ 842,465
----------
Realized and Unrealized Gain on
Investments (Notes 1 and 4)
Realized net gain on securities .................. 1,687,454
Realized net gain on foreign currency
transactions .................................... 1,323
----------
Realized net gain on investments ................ 1,688,777
Unrealized appreciation in value of investments
during the period ............................... 2,055,672
----------
Net gain on investments ....................... 3,744,449
----------
Net increase in net assets resulting
from operations ............................ $4,586,914
==========
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year
ended September 30,
-----------------------------
1997 1996
Increase (Decrease) in Net Assets -------------- ------------
Operations:
Net investment income ............ $ 842,465 $ 906,537
Realized net gain (loss) on
investments .................... 1,688,777 (355,560)
Unrealized appreciation
(depreciation) ................. 2,055,672 (618,911)
----------- -----------
Net increase (decrease) in net assets
resulting from operations ..... 4,586,914 (67,934)
----------- -----------
Distributions to shareholders (Note 1E):*
From net investment income
Class A ........................ (791,004) (867,732)
Class Y ........................ (10,686) (6,712)
In excess of realized gains on
securities transactions
Class A ........................ --- (27,304)
Class Y ........................ --- (17)
----------- -----------
(801,690) (901,765)
Capital share transactions: ----------- -----------
Proceeds from sale of shares:
Class A (667,368 and 3,452,074
shares, respectively) ......... 3,651,541 18,415,374
Class Y (33,050 and 69,480
shares, respectively) ......... 178,871 370,529
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (143,389 and 170,139
shares, respectively) ......... 785,910 892,867
Class Y (1,949 and 1,281
shares, respectively) ......... 10,686 6,728
Payments for shares redeemed:
Class A (2,170,564 and 1,656,072
shares, respectively) ......... (11,786,216) (8,764,002)
Class Y (44,348 and 8,373
shares, respectively) ......... (241,432) (44,600)
----------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions ............ (7,400,640) 10,876,896
----------- -----------
Total increase (decrease) ..... (3,615,416) 9,907,197
Net Assets
Beginning of period ............... 32,158,160 22,250,963
----------- -----------
End of period, including undistributed
net investment income of $137,194
and $95,096, respectively ........ $28,542,744 $32,158,160
=========== ===========
*See "Financial Highlights" on pages 15 - 16.
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 the For period
fiscal the fiscal from
year year 3/9/95*
ended ended through
9/30/97 9/30/96 9/30/95
------- ------- -------
Net asset value,
beginning of period $5.24 $5.42 $5.00
----- ----- -----
Income from investment operations:
Net investment
income .......... 0.16 0.15 0.07
Net realized and
unrealized gain (loss)
on investments... 0.74 (0.17) 0.40
----- ----- -----
Total from investment
operations ........ 0.90 (0.02) 0.47
----- ----- -----
Less distributions:
From net investment
income .......... (0.15) (0.15) (0.05)
In excess of capital
gains............ (0.00) (0.01) (0.00)
----- ----- -----
Total distributions. (0.15) (0.16) (0.05)
----- ----- -----
Net asset value,
end of period ..... $5.99 $5.24 $5.42
===== ===== =====
Total return** ..... 17.46% -0.49% 9.42%
Net assets, end of period
(000 omitted) ....$28,221 $31,828 $22,248
Ratio of expenses to
average net assets 1.70% 1.68% 1.64%***
Ratio of net investment
income to average net
assets ............ 2.87% 2.93% 3.71%***
Portfolio
turnover rate ..... 173.88% 91.06% 9.32%
Average commission
rate paid ......... $0.0329 $0.0440
*Commencement of operations.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***Annualized.
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 For the
fiscal fiscal period
year year from 9/27/95*
ended ended through
9/30/97 9/30/96 9/30/95
-------- -------- --------
Net asset value,
beginning of period $5.24 $5.42 $5.41
----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.17 0.16 0.00
Net realized and
unrealized gain
(loss) on
investments...... 0.75 (0.17) 0.01
----- ----- -----
Total from investment
operations ........ 0.92 (0.01) 0.01
----- ----- -----
Less distributions:
From net investment
income........... (0.17) (0.16) (0.00)
In excess of
capital gains ... (0.00) (0.01) (0.00)
----- ----- -----
Total distributions. (0.17) (0.17) (0.00)
----- ----- -----
Net asset value,
end of period ..... $5.99 $5.24 $5.42
===== ===== =====
Total return ....... 17.93% -0.21% 0.18%
Net assets, end of
period (000
omitted) ......... $322 $330 $3
Ratio of expenses
to average net
assets ............ 1.28% 1.29% 0.00%
Ratio of net
investment income
to average net
assets ............ 3.29% 3.43% 0.00%
Portfolio
turnover rate ..... 173.88% 91.06% 9.32%**
Average commission
rate paid ......... $0.0329 $0.0440
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 -- Significant Accounting Policies
United Asset Strategy Fund, 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 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 Subchapter M of 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
dividends 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, 1997, $1,323 was reclassified between accumulated
undistributed net investment income and accumulated 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 $18.0 billion of
combined net assets at September 30, 1997) 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,
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 gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$154,700, out of which W&R paid sales commissions of $86,724 and all expenses in
connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Distribution and 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 distribution and/or service 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 distribution of the
Class A shares and/or provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $1,195, which are included in other
expenses.
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 $37,946,036 while proceeds from maturities and sales
aggregated $33,955,393. Purchases of short-term securities and U.S. Government
securities aggregated $42,858,606 and $7,186,828, respectively. Proceeds from
maturities and sales of short-term securities and U.S. Government securities
aggregated $50,420,160 and $11,594,382, respectively.
For Federal income tax purposes, cost of investments owned at September 30,
1997 was $25,791,474, resulting in net unrealized appreciation of $2,225,610, of
which $2,473,519 related to appreciated securities and $247,909 related to
depreciated securities.
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $1,336,140 during its fiscal year ended September 30, 1997, which included
losses of $338,796 deferred from the year ended September 30, 1996. The capital
gain will be distributed to the Fund's shareholders.
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 Distribution and
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>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Asset Strategy Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Asset Strategy Fund, Inc. (the "Fund") as
of September 30, 1997, the related statements of operations and changes in net
assets for the year then ended, and the financial highlights for the year 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
audit. The financial statements and the financial highlights of the Fund for
each of the periods in the two-year period ended September 30, 1996 were audited
by other auditors whose report, dated November 8, 1996, expressed an unqualified
opinion on those statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial highlights
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1997 by correspondence with the custodian and broker. 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 audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United Asset
Strategy Fund, Inc. as of September 30, 1997, the results of its operations,
the changes in its net assets, and the financial highlights for the year then
ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
October 31, 1997
<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
12-13-96 $0.060 $0.0600 $0.0000 $0.0046 $0.0554 $0.0000
03-14-97 0.030 0.0300 0.0000 0.0067 0.0233 0.0000
06-13-97 0.030 0.0300 0.0000 0.0067 0.0233 0.0000
09-12-97 0.030 0.0300 0.0000 0.0067 0.0233 0.0000
------- ------- ------- ------- ------- -------
Total $0.150 $0.1500 $0.0000 $0.0247 $0.1253 $0.0000
======= ======= ======= ======= ======= =======
Class Y
12-13-96 $0.066 $0.0660 $0.0000 $0.0050 $0.0610 $0.0000
03-14-97 0.035 0.0350 0.0000 0.0078 0.0272 0.0000
06-13-97 0.034 0.0340 0.0000 0.0076 0.0264 0.0000
09-12-97 0.037 0.0370 0.0000 0.0083 0.0287 0.0000
------- ------- ------- ------- ------- -------
Total $0.172 $0.1720 $0.0000 $0.0287 $0.1433 $0.0000
======= ======= ======= ======= ======= =======
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>
Shareholder Meeting Results
A special meeting of shareholders of United Asset Strategy Fund, Inc. was held
on July 28, 1997. The matters voted upon by the shareholders and the resulting
votes for each matter are presented below.
Item 1. To elect the Board of Directors;
For Withheld
Henry L. Bellmon 2,719,901 63,470
Dodds I. Buchanan 2,719,687 63,684
James M. Concannon 2,723,475 59,896
John A. Dillingham 2,723,361 60,010
Linda Graves 2,721,836 61,535
John F. Hayes 2,723,670 59,701
Glendon E. Johnson 2,722,631 60,740
William T. Morgan 2,719,412 63,959
Ronald K. Richey 2,719,042 64,329
William L. Rogers 2,723,294 60,077
Frank J. Ross, Jr. 2,723,475 59,896
Eleanor B. Schwartz 2,723,894 59,477
Keith A. Tucker 2,722,691 60,680
Frederick Vogel III 2,722,255 61,116
Paul S. Wise 2,719,901 63,470
Item 2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year;
For Against Abstain
2,648,205 6,270 128,896
Item 3.To approve or disapprove changes to the following fundamental investment
policies and restrictions:
3.1 Modification and/or Elimination of Fundamental Restrictions
Regarding Options, Commodities, Forward Contracts and/or Futures
Contracts
For Against Abstain
2,548,966 30,840 203,565
3.2 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
For Against Abstain
2,549,271 30,535 203,565
3.3 Modification of Fundamental Restriction Regarding Short Sales of
Securities
For Against Abstain
2,549,985 29,821 203,565
3.4 Elimination of Fundamental Restriction Regarding Investments in
Issuers Whose Securities are Owned by Certain Persons
For Against Abstain
2,549,985 29,821 203,565
3.5 Modification of Fundamental Policy Regarding Loans
For Against Abstain
2,549,985 29,821 203,565
Item 4.To approve or disapprove a change in the Fund's goal;
For Against Abstain
2,568,022 37,169 178,180
Item 5.To amend the terms of the service plan adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940.
For Against Abstain
2,489,974 48,864 191,978
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
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
Michael L. Avery, Vice 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
Daniel J. Vrabac, Vice President
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
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1017A(9-97)
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