United
Asset Strategy
Fund, Inc.
SEMIANNUAL
REPORT
---------------------------------------
For the six months ended March 31, 1997
<PAGE>
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.
<PAGE>
PRESIDENT'S LETTER
MARCH 31, 1997
Dear Shareholder:
As President of your Fund, I would like to thank you for your continued
confidence in our products and services. Our goal to provide the best service
possible to our shareholders has not changed since we opened our doors nearly 60
years ago. Waddell & Reed's team of professionals, including the Fund's
manager, our customer service representatives and your personal account
representative continue to strive to meet your financial needs.
Waddell & Reed plays a special role in the investment industry. We take
pride in being one of the few financial services firms committed to locally
based account representatives who provide the personal service you need. When
you're ready to evaluate your financial plan to keep up with life's changes, or
to find an answer to a financial question that you may have, your representative
is ready to assist you--when you need it. He or she is available to help you
plan for your retirement, fund a child's education or make plans for other long-
term financial goals.
All of us are committed to helping you meet the financial goals that are
important to you. This is accomplished by our offering investment products to
meet a variety of personal financial objectives, along with the personal service
to make the investment process more convenient and accessible.
We want to continue to meet your financial needs for many years to come.
Should you have any questions about your account or other financial issues that
are important to you, contact your personal account representative or your local
Waddell & Reed office. They're ready to help you make the most of your
financial future.
Respectfully,
Keith A. Tucker
President
<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 Six Months Ended March 31, 1997
- ---------------------------------------
DIVIDENDS PAID $0.09
======
NET ASSET VALUE ON
3/31/97 $5.12
9/30/96 5.24
-----
CHANGE PER SHARE $(0.12)
=====
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 3-31-97 -5.10% 0.69%
Period from 3-9-95*
through 3-31-97 0.95% 3.89%
*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 March 31, 1997, the Fund had net assets totaling $27,499,499 invested in a
diversified portfolio of:
58.68% Common Stocks
26.65% Corporate Debt Securities
7.28% United States Government Security
4.27% Foreign Government Securities
3.12% Cash and Cash Equivalents
As a shareholder of United Asset Strategy Fund, Inc., for every $100 you had
invested on March 31, 1997, your Fund owned:
$58.68 Common Stocks
26.65 Corporate Debt Securities
7.28 United States Government Security
4.27 Foreign Government Securities
3.12 Cash and Cash Equivalents
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1997
Shares Value
COMMON STOCKS
Business Services - 5.64%
Adaptec Inc.* .......................... 10,300 $ 367,576
First Data Corporation ................. 6,800 230,350
Maxis, Inc.* ........................... 50,000 365,600
Oracle Systems Corporation* ............ 12,200 470,456
Red Brick Systems, Inc.* ............... 8,400 116,021
Total ................................. 1,550,003
Chemicals and Allied Products - 6.90%
IMC Global, Inc. ....................... 17,500 632,188
Nalco Chemical Company ................. 22,000 822,250
Praxair, Inc. .......................... 9,900 444,262
Total ................................. 1,898,700
Communication - 9.71%
Cox Communications, Inc.* .............. 33,000 680,625
Nokia Corporation, Series A, ADS ....... 17,500 1,019,375
SBC Communications Inc. ................ 9,100 478,888
360 Communications Company* ............ 28,500 491,625
Total ................................. 2,670,513
Electric, Gas and Sanitary Services - 1.94%
Sonat Inc. ............................. 9,800 534,100
Food and Kindred Products - 2.78%
Seagram Company Ltd. (The) ............. 20,000 765,000
Furniture and Fixtures - 0.67%
Lear Corporation* ...................... 5,500 183,563
General Merchandise Stores - 3.77%
Federated Department Stores, Inc.* ..... 16,600 545,725
May Department Stores Company (The) .... 10,800 491,400
Total ................................. 1,037,125
Health Services - 2.08%
Living Centers of America, Inc.* ....... 16,600 572,700
Heavy Construction, Excluding Building - 2.41%
Koninklijke Boskalis Westminster N.V. (A) 33,150 661,267
Holding and Other Investment Offices - 1.81%
LTC Properties, Inc. ................... 30,000 498,750
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1997
Shares Value
COMMON STOCKS (Continued)
Industrial Machinery and Equipment - 5.69%
AGCO Corporation ....................... 8,400 $ 232,050
Case Corporation ....................... 9,900 502,425
Harnischfeger Industries, Inc. ......... 6,000 279,000
Integrated Process Equipment Corp.* ..... 18,200 305,978
New Holland NV* ........................ 11,000 244,750
Total ................................. 1,564,203
Instruments and Related Products - 2.47%
General Motors Corporation, Class H .... 12,500 678,125
Personal Services - 1.97%
Equity Corporation International* ...... 25,500 541,875
Petroleum and Coal Products - 5.23%
Mobil Corporation ...................... 3,800 496,375
Royal Dutch Petroleum Company .......... 2,700 472,500
Tosco Corporation ...................... 16,500 470,250
Total ................................. 1,439,125
Textile Mill Products - 1.20%
Polymer Group, Inc. * .................. 25,000 331,250
Transportation by Air - 2.64%
Delta Air Lines, Inc. .................. 3,000 252,375
Southwest Airlines Co. ................. 21,400 473,475
Total ................................. 725,850
Transportation Equipment - 1.77%
Sundstrand Corporation ................. 11,200 485,800
TOTAL COMMON STOCKS - 58.68% $16,137,949
(Cost: $16,751,349)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Amusement and Recreation Services - 3.08%
Trump Atlantic City Associates,
11.25%, 5-1-2006 ...................... $ 930 846,300
Chemicals and Allied Products - 1.76%
The BOC Group, Inc.,
5.875%, 1-29-2001 ..................... 500 483,540
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Depository Institutions - 3.62%
Banco de Inversion y Comercio Exterior S.A.,
9.375%, 12-27-2000 (B) ................ $ 500 $ 504,065
Banco Nacional de Comercio Exterior, S.N.C.,
7.5%, 7-1-2000 ........................ 500 490,250
Total ................................. 994,315
Electric, Gas and Sanitary Services - 1.87%
Compania de Transporte de Energia Electrica
en Alta Tension TRANSENER Sociedad Anonima,
9.625%, 7-15-99 (B) ................... 500 513,750
Electronic and Other Electric Equipment - 2.75%
VLSI Technology, Inc., Convertible,
8.25%, 10-1-2005 ...................... 800 757,504
Fabricated Metal Products - 0.18%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 50 49,750
Food and Kindred Products - 3.48%
Coca-Cola Bottling Co. Consolidated,
6.85%, 11-1-2007 ...................... 500 465,780
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-2006 ...................... 500 491,250
Total ................................. 957,030
Paper and Allied Products - 4.67%
Buckeye Cellulose Corporation:
8.5%, 12-15-2005 ...................... 1,000 980,000
9.25%, 9-15-2008 ...................... 300 304,500
Total ................................. 1,284,500
Primary Metal Industries - 1.83%
Ispat Mexicana, S.A. de C.V.,
10.375%, 3-15-2001 (B) ................ 500 502,500
Printing and Publishing - 3.41%
Viacom International, Inc.,
9.125%, 8-15-99 ....................... 925 938,875
TOTAL CORPORATE DEBT SECURITIES - 26.65% $ 7,328,064
(Cost: $7,549,302)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
FOREIGN GOVERNMENT SECURITIES
Argentina - 1.85%
The Republic of Argentina,
9.25%, 2-23-2001 ...................... $ 500 $ 510,000
Mexico - 2.42%
United Mexican States,
6.97%, 8-12-2000 ...................... 700 664,111
TOTAL FOREIGN GOVERNMENT SECURITIES - 4.27% $ 1,174,111
(Cost: $1,173,174)
UNITED STATES GOVERNMENT SECURITY- 7.28%
United States Treasury,
6.125%, 5-31-97 ....................... 2,000 $ 2,001,240
(Cost: $2,000,616)
TOTAL SHORT-TERM SECURITIES - 1.87% $ 514,000
(Cost: $514,000)
TOTAL INVESTMENT SECURITIES - 98.75% $27,155,364
(Cost: $27,988,441)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 1.25% 344,135
NET ASSETS - 100.00% $27,499,499
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1997
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) As of March 31, 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 $ 504,065
Compania de Transporte de
Energia Electrica en Alta
Tension TRANSENER
Sociedad Anonima,
9.625%, 7-15-99 2-13-97 500 518,750 513,750
Ispat Mexicana, S.A. de C.V.,
10.375%, 3-15-2001 3-17-97 500 505,625 502,500
---------- ----------
$1,544,375 $1,520,315
========== ==========
The total market value of restricted securities represents approximately
5.53% of the total net assets at March 31, 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
MARCH 31, 1997
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $27,155,364
Cash ............................................ 6,636
Receivables:
Investment securities sold ...................... 276,591
Dividends and interest .......................... 273,907
Fund shares sold ................................ 20,492
Unamortized organization expenses (Note 2) ....... 29,718
Prepaid insurance premium ........................ 270
-----------
Total assets .................................. 27,762,978
-----------
Liabilities
Payable for Fund shares redeemed ................. 212,368
Organization expenses payable .................... 29,718
Accrued service fee (Note 3) ..................... 9,753
Accrued transfer agency and dividend
disbursing (Note 3) ............................. 7,012
Accrued accounting services fee (Note 3) ......... 1,667
Accrued management fee (Note 3) .................. 532
Other liabilities ................................ 2,429
-----------
Total liabilities ............................. 263,479
-----------
Total net assets ............................. $27,499,499
===========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 53,683
Additional paid-in capital ...................... 28,079,453
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 56,226
Accumulated undistributed net realized gain on
investment transactions ...................... 143,214
Net unrealized depreciation in value of
investments ................................... (833,077)
-----------
Net assets applicable to outstanding
units of capital ............................. $27,499,499
===========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.12
Class Y .......................................... $5.12
Capital shares outstanding
Class A .......................................... 5,316,274
Class Y .......................................... 52,010
Capital shares authorized .......................... 1,000,000,000
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended MARCH 31, 1997
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 655,907
Dividends ....................................... 78,794
----------
Total income .................................. 734,701
----------
Expenses (Notes 2 and 3):
Investment management fee ....................... 107,454
Transfer agency and dividend disbursing - Class A 45,543
Service fee - Class A ........................... 29,813
Registration fees ............................... 25,214
Accounting services fee ......................... 10,000
Audit fees ...................................... 5,764
Amortization of organization expenses ........... 4,953
Custodian fees .................................. 4,467
Legal fees ...................................... 3,302
Shareholder servicing - Class Y ................. 296
Other ........................................... 29,125
----------
Total expenses ................................ 265,931
----------
Net investment income ........................ 468,770
----------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 4)
Realized net gain on securities .................. 495,640
Realized net gain on foreign currency
transactions .................................... 1,463
----------
Realized net gain on investments ................ 497,103
Unrealized depreciation in value of investments
during the period ............................... (1,003,015)
----------
Net loss on investments ....................... (505,912)
----------
Net decrease in net assets resulting
from operations ............................ $( 37,142)
==========
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS For the six For the
months ended period ended
March 31, September 30,
1997 1996
Increase (Decrease) in Net Assets --------------------------
Operations:
Net investment income ............ $ 468,770 $ 906,537
Realized net gain (loss) on
investments .................... 497,103 (355,560)
Unrealized depreciation ......... (1,003,015) (618,911)
----------- -----------
Net decrease in net assets
resulting from operations ..... (37,142) (67,934)
----------- -----------
Dividends to shareholders (Note 1E):*
From net investment income
Class A ........................ (502,341) (867,732)
Class Y ........................ (6,762) (6,712)
In excess of realized gains on
securities transactions
Class A ........................ --- (27,304)
Class Y ........................ --- (17)
----------- -----------
(509,103) (901,765)
----------- -----------
Capital share transactions:
Proceeds from sale of shares:
Class A (401,884 and 3,452,074
shares, respectively) ......... 2,149,918 18,415,374
Class Y (23,824 and 69,480
shares, respectively) ......... 127,759 370,529
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (93,566 and 170,139
shares, respectively) ......... 499,714 892,867
Class Y (1,266 and 1,281
shares, respectively) ......... 6,762 6,728
Payments for shares redeemed:
Class A (1,253,131 and 1,656,072
shares, respectively) ......... (6,703,211) (8,764,002)
Class Y (36,097 and 8,373
shares, respectively) ......... (193,358) (44,600)
----------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions ............ (4,112,416) 10,876,896
----------- -----------
Total increase (decrease) ..... (4,658,661) 9,907,197
Net Assets
Beginning of period ............... 32,158,160 22,250,963
----------- -----------
End of period, including undistributed
net investment income of $56,226
and $95,096, respectively ........ $27,499,499 $32,158,160
=========== ===========
*See "Financial Highlights" on pages - .
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
six the fiscal from
months year 3/9/95
ended ended through
3/31/97 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 .......... 0.08 0.15 0.07
Net realized and
unrealized gain (loss)
on investments... (0.11) (0.17) 0.40
----- ----- -----
Total from investment
operations ........ (0.03) (0.02) 0.47
----- ----- -----
Less distributions:
Dividends from net
investment income (0.09) (0.15) (0.05)
Distribution from
capital gains.... (0.00) (0.01) (0.00)
----- ----- -----
Total distributions. (0.09) (0.16) (0.05)
----- ----- -----
Net asset value,
end of period ..... $5.12 $5.24 $5.42
===== ===== =====
Total return** ..... -0.64% -0.49% 9.42%
Net assets, end of period
(000 omitted) ....$27,233 $31,828 $22,248
Ratio of expenses to
average net assets 1.74%*** 1.68% 1.64%
Ratio of net investment
income to average net
assets ............ 3.06%*** 2.93% 3.71%
Portfolio
turnover rate ..... 70.50% 91.06% 9.32%
Average commission
rate paid ......... $0.0258 $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.
***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
six fiscal period
months year from 9/27/95*
ended ended through
3/31/97 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 .......... 0.09 0.16 0.00
Net realized and
unrealized gain
(loss) on
investments...... (0.11) (0.17) 0.01
----- ----- -----
Total from investment
operations ........ (0.02) (0.01) 0.01
----- ----- -----
Less distributions:
Dividends from net
investment
income........... (0.10) (0.16) (0.00)
Distribution from
capital gains ... (0.00) (0.01) (0.00)
----- ----- -----
Total distributions. (0.10) (0.17) (0.00)
----- ----- -----
Net asset value,
end of period ..... $5.12 $5.24 $5.42
===== ===== =====
Total return ....... -0.43% -0.21% 0.18%
Net assets, end of
period (000
omitted) ......... $266 $330 $3
Ratio of expenses
to average net
assets ............ 1.32%** 1.29% 0.00%
Ratio of net
investment income
to average net
assets ............ 3.47%** 3.43% 0.00%
Portfolio
turnover rate ..... 70.50% 91.06% 9.32%**
Average commission
rate paid ......... $0.0258 $0.0440
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
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
Quotation 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.
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 $15.0 billion of
combined net assets at March 31, 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
$91,450, out of which W&R paid sales commissions of $50,987 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 $685, 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 $16,425,027 while proceeds from maturities and sales
aggregated $9,124,037. Purchases of short-term securities and U.S. Government
securities aggregated $21,078,358 and $6,602,547, respectively. Proceeds from
maturities and sales of short-term securities and U.S. Government securities
aggregated $29,970,128 and $9,594,383, respectively.
For Federal income tax purposes, cost of investments owned at March 31,
1997 was $27,988,441, resulting in net unrealized depreciation of $833,077, of
which $522,373 related to appreciated securities and $1,355,450 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>
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 March 31, 1997, the related statements of
operations and changes in net assets for the six-month period then ended,
and the financial highlights for the six-month 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
audit. The financial statements and the financial highlights of the Fund
for each of the periods presented 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 March 31, 1997 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 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 the
United Asset Strategy Fund, Inc. as of March 31, 1997, the results of
its operations, the changes in its net assets, and the financial
highlights for the six-month period then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1997
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
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
NUR1017SA(3-97)
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