United
Asset Strategy
Fund, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1998<PAGE>
MANAGER'S LETTER
SEPTEMBER 30, 1998
- ----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of United Asset Strategy Fund, Inc. for the
fiscal year ended September 30, 1998. The discussion, graphs and tables
contained in this report will provide you with information regarding the Fund's
performance during that period.
As the fiscal year began, Southeast Asia was in the midst of an economic and
currency crisis. At the time, it was hoped that the IMF would be able to
stabilize the situation without it having a significant global impact. The U.S.
economy was still strong and the dollar and U.S. financial markets benefited
from foreign investors looking for safer returns. Unfortunately, as the year
progressed, it became clear that Asia was in for a prolonged economic slump that
could possibly affect other world economies. By summer 1998, two new crises
threatened global economics. The default by Russia on bonds held by foreign
investors and Japan's lack of response to its deteriorating economic situation
and banking system problems only added to market fears.
Over a year ago, we began to position the Fund to be more defensive. During the
first part of the fiscal year, the Fund held high yield and investment grade
corporate bonds to seek added return from a growing U.S. economy and shifted to
a larger weighting in equity securities. By mid-May, the global situation had
deteriorated enough that it was decided to reduce risk on the fixed income
portion of the Fund by selling high yield and corporate bonds. As the year went
on, the primary investment vehicle has been U.S. Treasury bonds. We believe
Treasuries have the potential to outperform other investment classes and provide
positive returns over the next several months as the global crisis threatens to
slow the U.S. economy.
The strategies and techniques we applied resulted in the performance of the Fund
remaining above that of the universe of portfolios with similar investment
objectives (the Lipper Flexible Portfolio Universe Average) and one-month
certificates of deposit (Salomon Brothers Short-Term Index for 1 Month
Certificates of Deposit), and below that of securities that generally represent
the stock market (the S&P 500 Index) and the bond market (the Salomon Brothers
Broad Investment Grade Debt). Those indexes are charted on the following page.
A variety of indexes is presented because the Fund invests in stocks, bonds and
other instruments.
We anticipate a global economic slowdown in the last quarter of 1998 and into
1999. Corporate profits in the U.S. are on the decline. The possibility of a
recession in the U.S. has increased. Investors will be looking for a safe haven
as unemployment is expected to rise around the world. Global interest rates
should decline. All of the above factors suggest Treasury bonds as the primary
investment for the near term. The Fund has the flexibility, however, to adjust
to changing market conditions across the major asset classes.
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 $10,000 Investment in
United Asset Strategy Fund, Inc. Class A Shares,
The S&P 500 Composite Stock Price Index
The Salomon Brothers Broad Investment Grade Debt,
The Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit, and
The Lipper Flexible Portfolio Universe Average
Salomon
S&P Salomon Brothers
500 Brothers Short-Term Lipper
United Composite Broad Index Flexible
Asset Stock Investmentfor 1 monthPortfolio
Strategy Price Grade CertificatesUniverse
Fund Index Debt of Deposit Average
--------- --------- --------- --------------------
04/01/95
Purchase$ 9,425 $10,000 $10,000 $10,000 $10,000
09/30/9510,271 11,825 10,667 10,301 11,321
09/30/9610,221 14,230 11,195 10,883 12,702
09/30/9712,006 19,992 12,282 11,494 15,735
09/30/9812,954 21,812 13,691 12,154 16,005
====United Asset Strategy Fund, Class A Shares* -- $12,954
++++S&P 500 Composite Stock Price Index** -- $21,812
*+*+ Salomon Brothers Broad Investment Grade
Debt** -- $13,691
*-*-Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit** --
$12,154
-+-+Lipper Flexible Portfolio Universe Average** -- $16,005
*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
9/30/98 1.69% 8.26%
3+ Years Ended
9/30/98+++ 7.65% N/A
Life of Class Y++++ N/A 8.58%
+ 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 9/30/98.
++++9/27/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 9/30/98.
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.
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)
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 1998
- --------------------------------------------
DIVIDENDS PAID $0.17
=====
CAPITAL GAINS DISTRIBUTION $0.47
=====
NET ASSET VALUE ON
9/30/98 $5.78 adjusted to: $6.25 (A)
9/30/97 5.99
-----
CHANGE PER SHARE $0.26
=====
Past performance is not necessarily indicative of future results.
(A)This number includes the capital gains distribution of $0.47 paid in
December 1997 added to the actual net asset value on September 30, 1998.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load** Sales Load***
- ------ ----------- ------------
1-year period ended 9-30-98 1.69% 7.89%
Period from 3-9-95*
through 9-30-98 7.65% 9.45%
*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, 1998, the Fund had net assets totaling $33,110,651 invested in
a diversified portfolio of:
54.20% United States Government Securities
24.27% Common Stocks
19.96% Cash and Cash Equivalents
1.57% Corporate Debt Security
As a shareholder of United Asset Strategy Fund, Inc., for every $100 you had
invested on September 30, 1998, your Fund owned:
$54.20 United States Government Securities
24.27 Common Stocks
19.96 Cash and Cash Equivalents
1.57 Corporate Debt Security
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS
Business Services - 0.90%
Cerner Corporation* .................... 11,100 $ 296,578
Chemicals and Allied Products - 7.34%
Lilly (Eli) and Company ................ 9,300 728,306
Merck & Co., Inc. ...................... 2,700 349,819
Monsanto Company ....................... 11,500 648,312
Warner-Lambert Company ................. 9,300 702,150
Total ................................. 2,428,587
Communication - 3.29%
Cox Communications, Inc., Class A* ..... 6,100 333,213
MediaOne Group, Inc.* .................. 7,600 337,725
SBC Communications Inc. ................ 9,450 419,934
Total ................................. 1,090,872
Electric, Gas and Sanitary Services - 3.34%
Allied Waste Industries, Inc. New* ..... 24,400 571,112
Duke Energy Corp. ...................... 8,100 536,119
Total ................................. 1,107,231
General Merchandise Stores - 0.83%
Wal-Mart Stores, Inc. .................. 5,000 273,125
Health Services - 1.25%
Quorum Health Group, Inc.* ............. 10,000 162,500
Tenet Healthcare Corporation* .......... 8,700 250,125
Total ................................. 412,625
Instruments and Related Products - 1.07%
Medtronic, Inc. ........................ 6,100 353,038
Metal Mining - 1.64%
Barrick Gold Corporation ............... 9,450 189,000
Homestake Mining Company ............... 14,175 171,872
Newmont Mining Corporation ............. 7,560 183,330
Total ................................. 544,202
Miscellaneous Retail - 0.86%
Costco Companies, Inc.* ................ 6,000 284,250
Motion Pictures - 1.03%
Time Warner Incorporated ............... 3,900 341,494
Nondepository Institutions - 1.66%
Fannie Mae ............................. 8,600 552,550
See Notes to Schedule of Investments on page 8.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Real Estate - 1.06%
ElderTrust ............................. 24,100 $ 352,462
TOTAL COMMON STOCKS - 24.27% $ 8,037,014
(Cost: $6,943,596)
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITY - 1.57%
Industrial Machinery and Equipment
Tyco International Ltd.,
6.5%, 11-1-2001 ....................... $ 500 $ 518,405
(Cost: $495,988)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
6.38%, 4-29-2003 ...................... 500 500,545
6.2%, 2-27-2004 ....................... 500 500,445
6.225%, 2-27-2004 ..................... 500 502,345
6.57%, 2-11-2005 ...................... 500 502,890
6.245%, 9-22-2005 ..................... 500 502,580
6.02%, 3-30-2006 ...................... 500 501,405
6.75%, 2-5-2008 ....................... 500 502,655
6.75%, 2-12-2008 ...................... 500 502,810
Federal Home Loan Mortgage Corporation,
6.5%, 2-15-2023 (Interest only) ....... 5,000 729,900
United States Treasury:
5.625%, 12-31-2002 .................... 7,250 7,603,438
6.125%, 8-15-2007 ..................... 5,000 5,596,850
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 54.20% $17,945,863
(Cost: $17,586,413)
SHORT-TERM SECURITIES
Engineering and Management Services - 3.62%
Halliburton Co.,
5.52%, 10-16-98 ....................... 1,200 1,197,240
Fabricated Metal Products - 5.69%
Danaher Corporation,
5.3438%, Master Note .................. 389 389,000
Snap-On Inc.,
5.51%, 10-15-98 ....................... 1,500 1,496,786
Total ................................. 1,885,786
See Notes to Schedule of Investments on page 8.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Food and Kindred Products - 1.65%
General Mills, Inc.,
5.1988%, Master Note .................. $ 547 $ 547,000
Personal Services - 6.84%
Block Financial Corp.,
5.48%, 10-30-98 ....................... 2,275 2,264,957
TOTAL SHORT-TERM SECURITIES - 17.80% $ 5,894,983
(Cost: $5,894,983)
TOTAL INVESTMENT SECURITIES - 97.84% $32,396,265
(Cost: $30,920,980)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 2.16% 714,386
NET ASSETS - 100.00% $33,110,651
See Notes to Schedule of Investments on page .
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
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, 1998
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $32,396
Cash ............................................ 2
Receivables:
Investment securities sold ...................... 430
Dividends and interest .......................... 227
Fund shares sold ................................ 143
Unamortized organization expenses (Note 2) ....... 15
Prepaid insurance premium ........................ 1
-------
Total assets .................................. 33,214
-------
Liabilities
Payable to Fund shareholders ..................... 70
Organization expenses payable .................... 15
Accrued transfer agency and dividend
disbursing (Note 3) ............................. 8
Accrued service fee (Note 3) ..................... 6
Accrued accounting services fee (Note 3) ......... 2
Accrued management fee (Note 3) .................. 1
Other liabilities ................................ 1
-------
Total liabilities ............................. 103
-------
Total net assets ............................. $33,111
=======
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 57
Additional paid-in capital ...................... 30,139
Accumulated undistributed income:
Accumulated undistributed net investment
income ........................................ 29
Accumulated undistributed net realized gain on
investment transactions ....................... 1,411
Net unrealized appreciation in value of
investments ................................... 1,475
-------
Net assets applicable to outstanding
units of capital ............................. $33,111
=======
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.78
Class Y .......................................... $5.78
Capital shares outstanding
Class A .......................................... 5,682
Class Y .......................................... 42
Capital shares authorized .......................... 1,000,000
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1998
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $1,100
Dividends ....................................... 125
------
Total income .................................. 1,225
------
Expenses (Notes 2 and 3):
Investment management fee ....................... 208
Transfer agency and dividend disbursing - Class A 82
Service fee - Class A ........................... 72
Registration fees ............................... 29
Accounting services fee ......................... 20
Audit fees ...................................... 12
Amortization of organization expenses ........... 10
Custodian fees .................................. 7
Legal fees ...................................... 3
Distribution fee - Class A ...................... 1
Other ........................................... 43
------
Total expenses ................................ 487
------
Net investment income ........................ 738
------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 4)
Realized net gain on securities .................. 2,287
Realized net loss on foreign currency
transactions .................................... (3)
------
Realized net gain on investments ................ 2,284
Unrealized depreciation in value of investments
during the period ............................... (751)
------
Net gain on investments ....................... 1,533
------
Net increase in net assets resulting
from operations ............................ $2,271
======
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands) For the fiscal year
ended September 30,
-----------------------------
1998 1997
Increase (Decrease) in Net Assets -------------- ------------
Operations:
Net investment income ............ $ 738 $ 842
Realized net gain on
investments .................... 2,284 1,689
Unrealized appreciation
(depreciation) ................. (751) 2,056
------- -------
Net increase in net assets
resulting from operations ..... 2,271 4,587
------- -------
Distributions to shareholders from(Note 1E):*
Net investment income:
Class A ........................ (833) (791)
Class Y ........................ (10) (11)
Realized gains on
securities transactions:
Class A ........................ (2,183) ---
Class Y ........................ (28) ---
------- -------
(3,054) (802)
Capital share transactions: ------- -------
Proceeds from sale of shares:
Class A (1,316,486 and 667,368
shares, respectively) ......... 7,660 3,651
Class Y (14,599 and 33,050
shares, respectively) ......... 85 179
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (552,747 and 143,389
shares, respectively) ......... 2,995 786
Class Y (7,024 and 1,949
shares, respectively) ......... 38 11
Payments for shares redeemed:
Class A (901,720 and 2,170,564
shares, respectively) ......... (5,234) (11,786)
Class Y (33,384 and 44,348
shares, respectively) ......... (193) (241)
------- -------
Net increase (decrease) in net
assets resulting from capital
share transactions .......... 5,351 (7,400)
------- -------
Total increase (decrease) ... 4,568 (3,615)
Net Assets
Beginning of period ............... 28,543 32,158
------- -------
End of period, including undistributed
net investment income of $29
and $137, respectively ........... $33,111 $28,543
======= =======
*See "Financial Highlights" on pages 12 - 13.
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
period
For the fiscal year from
ended September 30, 3/9/95*
--------------------- through
1998 1997 1996 9/30/95
-------------- ------- -------
Net asset value,
beginning of period $5.99 $5.24 $5.42 $5.00
----- ----- ----- -----
Income from investment operations:
Net investment
income .......... 0.15 0.16 0.15 0.07
Net realized and
unrealized gain (loss)
on investments .. 0.28 0.74 (0.17) 0.40
----- ----- ----- -----
Total from investment
operations ....... 0.43 0.90 (0.02) 0.47
----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.17) (0.15) (0.15) (0.05)
From capital gains (0.47) (0.00) (0.00) (0.00)
In excess of capital
gains ........... (0.00) (0.00) (0.01) (0.00)
----- ----- ----- -----
Total distributions (0.64) (0.15) (0.16) (0.05)
----- ----- ----- -----
Net asset value,
end of period .... $5.78 $5.99 $5.24 $5.42
===== ===== ===== =====
Total return** ..... 7.89% 17.46% -0.49% 9.42%
Net assets, end of period
(000 omitted) .... $32,868$28,221 $31,828 $22,248
Ratio of expenses to
average net assets 1.62% 1.70% 1.68% 1.64%***
Ratio of net investment
income to average net
assets ........... 2.45% 2.87% 2.93% 3.71%***
Portfolio
turnover rate .... 230.09%173.88% 91.06% 9.32%
*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 fiscal year period
ended September 30, from 9/27/95*
--------------------- through
1998 1997 1996 9/30/95
------- ------ ------ --------
Net asset value,
beginning of period $5.99 $5.24 $5.42 $5.41
----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.16 0.17 0.16 0.00
Net realized and
unrealized gain
(loss) on
investments ..... 0.29 0.75 (0.17) 0.01
----- ----- ----- -----
Total from investment
operations ....... 0.45 0.92 (0.01) 0.01
----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.19) (0.17) (0.16) (0.00)
From capital gains (0.47) (0.00) (0.00) (0.00)
In excess of
capital gains ... (0.00) (0.00) (0.01) (0.00)
----- ----- ----- -----
Total distributions (0.66) (0.17) (0.17) (0.00)
----- ----- ----- -----
Net asset value,
end of period .... $5.78 $5.99 $5.24 $5.42
===== ===== ===== =====
Total return ....... 8.26% 17.93% -0.21% 0.18%
Net assets, end of
period (000
omitted) ......... $243 $322 $330 $3
Ratio of expenses
to average net
assets ........... 1.37% 1.28% 1.29% 0.00%
Ratio of net
investment income
to average net
assets ........... 2.79% 3.29% 3.43% 0.00%
Portfolio
turnover rate .... 230.09%173.88% 91.06% 9.32%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 the Nasdaq Stock Market, which provides information on bid and
asked 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 carryovers.
At September 30, 1998, $3,615 was reclassified between accumulated
<PAGE>
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 $18.9 billion of
combined net assets at September 30, 1998) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and 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.
<PAGE>
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
$215,190, out of which W&R paid sales commissions of $123,799 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 Class A 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 $1,037, which are included in other
expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 4 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $30,915,964 while proceeds from maturities and sales
aggregated $47,605,656. Purchases of short-term securities and U.S. Government
securities aggregated $84,781,593 and $23,274,269, respectively. Proceeds from
maturities and sales of short-term securities and U.S. Government securities
aggregated $80,959,342 and $7,516,406, respectively.
For Federal income tax purposes, cost of investments owned at September 30,
1998 was $30,920,980, resulting in net unrealized appreciation of $1,475,285, of
which $1,852,884 related to appreciated securities and $377,599 related to
depreciated securities.
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $2,287,537 during its fiscal year ended September 30, 1998, of which a
<PAGE>
portion was paid to shareholders during the period ended September 30, 1998.
Remaining net capital gains will be distributed to the Fund's shareholders.
NOTE 6 -- Multiclass Operations
On September 12, 1995, the Fund was authorized to offer 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, 1998, and the related statements of operations for the fiscal
year then ended and changes in net assets for each of the fiscal years in the
two-year period then ended, and the financial highlights for the periods
presented. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United Asset
Strategy Fund, Inc. as of September 30, 1998, the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 6, 1998
<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 Capital Gain Non- Long-Term
Date Total Income 28% Rate 20% Rate Qualifying Qualifying Capital Gain
- ----------- ------------- -------- -------- ---------- ---------- ------------
Class A
12-12-97 $0.5350 $0.4539 $0.0053 $0.0758 $0.0109 $0.4430 $0.0811
03-13-98 0.0300 0.0300 0.0042 0.0258
06-12-98 0.0250 0.0250 0.0035 0.0215
09-11-98 0.0400 0.0400 0.0056 0.0344
------ ------- ------- ------- ------- ------- -------
Total $0.6300 $0.5489 $0.0053 $0.0758 $0.0242 $0.5247 $0.0811
====== ======= ======= ======= ======= ======= =======
Class Y
12-12-97 $0.5410 $0.4599 $0.0053 $0.0758 $0.0119 $0.4480 $0.0811
03-13-98 0.0330 0.0330 0.0046 0.0284
06-12-98 0.0290 0.0290 0.0040 0.0250
09-11-98 0.0470 0.0470 0.0066 0.0404
------ ------- ------- ------- ------- ------- -------
Total $0.6500 $0.5689 $0.0053 $0.0758 $0.0271 $0.5418 $0.0811
====== ======= ======= ======= ======= ======= =======
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
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Birmingham, Alabama
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Michael L. Avery, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Daniel J. Vrabac, 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 traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional 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(9-98)
printed on recycled paper
