United
Asset Strategy
Fund, Inc.
SEMIANNUAL
REPORT
--------------------------------------------
For the six months ended March 31, 1998
<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, 1998
Dear Shareholder:
As Waddell & Reed celebrates its 60th anniversary in the financial services
industry, I would like to thank you for your continued confidence in our
products and services. Since we opened our doors in 1937, our goal has been and
continues to be to provide the best service possible to our shareholders. This
commitment is reflected in every area of our organization: starting with your
financial advisor and continuing with our investment management and customer
service people of our affiliated companies.
Your confidence in the success of the products and services offered by Waddell &
Reed and its affiliates is reflected in the growth the Funds have experienced
over our 60 years. Total mutual fund assets under management reached the $1
billion mark in 1961, and over the $5 billion mark in 1985. As of March 31,
1998, mutual fund assets under management totaled more than $22.9 billion.
We look forward to helping you meet the financial goals that are important to
you, now and for many years to come. Should you have any questions about your
account or other financial issues that are important to you, contact your
financial advisor 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 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 Six Months Ended March 31, 1998
- ----------------------------------------
DIVIDENDS PAID $0.10
=====
CAPITAL GAINS DISTRIBUTION $0.47
=====
NET ASSET VALUE ON
3/31/98 $5.80 adjusted to: $6.27 (A)
9/30/97 5.99
-----
CHANGE PER SHARE $0.28
=====
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 March 31, 1998.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load** Sales Load***
- ------ ----------- ------------
1-year period ended 3-31-98 19.28% 26.55%
Period from 3-9-95*
through 3-31-98 8.68% 10.80%
*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, 1998, the Fund had net assets totaling $30,183,402
invested in a diversified portfolio of:
48.83% Common Stocks
18.16% Corporate Debt Securities
16.29% United States Government Securities
13.33% Cash and Cash Equivalents
3.39% Other Government Securities
As a shareholder of United Asset Strategy Fund, Inc., for every $100 you had
invested on March 31, 1998, your Fund owned:
$48.83 Common Stocks
18.16 Corporate Debt Securities
16.29 United States Government Securities
13.33 Cash and Cash Equivalents
3.39 Other Government Securities
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1998
Shares Value
COMMON STOCKS
Agricultural Production -- Crops - 0.99%
Dole Food Company, Inc. ................ 6,200 $ 299,925
Apparel and Accessory Stores - 2.19%
Payless ShoeSource, Inc.* .............. 8,800 662,200
Business Services - 8.75%
BISYS Group, Inc. (The)* ............... 6,700 235,545
BMC Software, Inc.* .................... 7,400 619,979
Cerner Corporation* .................... 29,700 634,838
J. D. Edwards* ......................... 19,100 625,525
Networks Associates, Inc.* ............. 7,900 523,865
Total ................................. 2,639,752
Chemicals and Allied Products - 7.12%
Astra AB A Free (A) .................... 20,200 416,859
Bristol-Myers Squibb Company ........... 2,900 302,505
Shire Pharmaceuticals Group plc, ADR * . 20,000 426,240
Warner-Lambert Company ................. 5,900 1,004,841
Total ................................. 2,150,445
Communication - 4.37%
Clear Channel Communications, Inc.* .... 6,000 588,000
Cox Communications, Inc.* .............. 11,100 466,200
U S WEST Media Group* .................. 7,600 264,100
Total ................................. 1,318,300
Depository Institutions - 3.27%
BankAmerica Corporation ................ 5,600 462,700
U. S. Bancorp. ......................... 4,200 523,950
Total ................................. 986,650
Electric, Gas and Sanitary Services - 3.62%
Allied Waste Industries, Inc. New* ..... 24,400 609,219
Duke Energy Corp. ...................... 8,100 482,452
Total ................................. 1,091,671
Electronic and Other Electric Equipment - 0.87%
Maytag Corporation ..................... 5,500 262,966
Engineering and Management Services - 0.95%
Paychex, Inc. .......................... 5,000 288,280
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Furniture and Home Furnishings Stores - 0.96%
Williams-Sonoma, Inc.* ................. 5,000 $ 289,375
General Merchandise Stores - 1.40%
Wal-Mart Stores, Inc. .................. 8,300 421,740
Health Services - 0.91%
Centennial HealthCare Corporation* ..... 11,000 275,000
Miscellaneous Retail - 1.65%
Costco Companies, Inc.* ................ 9,300 497,252
Nondepository Institutions - 1.80%
Fannie Mae ............................. 8,600 543,950
Oil and Gas Extraction - 3.52%
Anadarko Petroleum Corporation ......... 9,300 641,700
Tom Brown, Inc.* ....................... 18,800 421,816
Total ................................. 1,063,516
Personal Services - 1.82%
Equity Corporation International* ...... 22,900 548,157
Petroleum and Coal Products - 3.21%
British Petroleum Company p.l.c. (The), ADR 3,600 309,823
Royal Dutch Petroleum Company .......... 11,600 659,019
Total ................................. 968,842
Real Estate - 1.43%
ElderTrust* ............................ 24,100 431,535
TOTAL COMMON STOCKS - 48.83% $14,739,556
(Cost: $12,707,788)
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 1.64%
BOC Group, Inc. (The),
5.875%, 1-29-2001 ..................... $ 500 $ 495,950
Depository Institutions - 5.01%
Banco de Inversion y Comercio Exterior S.A.,
9.375%, 12-27-2000 (B) ................ 500 515,500
Banco Nacional de Comercio Exterior, S.N.C.,
7.5%, 7-1-2000 ........................ 500 500,625
Unibanco- Uniao de Bancos Brasileiros S.A.,
6.75%, 10-8-98 ........................ 500 496,875
Total ................................. 1,513,000
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electric, Gas and Sanitary Services - 6.62%
Centrais Electricas Brasileiras S.A.,
10.0%, 10-30-98 (B).................... $ 500 $ 506,875
Companhia Energetica de Minas Gerais- CEMIG,
9.125%, 11-18-2004 (B)................. 500 496,250
Companhia Paranaense de Energia-COPEL,
9.75%, 5-2-2005 (B) ................... 500 492,500
Transportadora de Gas del Sur S.A. (TGS),
7.75%, 12-23-98 ....................... 500 502,500
Total ................................. 1,998,125
Food and Kindred Products - 1.56%
Cervejarias Kaiser S.A.,
8.875%, 9-26-2005 (B).................. 500 469,375
Industrial Machinery and Equipment - 1.67%
Tyco International Ltd.,
6.5%, 11-1-2001 ....................... 500 504,610
Oil and Gas Extraction - 1.66%
Petroleos Mexicanos,
8.375%, 3-30-2005 (B).................. 500 500,000
TOTAL CORPORATE DEBT SECURITIES - 18.16% $5,481,060
(Cost: $5,488,268)
OTHER GOVERNMENT SECURITIES - 3.39%
Argentina
Republic of Argentina (The):
8.325%, 8-15-99 ....................... 500 505,250
9.25%, 2-23-2001 ...................... 500 518,750
Total ................................. $1,024,000
(Cost: $1,006,553)
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
6.38%, 4-29-2003 ...................... $ 500 $ 496,015
6.57%, 2-11-2005 ...................... 500 496,405
6.75%, 2-5-2008 ....................... 500 498,280
6.75%, 2-12-2008 ...................... 500 497,580
6.785%, 3-3-2008 ...................... 500 494,295
Federal Home Loan Mortgage Corporation,
6.5%, 2-15-2023 (Interest only strip).. 5,000 937,950
United States Treasury,
5.625%, 12-31-2002 .................... 1,500 1,497,420
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 16.29% $4,917,945
(Cost: $5,023,113)
SHORT-TERM SECURITIES
Fabricated Metal Products - 3.21%
Danaher Corporation,
5.6875%, Master Note .................. 968 968,000
Food and Kindred Products - 3.61%
General Mills, Inc.,
5.5425%, Master Note .................. 1,090 1,090,000
Nondepository Institutions - 4.71%
Island Finance Puerto Rico Inc.,
5.48%, 4-24-98 ........................ 1,425 1,420,011
Textile Mill Products - 4.57%
Sara Lee Corporation,
5.5375%, Master Note .................. 1,380 1,380,000
TOTAL SHORT-TERM SECURITIES - 16.10% $ 4,858,011
(Cost: $4,858,011)
TOTAL INVESTMENT SECURITIES - 102.77% $31,020,572
(Cost: $29,083,733)
LIABILITIES, NET OF
CASH AND OTHER ASSETS - (2.77%) (837,170)
NET ASSETS - 100.00% $30,183,402
See Notes to Schedule of Investments on page 10.
<PAGE>
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, 1998, 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 $515,500
Centrais Electricas Brasileiras S.A.,
10.0%, 10-30-98 2-20-98 500 508,750 506,875
Cervejarias Kaiser S.A.,
8.875%, 9-26-2005 9-16-97 500 498,450 469,375
Companhia Energetica de Minas Gerais- CEMIG,
9.125%, 11-18-20042-17-98 500 490,937 496,250
Companhia Paranaense de Energia-COPEL,
9.75%, 5-2-2005 4-22-97 500 498,090 492,500
Petroleos Mexicanos,
8.375%, 3-30-2005 3-25-98 500 498,910 500,000
---------- ----------
$3,015,137 $2,980,500
========== ==========
The total market value of restricted securities represents 9.87% of the total
net assets at March 31, 1998.
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, 1998
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $31,020,572
Cash ............................................ 3,722
Receivables:
Dividends and interest .......................... 222,431
Fund shares sold ................................ 72,551
Unamortized organization expenses (Note 2) ....... 19,812
Prepaid insurance premium ........................ 660
-----------
Total assets .................................. 31,339,748
-----------
Liabilities
Payable for investment securities purchased........ 1,050,619
Payable to Fund shareholders ..................... 64,910
Organization expenses payable .................... 19,812
Accrued service fee (Note 3) ..................... 8,310
Accrued transfer agency and dividend
disbursing (Note 3) ............................. 7,188
Accrued accounting services fee (Note 3) ......... 1,667
Accrued management fee (Note 3) .................. 572
Other liabilities ................................ 3,268
-----------
Total liabilities ............................. 1,156,346
-----------
Total net assets ............................. $30,183,402
===========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $52,033
Additional paid-in capital ...................... 27,106,391
Accumulated undistributed income:
Accumulated undistributed net investment
income ........................................ 36,633
Accumulated undistributed net realized gain on
investment transactions ...................... 1,051,506
Net unrealized appreciation in value of
investments ................................... 1,936,839
-----------
Net assets applicable to outstanding
units of capital ............................. $30,183,402
===========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.80
Class Y .......................................... $5.80
Capital shares outstanding
Class A .......................................... 5,144,477
Class Y .......................................... 58,831
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, 1998
Investment Income
Income (Note 1B):
Interest and amortization ....................... $595,062
Dividends ....................................... 51,502
----------
Total income .................................. 646,564
----------
Expenses (Notes 2 and 3):
Investment management fee ....................... 98,971
Transfer agency and dividend disbursing - Class A 40,951
Service fee - Class A ........................... 29,681
Registration fees ............................... 20,885
Prospectus typesetting............................. 18,328
Accounting services fee ......................... 10,000
Audit fees ...................................... 7,780
Amortization of organization expenses ........... 4,953
Custodian fees .................................. 3,326
Legal fees ...................................... 2,712
Shareholder servicing - Class Y ................. 10
Other ........................................... 16,035
----------
Total expenses ................................ 253,632
----------
Net investment income ........................ 392,932
----------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 4)
Realized net gain on securities .................. 1,927,906
Realized net loss on foreign currency
transactions .................................... (4,777)
----------
Realized net gain on investments ................ 1,923,129
Unrealized depreciation in value of investments
during the period ............................... (288,771)
----------
Net gain on investments ....................... 1,634,358
----------
Net increase in net assets resulting
from operations ............................ $2,027,290
==========
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS For the six For the
months endedfiscal year ended
March 31, September 30,
1998 1997
Increase (Decrease) in Net Assets --------------------------
Operations:
Net investment income ............ $392,932 $ 842,465
Realized net gain on
investments .................... 1,923,129 1,688,777
Unrealized appreciation
(depreciation) ................. (288,771) 2,055,672
----------- -----------
Net increase in net assets
resulting from operations ..... 2,027,290 4,586,914
----------- -----------
Distributions to shareholders (Note 1E):*
From net investment income
Class A ........................ (482,194) (791,004)
Class Y ........................ (6,522) (10,686)
From realized gains on
securities transactions
Class A ........................ (2,183,542) ---
Class Y ........................ (27,886) ---
----------- -----------
(2,700,144) (801,690)
Capital share transactions: ----------- -----------
Proceeds from sale of shares:
Class A (441,562 and 667,368
shares, respectively) ......... 2,525,811 3,651,541
Class Y (9,953 and 33,050
shares, respectively) ......... 57,429 178,871
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (492,243 and 143,389
shares, respectively) ......... 2,647,268 785,910
Class Y (6,398 and 1,949
shares, respectively) ......... 34,409 10,686
Payments for shares redeemed:
Class A (503,476 and 2,170,564
shares, respectively) ......... (2,888,559) (11,786,216)
Class Y (11,188 and 44,348
shares, respectively) ......... (62,846) (241,432)
----------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions .......... 2,313,512 (7,400,640)
----------- -----------
Total increase (decrease) ... 1,640,658 (3,615,416)
Net Assets
Beginning of period ............... 28,542,744 32,158,160
----------- -----------
End of period, including undistributed
net investment income of $36,633
and $137,194, respectively ....... $30,183,402 $28,542,744
=========== ===========
*See "Financial Highlights" on pages 14-15.
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 the fiscal period
six year ended from
months ended September 30, 3/9/95*
ended -------------- through
3/31/98 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 .......... 0.08 0.16 0.15 0.07
Net realized and
unrealized gain (loss)
on investments... 0.30 0.74 (0.17) 0.40
----- ----- ----- -----
Total from investment
operations ........ 0.38 0.90 (0.02) 0.47
----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.10) (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. (0.57) (0.15) (0.16) (0.05)
----- ----- ----- -----
Net asset value,
end of period ..... $5.80 $5.99 $5.24 $5.42
===== ===== ===== =====
Total return** ..... 7.05% 17.46% -0.49% 9.42%
Net assets, end of period
(000 omitted) .... $29,842$28,221 $31,828 $22,248
Ratio of expenses to
average net assets 1.78%***1.70% 1.68% 1.64%***
Ratio of net investment
income to average net
assets ............ 2.76%***2.87% 2.93% 3.71%***
Portfolio
turnover rate ..... 119.01%173.88% 91.06% 9.32%
Average commission
rate paid ......... $0.0427$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 fiscal For the
six year ended period
months September 30, from 9/27/95*
ended -------------- through
3/31/98 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 .......... 0.09 0.17 0.16 0.00
Net realized and
unrealized gain
(loss) on
investments...... 0.30 0.75 (0.17) 0.01
----- ----- ----- -----
Total from investment
operations ........ 0.39 0.92 (0.01) 0.01
----- ----- ----- -----
Less distributions:
From net investment
income........... (0.11) (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. (0.58) (0.17) (0.17) (0.00)
----- ----- ----- -----
Net asset value,
end of period ..... $5.80 $5.99 $5.24 $5.42
===== ===== ===== =====
Total return ....... 7.22% 17.93% -0.21% 0.18%
Net assets, end of
period (000
omitted) ......... $341 $322 $330 $3
Ratio of expenses
to average net
assets ............ 1.50%**1.28% 1.29% 0.00%
Ratio of net
investment income
to average net
assets ............ 3.07%**3.29% 3.43% 0.00%
Portfolio
turnover rate ..... 119.01%173.88% 91.06% 9.32%**
Average commission
rate paid ......... $0.0427$0.0329 $0.0440
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 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 $19.8 billion of
combined net assets at March 31, 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.
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
$81,419, out of which W&R paid sales commissions of $46,145 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 $520, which are included in other
expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and 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 $16,804,610 while proceeds from maturities and sales
aggregated $22,878,070. Purchases of short-term securities and U.S. Government
securities aggregated $52,063,491 and $8,081,984, respectively. Proceeds from
maturities and sales of short-term securities and U.S. Government securities
aggregated $47,719,242 and $5,016,406, respectively.
For Federal income tax purposes, cost of investments owned at March 31,
1998 was $29,083,733, resulting in net unrealized appreciation of $1,936,839, of
which $2,166,227 related to appreciated securities and $229,388 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 has been
distributed to the Fund's shareholders.
NOTE 6 -- Multiclass Operations
On September 12, 1995, the Fund was authorized to offer investors 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 March 31, 1998, and the related statements of operations for the six-month
period then ended and changes in net assets for the six-month period then ended
and the fiscal year ended September 30, 1997, and the financial highlights for
the six-month period then ended and for each of the fiscal periods in the three-
year period ended September 30, 1997. The financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on the 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 March
31, 1998 by correspondence with the custodian and brokers. 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 March 31, 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
May 8, 1998
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
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 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
NUR1017SA(3-98)
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