United
Asset Strategy
Fund, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1999
<PAGE>
MANAGERS' LETTER
SEPTEMBER 30, 1999
- ----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of United Asset Strategy Fund, Inc. for the
fiscal year ended September 30, 1999. The discussion, graphs and tables
contained in this report will provide you with information regarding the Fund's
performance during that period.
The last fiscal year began with the financial market meltdown initiated by the
Russian debt default in September 1998. In spite of the fact that many other
economies around the globe were being hit hard, the U.S. economy continued to
show strength and was soon seen as the engine that would help other economies
out of their recessions. After three Federal Reserve easings, the dramatic
decline in U.S. equity prices in the fall of 1998 soon came to be viewed as a
buying opportunity. In spite of disruptions and events such as Brazil's
currency devaluation, Japan's ongoing recession/depression and the war in
Kosovo, investors poured money into U.S. stocks in the first half of 1999 and
the market hit a new high. Only when the market focused on inflation fears and
the Federal Reserve raised rates twice did the market performance level off.
Due to the global financial problems at the beginning of the fiscal year and the
subsequent uncertainty in the markets, it was decided to decrease the equity
portion of the portfolio and also to invest primarily in safe investments (i.e.,
U.S. Treasuries and agencies). The idea behind holding primarily government
bonds during much of the last fiscal year was to ensure adequate liquidity in
the Fund during a period when uncertainty in the markets remained high.
However, in spite of being invested in the highest quality fixed income
investments, the rise in interest rates took its toll on the market value of the
Fund's portfolio. During the first half of the fiscal year, the fixed income
portion of the Fund was about forty to fifty percent in intermediate-term
Treasuries. At the end of May, the Fund's fixed income portfolio was
restructured to maintain a higher degree of liquidity, but to limit the impact
on the Fund of higher interest rates, by shifting the Fund's holdings into 3-
year Treasury bonds. At the same time, the Fund began to opportunistically
invest in certain higher quality emerging market credits with short maturities
and higher yields. A larger proportion of the total Fund was maintained in
fixed income instruments through most of the fiscal year than would be the case
under more normal market conditions. Initially, this was the correct posture to
take, but the unforeseen dramatic comeback of the U.S. equity market in the
fourth quarter of 1998 and first quarter of 1999 resulted in the Fund being
underallocated to equities early in the fiscal year. Later in the year, we re-
focused by increasing the Fund's exposure to equities, with more emphasis on
basic materials and energy due to the relative valuation of these sectors and
rising commodity prices.
The strategies and techniques we applied resulted in the performance of the Fund
remaining above that of one-month certificates of deposit (Salomon Brothers
Short-Term Index for 1 Month Certificates of Deposit) and the bond market (the
Salomon Brothers Broad Investment Grade Debt Index), and below that of the
universe of portfolios with similar investment objectives (the Lipper Flexible
Portfolio Universe Average) and securities that generally represent the stock
market (the S&P 500 Composite Stock Price Index). Those indexes are charted on
the following page. A variety of indexes is presented because the Fund invests
in stocks, bonds and other instruments. The primary reason for the Fund's
relative underperformance was the Fund's stronger-than-normal allocation to
fixed income securities early in the fiscal year.
The debate continues as to whether or not we are in a speculative equity bubble.
Mergers and acquisitions are setting records as global corporate consolidation
continues. Interest rates may continue to rise due to the Federal Reserve's
notice that they may raise rates again in the next few months. Central banks
around the world are also maintaining tight monetary policies. Although many
economists are calling for a global economic rebound in 2000 (albeit a slow
one), others are not so sure of the predictability of the growth in places like
Japan, Korea, China and Latin America. Private debt levels in the U.S. are
growing to record levels, as is our current account deficit. The U.S. economy
is now more dependent upon the performance of the stock market than at any time
in its history. All of these factors point to continued uncertainty.
We anticipate no change in our current strategy of emphasizing short-term U.S.
Treasuries for safety and liquidity in the fixed income portion of the Fund.
Although we feel the Fund is properly positioned for current market conditions,
we have retained the flexibility and the reserves to increase our equity
weighting if we believe conditions warrant.
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 $10,000 Investment in
United Asset Strategy Fund, Inc. Class A Shares,
The S&P 500 Composite Stock Price Index
The Salomon Brothers Broad Investment Grade Debt Index,
The Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit and
The Lipper Flexible Portfolio Universe Average
Salomon
S&P Salomon Brothers
500 Brothers Short-Term Lipper
United Composite Broad Index Flexible
Asset Stock Investmentfor 1 monthPortfolio
Strategy Price Grade CertificatesUniverse
Fund Index Debt of Deposit Average
--------- --------- --------- --------------------
04/01/95
Purchase$ 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 15,995
09/30/9913,848 27,878 13,655 12,789 18,438
====United Asset Strategy Fund, Inc., Class A Shares* -- $13,848
++++S&P 500 Composite Stock Price Index** -- $27,878
*+*+ Salomon Brothers Broad Investment Grade Debt
Index** -- $13,655
*-*-Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit** -
- - $12,789
-+-+Lipper Flexible Portfolio Universe Average** -- $18,438
*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
9/30/99 0.76% 7.35%
4+ Years Ended
9/30/99+++ 7.49% N/A
Life of Class Y++++ N/A 8.27%
+ Total return for the Class Y shares may be greater than that of the Class A
shares because the Fund's Class Y shares are not subject to a sales load or
12b-1 fees.
++ Performance data quoted represents past performance and is based on
deduction of a 5.75% sales load on the initial purchase in each of the two
periods. Investment return and principal value will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
+++3/9/95 (inception) through 9/30/99.
++++9/27/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 9/30/99.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United Asset Strategy Fund, Inc.
PORTFOLIO STRATEGY:
Stocks 70% OBJECTIVE: To seek 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. Within each of
(can range from 0-100%) these classes, the Fund may invest in
both domestic and foreign securities.
The Fund selects an allocation mix which
represents the way the Fund's
investments will generally be allocated
over the long term as indicated in the
accompanying chart. This mix will vary
over shorter time periods as Fund
holdings change based on the current
outlook for the different markets.
FOUNDED: 1995
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY
(March, June, September, December)
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 1999
- --------------------------------------------
DIVIDENDS PAID $0.10
=====
CAPITAL GAINS DISTRIBUTION $0.24
=====
NET ASSET VALUE ON
9/30/99 $5.82 adjusted to:$ 6.06(A)
9/30/98 5.78
-----
CHANGE PER SHARE $0.28
=====
(A)This number includes the capital gains distribution of $0.24 paid in
December 1998 added to the actual net asset value on September 30, 1999.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load** Sales Load***
- ------ ----------- ------------
1-year period ended 9-30-99 0.76% 6.90%
Period from 3-9-95*
through 9-30-99 7.49% 8.89%
*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 September 30, 1999, the Fund had net assets totaling $48,389,916 invested in
a diversified portfolio of:
50.80% Common Stocks
29.24% United States Government Securities
14.50% Cash and Cash Equivalents
5.46% Corporate Debt Securities
As a shareholder of United Asset Strategy Fund, Inc., for every $100 you had
invested on September 30, 1999, your Fund owned:
$50.80 Common Stocks
29.24 United States Government Securities
14.50 Cash and Cash Equivalents
5.46 Corporate Debt Securities
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1999
Shares Value
COMMON STOCKS
Business Services - 4.91%
BMC Software, Inc.* .................... 7,400 $ 529,331
Clear Channel Communications, Inc.* .... 7,000 559,125
Microsoft Corporation* ................. 5,800 525,444
Oracle Corporation* .................... 11,800 537,269
TMP Worldwide Inc.* .................... 3,700 225,353
Total ................................. 2,376,522
Chemicals and Allied Products - 8.91%
American Home Products Corporation ..... 9,100 377,650
Forest Laboratories, Inc.* ............. 9,400 395,975
Johnson & Johnson ...................... 4,500 413,438
Lilly (Eli) and Company ................ 11,000 704,000
Merck & Co., Inc. ...................... 8,100 524,981
Pharmacia & Upjohn, Inc. ............... 8,000 397,000
Schering-Plough Corporation ............ 15,000 654,375
Smith International, Inc.* ............. 5,600 226,800
Warner-Lambert Company ................. 9,300 617,288
Total ................................. 4,311,507
Communication - 1.56%
Cox Communications, Inc., Class A* ..... 8,771 366,189
EchoStar Communications Corporation,
Class A* .............................. 4,300 390,628
Total ................................. 756,817
Depository Institutions - 0.97%
U. S. Bancorp. ......................... 15,500 467,906
Eating and Drinking Places - 1.92%
McDonald's Corporation ................. 11,800 507,400
Wendy's International, Inc. ............ 16,000 422,000
Total ................................. 929,400
Electronic and Other Electric Equipment - 2.91%
Analog Devices, Inc.* .................. 12,900 661,125
Eaton Corporation ...................... 4,300 371,144
JDS Uniphase Corporation* .............. 3,300 375,478
Total ................................. 1,407,747
Fabricated Metal Products - 0.96%
Parker Hannifin Corporation ............ 10,400 466,050
See Notes to Schedule of Investments on page 12.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1999
Shares Value
COMMON STOCKS (Continued)
General Merchandise Stores - 1.86%
BJ's Wholesale Club, Inc.* ............. 16,200 $ 478,913
Dayton Hudson Corporation .............. 7,000 420,437
Total ................................. 899,350
Holding and Other Investment Offices - 1.58%
ABB Ltd. (Sweden) (A)* ................. 3,700 379,753
"Shell" Transport and Trading
Company, p.l.c. (The), ADR ............ 8,400 382,200
Total ................................. 761,953
Industrial Machinery and Equipment - 3.58%
Applied Materials, Inc.* ............... 3,300 256,266
Baker Hughes Incorporated .............. 13,200 382,800
Case Corporation ....................... 6,100 303,856
Cooper Cameron Corporation* ............ 7,000 264,250
SPX Corporation* ....................... 5,800 526,350
Total ................................. 1,733,522
Instruments and Related Products - 3.62%
Beckman Coulter, Inc. .................. 9,800 442,225
CONMED Corporation* .................... 16,600 407,219
KLA-Tencor Corporation* ................ 3,300 214,603
Raytheon Company, Class B .............. 9,600 476,400
Teradyne, Inc.* ........................ 6,000 211,500
Total ................................. 1,751,947
Insurance Carriers - 0.76%
American International Group, Inc. ..... 4,250 369,484
Metal Mining - 5.40%
Barrick Gold Corporation ............... 23,000 500,250
Franco-Nevada Mining Corporation
Limited (A) .....................41,598 898,399
Homestake Mining Company ............... 57,500 528,281
Placer Dome Inc. ....................... 46,000 684,250
Total ................................. 2,611,180
Motion Pictures - 1.20%
AT&T Corp. - Liberty Media Group, Class A* 15,600 579,150
Oil and Gas Extraction - 2.39%
Burlington Resources Incorporated ...... 10,000 367,500
Schlumberger Limited ................... 6,300 392,569
Transocean Offshore Incorporated ....... 6,700 205,188
USX Corporation - Marathon Group ....... 6,500 190,125
Total ................................. 1,155,382
Petroleum and Coal Products - 0.39%
Texaco Inc. ............................ 3,000 189,375
See Notes to Schedule of Investments on page 12.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1999
Shares Value
COMMON STOCKS (Continued)
Primary Metal Industries - 0.94%
Phelps Dodge Corporation ............... 8,300 $ 457,019
Transportation by Air - 0.84%
Southwest Airlines Co. ................. 26,700 405,506
Transportation Equipment - 3.73%
Ford Motor Company ..................... 6,300 316,181
General Motors Corporation ............. 6,200 390,212
Gentex Corporation* .................... 26,250 542,227
Lockheed Martin Corporation ............ 17,000 555,688
Total ................................. 1,804,308
Wholesale Trade -- Nondurable Goods - 2.37%
Cardinal Health, Inc. .................. 8,400 457,800
McKesson HBOC, Inc. .................... 8,600 249,400
U.S. Foodservice* ...................... 24,500 441,000
Total ................................. 1,148,200
TOTAL COMMON STOCKS - 50.80% $24,582,325
(Cost: $22,448,759)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Communication - 1.08%
Grupo Televisa, S.A.,
11.375%, 5-15-2003 .................... $ 500 523,750
Fabricated Metal Products - 1.03%
Crown Cork & Seal Company, Inc.,
7.125%, 9-1-2002 ...................... 500 498,610
Finance, Taxation and Monetary Policy - 0.94%
Banco Nacional de Comercio Exterior, S.N.C.,
7.25%, 2-2-2004 ....................... 500 453,750
Petroleum and Coal Products - 0.99%
Petroleos Mexicanos
(Daily Adjusted Yield Securities (DAYS)),
9.52019%, 7-15-2005 ................... 500 477,500
Primary Metal Industries - 0.50%
Ispat Mexicana, S.A. de C.V.,
10.375%, 3-15-2001 (B)................. 250 240,000
See Notes to Schedule of Investments on page 12.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Stone, Clay and Glass Products - 0.92%
Vicap, S.A. de C.V.,
10.25%, 5-15-2002 ..................... $ 500 $ 447,500
TOTAL CORPORATE DEBT SECURITIES - 5.46% $ 2,641,110
(Cost: $2,649,337)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
6.2%, 2-27-2004 ....................... 500 487,240
7.15%, 1-20-2005 ...................... 1,000 991,720
7.04%, 2-16-2005 ...................... 1,000 989,370
6.02%, 3-30-2006 ...................... 500 477,810
United States Treasury,
5.625%, 12-31-2002 .................... 11,250 11,204,325
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 29.24% $14,150,465
(Cost: $14,205,453)
SHORT-TERM SECURITIES
Electric, Gas and Sanitary Services - 4.12%
Allegheny Energy Inc.,
5.32%, 10-20-99 ....................... 2,000 1,994,384
Fabricated Metal Products - 4.52%
Danaher Corporation,
5.38%, Master Note .................... 2,187 2,187,000
Food and Kindred Products - 1.65%
General Mills, Inc.,
5.235%, Master Note ................... 795 795,000
TOTAL SHORT-TERM SECURITIES - 10.29% $ 4,976,384
(Cost: $4,976,384)
TOTAL INVESTMENT SECURITIES - 95.79% $46,350,284
(Cost: $44,279,933)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 4.21% 2,039,632
NET ASSETS - 100.00% $48,389,916
See Notes to Schedule of Investments on page 12.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 1999
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) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At September 30, 1999, the value of
this security amounted to $240,000 or 0.50% of net assets.
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, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $46,350
Cash ............................................ 2
Receivables:
Investment securities sold ...................... 2,785
Dividends and interest .......................... 266
Fund shares sold ................................ 38
Prepaid insurance premium ........................ 10
Unamortized organization expenses (Note 2) ....... 5
-------
Total assets .................................. 49,456
-------
Liabilities
Payable from securities purchased ................ 929
Payable to Fund shareholders ..................... 93
Accrued transfer agency and dividend
disbursing (Note 3) ............................. 18
Accrued service fee (Note 3) ..................... 10
Organization expenses payable (Note 2) ........... 5
Accrued accounting services fee (Note 3) ......... 2
Accrued management fee (Note 3) .................. 1
Other liabilities ................................ 8
-------
Total liabilities ............................. 1,066
-------
Total net assets ............................. $48,390
=======
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 83
Additional paid-in capital ...................... 44,708
Accumulated undistributed income:
Accumulated undistributed net investment income 58
Accumulated undistributed net realized gain on
investment transactions ....................... 1,471
Net unrealized appreciation in value of
investments ................................... 2,070
-------
Net assets applicable to outstanding
units of capital ............................. $48,390
=======
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.82
Class Y .......................................... $5.83
Capital shares outstanding
Class A .......................................... 8,264
Class Y .......................................... 49
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, 1999
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $1,195
Dividends ....................................... 150
------
Total income .................................. 1,345
------
Expenses (Notes 2 and 3):
Investment management fee ....................... 271
Transfer agency and dividend disbursing - Class A 156
Service fee - Class A ........................... 88
Registration fees ............................... 51
Legal fees ...................................... 41
Accounting services fee ......................... 20
Audit fees ...................................... 15
Amortization of organization expenses ........... 10
Custodian fees .................................. 9
Distribution fee - Class A ...................... 8
Other ........................................... 71
------
Total expenses ................................ 740
------
Net investment income ........................ 605
------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 4)
Realized net gain on securities .................. 1,671
Realized net loss on foreign currency
transactions .................................... (2)
------
Realized net gain on investments ................ 1,669
Unrealized appreciation in value of investments
during the period ............................... 595
------
Net gain on investments ....................... 2,264
------
Net increase in net assets resulting
from operations ............................ $2,869
======
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,
-----------------------------
1999 1998
Increase (Decrease) in Net Assets -------------- ------------
Operations:
Net investment income ............ $ 605 $ 738
Realized net gain on investments . 1,669 2,284
Unrealized appreciation
(depreciation) ................. 595 (751)
------- -------
Net increase in net assets
resulting from operations ..... 2,869 2,271
------- -------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ........................ (627) (833)
Class Y ........................ (5) (10)
Realized gains on securities transactions:
Class A ........................ (1,478) (2,183)
Class Y ........................ (10) (28)
------- -------
(2,120) (3,054)
Capital share transactions: ------- -------
Proceeds from sale of shares and
exchanges of shares (Note 7):
Class A (3,707,930 and 1,316,486
shares, respectively) ......... 20,949 7,660
Class Y (51,985 and 14,599
shares, respectively) ......... 292 85
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (380,250 and 552,747
shares, respectively) ......... 2,091 2,995
Class Y (2,751 and 7,024
shares, respectively) ......... 15 38
Payments for shares redeemed:
Class A (1,506,056 and 901,720
shares, respectively) ......... (8,548) (5,234)
Class Y (47,870 and 33,384
shares, respectively) ......... (269) (193)
------- -------
Net increase in net assets
resulting from capital
share transactions .......... 14,530 5,351
------- -------
Total increase .............. 15,279 4,568
Net Assets
Beginning of period ............... 33,111 28,543
------- -------
End of period, including undistributed
net investment income of $58
and $29, respectively ............ $48,390 $33,111
======= =======
*See "Financial Highlights" on pages 16 - 17.
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
1999 1998 1997 1996 9/30/95
------ ------ ------ ------ -------
Net asset value,
beginning of period $5.78 $5.99 $5.24 $5.42 $5.00
----- ----- ----- ----- -----
Income from investment operations:
Net investment
income .......... 0.09 0.15 0.16 0.15 0.07
Net realized and
unrealized gain (loss)
on investments .. 0.29 0.28 0.74 (0.17) 0.40
----- ----- ----- ----- -----
Total from investment
operations ....... 0.38 0.43 0.90 (0.02) 0.47
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.10) (0.17) (0.15) (0.15) (0.05)
From capital gains (0.24) (0.47) (0.00) (0.00) (0.00)
In excess of capital
gains ........... (0.00) (0.00) (0.00) (0.01) (0.00)
----- ----- ----- ----- -----
Total distributions (0.34) (0.64) (0.15) (0.16) (0.05)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.82 $5.78 $5.99 $5.24 $5.42
===== ===== ===== ===== =====
Total return** ..... 6.90% 7.89% 17.46% -0.49% 9.42%
Net assets, end of period
(000 omitted) .... $48,106$32,868 $28,221$31,828 $22,248
Ratio of expenses to
average net assets 1.90% 1.62% 1.70% 1.68% 1.64%***
Ratio of net investment
income to average net
assets ........... 1.55% 2.45% 2.87% 2.93% 3.71%***
Portfolio
turnover rate .... 176.63%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
period
For the fiscal year from
ended September 30, 9/27/95*
------------------------------ through
1999 1998 1997 1996 9/30/95
-------------- ------ ------ -------
Net asset value,
beginning of period $5.78 $5.99 $5.24 $5.42 $5.41
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.12 0.16 0.17 0.16 0.00
Net realized and
unrealized gain
(loss) on
investments ..... 0.28 0.29 0.75 (0.17) 0.01
----- ----- ----- ----- -----
Total from investment
operations ....... 0.40 0.45 0.92 (0.01) 0.01
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.11) (0.19) (0.17) (0.16) (0.00)
From capital gains (0.24) (0.47) (0.00) (0.00) (0.00)
In excess of
capital gains ... (0.00) (0.00) (0.00) (0.01) (0.00)
----- ----- ----- ----- -----
Total distributions (0.35) (0.66) (0.17) (0.17) (0.00)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.83 $5.78 $5.99 $5.24 $5.42
===== ===== ===== ===== =====
Total return ....... 7.35% 8.26% 17.93% -0.21% 0.18%
Net assets, end of
period (000
omitted) ......... $284 $243 $322 $330 $3
Ratio of expenses
to average net
assets ........... 1.49% 1.37% 1.28% 1.29% 0.00%
Ratio of net
investment income
to average net
assets ........... 1.96% 2.79% 3.29% 3.43% 0.00%
Portfolio
turnover rate ..... 176.63%230.09% 173.88% 91.06% 9.32%**
*Commencement of operations.
**Rate is for the period from March 9, 1995 through September 30, 1995.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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 business day following 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, 1999, the Fund reclassified
$57,996 between additional paid-in capital and accumulated undistributed
net investment income. This reclass was due to reorganization expenses
incurred through the merger (see Note 7) that are not deductible for income
tax purposes. Additionally, the Fund reclassified $123,386 between
additional paid-in capital and accumulated undistributed net realized gain
on investment transactions. This reclass was the result of the utilization
of capital loss carryovers that were transferred from United Gold &
Government Fund, Inc. (_UGG_) through the merger. Report net investment
income, net realized gains and net assets as reported were not affected by
these reclassifications.
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. As of
June 30, 1999, the fee is payable by the Fund at the annual rates of: 0.70% of
net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2
billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of
net assets over $3 billion. Prior to June 30, 1999, the fee consisted 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 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 the 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
$335,001, out of which W&R paid sales commissions of $192,890 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 $7,343, 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 $52,793,566 while proceeds from maturities and sales
aggregated $38,188,615. Purchases of short-term securities and U.S. Government
securities aggregated $105,927,972 and $21,446,953, respectively. Proceeds from
maturities and sales of short-term securities and U.S. Government securities
aggregated $106,951,463 and $23,833,121, respectively.
For Federal income tax purposes, cost of investments owned at September 30,
1999 was $44,368,572, resulting in net unrealized appreciation of $1,981,712, of
which $3,326,680 related to appreciated securities and $1,344,968 related to
depreciated securities.
NOTE 5 -- Federal Income Tax Matters
UGG was merged into the Fund as of June 30, 1999. At the time of the
merger UGG had capital loss carryovers of $3,550,047 available to offset future
gains of the Fund. These carryovers are limited to $123,386 for the fiscal year
ended September 30, 1999 and $489,523 for each period ending from September 30,
2000 through 2006.
For Federal income tax purposes, the Fund realized capital gain net income
of $1,636,012 during its fiscal year ended September 30, 1999, which included
utilization of $123,386 of UGG's capital loss carryovers. A portion of the
capital gain net income of the Fund was paid to the shareholders during the
period ended September 30, 1999. Remaining capital gain net income will be
distributed to the Fund's shareholders.
NOTE 6 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A, Class B,
Class C and Class Y, each of which have equal rights as to assets and voting
privileges. Only Class A and Class Y shares were issued during the fiscal year
ended September 30, 1999. Class Y shares are not subject to a sales charge on
purchases, are not subject to a Rule 12b-1 Distribution and Service Plan and are
subject to 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 their
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
NOTE 7 -- Acquisition of United Gold & Government Fund, Inc.
On June 30, 1999, the Fund acquired all the net assets of UGG pursuant to a
plan of reorganization approved by UGG shareholders on June 28, 1999. The
acquisition was accomplished by a tax-free exchange of 1,726,021 shares of the
Fund (valued at $10,096,747) for the 1,859,216 shares of UGG outstanding on June
30, 1999. UGG had net assets of $10,096,747, including $433,285 of net
unrealized appreciation in value of investments and $15,531,931 of accumulated
net realized losses on investments which were combined with those of the Fund.
The aggregate net assets of the Fund and UGG immediately before the acquisition
were $38,078,327 and $10,096,747, respectively. The aggregate net assets of the
Fund and UGG immediately following the acquisition were $48,175,074 and $0,
respectively. Transactions in capital stock related to the exchange were as
follows:
Shares
Exchanged Value
--------- -----
Class A shares ................. 1,707,548 $ 9,989,154
Class Y shares ................. 18,473 107,593
--------- -----------
Total ......................... 1,726,021 $10,096,747
========= ===========
<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, 1999, and the related statement of operations for the fiscal
year then ended, the statements of changes in net assets for each of the two
fiscal years in the period then ended, and the financial highlights for each of
the five fiscal years in the 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 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 as of
September 30, 1999, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of United
Asset Strategy Fund, Inc. as of September 30, 1999, the results of its
operations for the fiscal year then ended, the changes in its net assets for
each of the two fiscal years in the period then ended, and the financial
highlights for each of the five fiscal years in the period then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 5, 1999
<PAGE>
Shareholder Meeting Results
A special meeting of United Asset Strategy Fund, Inc. was held on June 22, 1999.
The matters voted upon by the shareholders and the resulting votes for each
matter are presented below.
Item 1. To elect the Board of Directors:
Broker
For Withhold Non-Votes*
J. Concannon 3,245,903 106,285 0
J. Dillingham 3,245,187 107,001 0
D. Gardner 3,227,264 124,924 0
L. Graves 3,240,689 111,499 0
J. Harroz Jr. 3,234,314 117,874 0
J. Hayes 3,235,625 116,563 0
R. Hechler 3,245,903 106,285 0
H. Herrmann 3,245,903 106,285 0
G. Johnson 3,221,567 130,621 0
W. Morgan 3,236,362 115,826 0
R. Reimer 3,231,721 120,467 0
F. Ross 3,245,187 107,001 0
E. Schwartz 3,229,868 122,320 0
K. Tucker 3,245,785 106,403 0
F. Vogel 3,245,903 106,285 0
Item 2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year:
Broker
For Against Abstain Non-Votes*
3,213,995 37,777 100,416 0
Item 3. To approve or disapprove the amendment to the Fund's investment
management agreement with Waddell & Reed Investment Management Company:
Broker
For Against Abstain Non-Votes*
3,023,457 187,874 140,857 0
Item 4. To approve or disapprove amendment of the Fund's policy regarding
securities lending:
Broker
For Against Abstain Non-Votes*
3,054,953 135,064 162,171 0
Item 5. To approve or disapprove the Fund's Articles of Incorporation to
change the par value of Fund shares to $0.001:
Broker
For Against Abstain Non-Votes*
3,021,112 115,285 215,791 0
*Broker Non-Votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter.
Shareholder Meeting Results
A special meeting of United Gold & Government Fund, Inc. was adjourned from June
22, 1999 and held on June 28, 1999. The matters voted upon by the shareholders
and the resulting votes for the matter are presented below.
Item 1. To approve or disapprove an Agreement and
Plan of Reorganization and Termination*:
For Against Abstain
1,015,920 125,006 51,563
*The terms of the Agreement are such that United Asset Strategy Fund, Inc.
acquired all of the assets of United Gold & Government Fund, Inc. in exchange
solely for shares of United Asset Strategy Fund, Inc. and the assumption by
United Asset Strategy Fund, Inc. of all of United Gold & Government Fund's
liabilities, followed by the distribution of shares of United Asset Strategy
Fund, Inc. to the shareholders of United Gold & Government Fund, Inc. as of
June 30, 1999.
<PAGE>
INCOME TAX INFORMATION
The amounts of the distributions below, multiplied by the number of shares owned
by you on the record dates, will give you the total amounts to be reported in
your Federal income tax return for the years in which they were received or
reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
-------------------------------------------------------
For Individuals For Corporations
---------------------- ------------------------------
Record Ordinary Long-Term Non- Long-Term
Date Total Income Capital Gain Qualifying Qualifying Capital Gain
----------- ----- -------- ------------ ---------- ---------- ------------
Class A
12-16-98 $0.2810 $0.2170 $0.0640 $0.0064 $0.2106 $0.0640
03-10-99 0.0200 0.0200 0.0000 0.0048 0.0152 0.0000
06-09-99 0.0200 0.0200 0.0000 0.0048 0.0152 0.0000
09-15-99 0.0150 0.0150 0.0000 0.0036 0.0114 0.0000
------- ------- ------- ------- ------- -------
Total $0.3360 $0.2720 $0.0640 $0.0196 $0.2524 $0.0640
======= ======= ======= ======= ======= =======
Class Y
12-16-98 $0.2860 $0.2220 $0.0640 $0.0072 $0.2148 $0.0640
03-10-99 0.0240 0.0240 0.0000 0.0058 0.0182 0.0000
06-09-99 0.0240 0.0240 0.0000 0.0058 0.0182 0.0000
09-15-99 0.0160 0.0160 0.0000 0.0038 0.0122 0.0000
------- ------- ------- ------- ------- -------
Total $0.3500 $0.2860 $0.0640 $0.0226 $0.2634 $0.0640
======= ======= ======= ======= ======= =======
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 K. 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, Mission Hills, Kansas
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
Helge K. Lee, Vice President and Secretary
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 Accumulative Fund
United Asset Strategy Fund, Inc.
United Bond Fund
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Income Fund
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Science and Technology Fund
United Small Cap Fund, Inc.
United Vanguard 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(9-99)
printed on recycled paper
