United
Asset Strategy
Fund, Inc.
SEMIANNUAL
REPORT
--------------------------------------------
For the six months ended March 31, 1999
<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, 1999
Dear Shareholder:
As president of your Fund, I would like to thank you for your continued
confidence as an investor. From every area of Waddell & Reed, including your
personal financial advisor, our goal has been to provide the best service
possible to our shareholders.
While it is impossible to predict the future direction of the markets, there are
some basic principles that we stand by that can help investors achieve their
objectives:
. Develop a financial plan that helps you pinpoint your financial objectives,
and identify specific strategies for turning your dreams into reality. There
is no better way to plan for your future.
. Invest on a regular basis. It can be one of the best ways to invest long
term and provide a hedge against market volatility.
. Adopt a long-term view to take advantage of compounding. The key to
successful investing is time, not timing. The power of compounding is
awesome and, on a long-term basis, can overwhelm any nuances of timing.
. Review your financial plan regularly. Financial planning is an ongoing
process that requires periodic review.
Waddell & Reed is positioned to assist you as you work toward your financial
goals. We will continue to offer quality investment products and personal
service to make the financial planning and investment process convenient and
accessible to you. Our locally based financial advisors are ready to assist you
with your total financial plan to help you plan for your retirement, to help you
meet your education funding goals or to achieve other financial objectives.
We look forward to assisting you in the future. If you have any questions about
your account, wish to review your financial plan or have other financial issues
that are important to you, contact your financial advisor or your local Waddell
& Reed office.
Respectfully,
Robert L. Hechler
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, 1999
- ---------------------------------------
DIVIDENDS PAID $0.06
=====
CAPITAL GAINS DISTRIBUTION $0.24
=====
NET ASSET VALUE ON
3/31/99 $5.56 adjusted to:$ 5.80(A)
9/30/98 5.78
-----
CHANGE PER SHARE $0.02
=====
(A)This number includes the capital gains distribution of $0.24 paid in
December 1998 added to the actual net asset value on March 31, 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 3-31-99 -3.58% 2.31%
Period from 3-9-95*
through 3-31-99 7.08% 8.65%
*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, 1999, the Fund had net assets totaling $36,207,499 invested in a
diversified portfolio of:
51.81% Common Stocks
45.58% United States Government Securities
1.32% Cash and Cash Equivalents
1.29% Corporate Debt Security
As a shareholder of United Asset Strategy Fund, Inc., for every $100 you had
invested on March 31, 1999, your Fund owned:
$51.81 Common Stocks
45.58 United States Government Securities
1.32 Cash and Cash Equivalents
1.29 Corporate Debt Security
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1999
Shares Value
COMMON STOCKS
Business Services - 3.69%
Microsoft Corporation* ................. 11,200 $ 1,003,450
Teradyne, Inc.* ........................ 6,100 332,831
Total ................................. 1,336,281
Chemicals and Allied Products - 10.07%
Bristol-Myers Squibb Company ........... 9,300 598,106
du Pont (E.I.) de Nemours and Company .. 9,300 539,981
Forest Laboratories, Inc.* ............. 6,900 388,988
Merck & Co., Inc. ...................... 6,400 513,200
Pharmacia & Upjohn, Inc. ............... 6,600 411,675
Procter & Gamble Company (The) ......... 5,900 577,831
Warner-Lambert Company ................. 9,300 615,544
Total ................................. 3,645,325
Communication - 4.92%
Bell Atlantic Corporation .............. 8,900 460,019
Clear Channel Communications, Inc.* .... 7,000 469,437
Cox Communications, Inc., Class A* ..... 6,100 461,313
TCA Cable TV, Inc. ..................... 9,000 391,219
Total ................................. 1,781,988
Eating and Drinking Places - 1.26%
Wendy's International, Inc. ............ 16,000 455,000
Electronic and Other Electric Equipment - 6.43%
Gemstar International Group Limited* ... 6,100 458,263
Analog Devices, Inc.* .................. 12,900 383,775
EchoStar Communications Corporation, Class A* 6,200 505,300
Intel Corporation ...................... 5,300 630,037
Micron Technology, Inc.* ............... 7,300 352,225
Total ................................. 2,329,600
Fabricated Metal Products - 2.01%
Fortune Brands, Inc. ................... 13,300 514,544
Newell Rubbermaid Inc. ................. 4,500 213,750
Total ................................. 728,294
Food and Kindred Products - 1.44%
Ralston-Ralston Purina Group ........... 19,500 520,406
Industrial Machinery and Equipment - 2.12%
Applied Materials, Inc.* ............... 6,500 401,172
Case Corporation ....................... 14,500 367,937
Total ................................. 769,109
See Notes to Schedule of Investments on page 8.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 4.56%
Baxter International Inc. .............. 5,600 $ 369,600
Guidant Corporation .................... 6,600 399,300
KLA-Tencor Corporation* ................ 6,600 320,719
Raytheon Company, Class B .............. 9,600 562,800
Total ................................. 1,652,419
Motion Pictures - 2.67%
AT&T Corp. - Liberty Media Group, Class A* 7,800 410,475
Time Warner Incorporated ............... 7,800 554,288
Total ................................. 964,763
Primary Metal Industries - 1.03%
USX Corporation - U.S. Steel Group ..... 15,800 371,300
Stone, Clay and Glass Products - 1.44%
Gentex Corporation* .................... 24,100 519,656
Transportation by Air - 2.52%
Northwest Airlines Corporation, Class A* 13,500 375,047
Southwest Airlines Co. ................. 17,800 538,450
Total ................................. 913,497
Transportation Equipment - 4.15%
Ford Motor Company ..................... 6,300 357,525
General Motors Corporation ............. 6,200 538,625
Newport News Shipbuilding Inc. ......... 19,100 605,231
Total ................................. 1,501,381
Trucking and Warehousing - 1.38%
CNF Transportation Inc. ................ 13,200 499,125
Wholesale Trade -- Durable Goods - 1.16%
Johnson & Johnson ...................... 4,500 421,594
Wholesale Trade -- Nondurable Goods - 0.96%
U.S. Foodservice* ...................... 7,500 348,750
TOTAL COMMON STOCKS - 51.81% $18,758,488
(Cost: $16,425,050)
See Notes to Schedule of Investments on page 8.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITY - 1.29%
Petroleos Mexicanos (Daily Adjusted
Yield Securities (DAYS)),
9.8569%, 7-15-2005 .................... $ 500 $ 466,250
(Cost: $462,500)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
6.2%, 2-27-2004 ....................... 500 499,960
6.02%, 3-30-2006 ...................... 500 491,405
United States Treasury:
5.625%, 12-31-2002 .................... 6,250 6,340,812
5.875%, 11-15-2005 .................... 350 359,625
6.125%, 8-15-2007 ..................... 5,500 5,757,785
5.625%, 5-15-2008 ..................... 3,000 3,053,910
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 45.58% $16,503,497
(Cost: $16,626,995)
TOTAL SHORT-TERM SECURITIES - 1.27% $ 461,000
(Cost: $461,000)
TOTAL INVESTMENT SECURITIES - 99.95% $36,189,235
(Cost: $33,975,545)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 0.05% 18,264
NET ASSETS - 100.00% $36,207,499
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
MARCH 31, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $36,189
Receivables:
Dividends and interest .......................... 220
Fund shares sold ................................ 7
Unamortized organization expenses (Note 2) ....... 10
Prepaid insurance premium ........................ 1
-------
Total assets .................................. 36,427
-------
Liabilities
Payable to Fund shareholders ..................... 116
Due to custodian ................................. 51
Accrued transfer agency and dividend
disbursing (Note 3) ............................. 13
Organization expenses payable (Note 2) ........... 10
Accrued service fee (Note 3) ..................... 7
Accrued accounting services fee (Note 3) ......... 2
Accrued distribution fee (Note 3) ................ 1
Accrued management fee (Note 3) .................. 1
Other liabilities ................................ 19
-------
Total liabilities ............................. 220
-------
Total net assets ............................. $36,207
=======
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 65
Additional paid-in capital ...................... 34,561
Accumulated undistributed income (loss):
Accumulated undistributed net investment
loss .......................................... (3)
Accumulated undistributed net realized loss on
investment transactions ....................... (630)
Net unrealized appreciation in value of
investments ................................... 2,214
-------
Net assets applicable to outstanding
units of capital ............................. $36,207
=======
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.56
Class Y .......................................... $5.56
Capital shares outstanding
Class A .......................................... 6,470
Class Y .......................................... 44
Capital shares authorized .......................... 1,000,000
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended MARCH 31, 1999
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 578
Dividends ....................................... 66
------
Total income .................................. 644
------
Expenses (Notes 2 and 3):
Investment management fee ....................... 121
Transfer agency and dividend disbursing - Class A 51
Service fee - Class A ........................... 40
Registration fees ............................... 19
Accounting services fee ......................... 10
Audit fees ...................................... 8
Amortization of organization expenses ........... 5
Distribution fee - Class A ...................... 5
Custodian fees .................................. 3
Legal fees ...................................... 3
Other ........................................... 32
------
Total expenses ................................ 297
------
Net investment income ........................ 347
------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 4)
Realized net loss on securities .................. (554)
Realized net loss on foreign currency
transactions .................................... (1)
------
Realized net loss on investments ................ (555)
Unrealized appreciation in value of investments
during the period ............................... 739
------
Net gain on investments ....................... 184
------
Net increase in net assets resulting
from operations ............................ $531
======
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands) For the six For the fiscal
months ended year ended
March 31, September 30,
1999 1998
Increase in Net Assets --------------------------
Operations:
Net investment income ............ $ 347 $ 738
Realized net gain (loss)
on investments ................. (555) 2,284
Unrealized appreciation
(depreciation) ................. 739 (751)
------- -------
Net increase in net assets
resulting from operations ..... 531 2,271
------- -------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ........................ (375) (833)
Class Y ........................ (3) (10)
Realized gains on securities transactions:
Class A ........................ (1,477) (2,183)
Class Y ........................ (10) (28)
------- -------
(1,865) (3,054)
Capital share transactions: ------- -------
Proceeds from sale of shares:
Class A (1,227,850 and 1,316,486
shares, respectively) ......... 6,898 7,660
Class Y (29,331 and 14,599
shares, respectively) ......... 162 85
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (336,965 and 552,747
shares, respectively) ......... 1,841 2,995
Class Y (2,423 and 7,024
shares, respectively) ......... 13 38
Payments for shares redeemed:
Class A (776,464 and 901,720
shares, respectively) ......... (4,319) (5,234)
Class Y (29,711 and 33,384
shares, respectively) ......... (165) (193)
------- -------
Net increase in net assets
resulting from capital
share transactions .......... 4,430 5,351
------- -------
Total increase .............. 3,096 4,568
Net Assets
Beginning of period ............... 33,111 28,543
------- -------
End of period, including undistributed
net investment income (loss) of $(3)
and $29, respectively ............ 36,207 33,111
======= =======
*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
For the period
six For the fiscal year from
months ended September 30, 3/9/95*
ended --------------------- through
3/31/99 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 .......... 0.05 0.15 0.16 0.15 0.07
Net realized and
unrealized gain (loss)
on investments .. 0.03 0.28 0.74 (0.17) 0.40
----- ----- ----- ----- -----
Total from investment
operations ....... 0.08 0.43 0.90 (0.02) 0.47
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.06) (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 (0.30) (0.64) (0.15) (0.16) (0.05)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.56 $5.78 $5.99 $5.24 $5.42
===== ===== ===== ===== =====
Total return** ..... 1.51% 7.89% 17.46% -0.49% 9.42%
Net assets, end of period
(000 omitted) ....$35,963 $32,868$28,221 $31,828 $22,248
Ratio of expenses to
average net assets 1.70%***1.62% 1.70% 1.68% 1.64%***
Ratio of net investment
income to average net
assets ........... 1.98%***2.45% 2.87% 2.93% 3.71%***
Portfolio
turnover rate .... 79.31% 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
six For the fiscal year period
months ended September 30, from 9/27/95*
ended --------------------- through
3/31/99 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 .......... 0.07 0.16 0.17 0.16 0.00
Net realized and
unrealized gain
(loss) on
investments ..... 0.02 0.29 0.75 (0.17) 0.01
----- ----- ----- ----- -----
Total from investment
operations ....... 0.09 0.45 0.92 (0.01) 0.01
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.07) (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 (0.31) (0.66) (0.17) (0.17) (0.00)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.56 $5.78 $5.99 $5.24 $5.42
===== ===== ===== ===== =====
Total return ....... 1.67% 8.26% 17.93% -0.21% 0.18%
Net assets, end of
period (000
omitted) ......... $244 $243 $322 $330 $3
Ratio of expenses
to average net
assets ........... 1.30%** 1.37% 1.28% 1.29% 0.00%
Ratio of net
investment income
to average net
assets ........... 2.37%** 2.79% 3.29% 3.43% 0.00%
Portfolio
turnover rate .... 79.31% 230.09%173.88% 91.06% 9.32%***
*Commencement of operations.
**Annualized.
***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
MARCH 31, 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, 1998, $3,615 was reclassified
between accumulated undistributed net investment income and accumulated net
realized gain on investment transactions.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Organization
The Fund, a Maryland corporation, was organized on August 25, 1994 and was
inactive (except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and the registration
of its shares under the Securities Act of 1933) until March 9, 1995 (the date of
the initial public offering).
On February 23, 1995, Waddell & Reed, Inc. ("W&R") purchased for investment
20,000 shares of the Fund at their net asset value of $5.00 per share.
The Fund's organizational expenses in the amount of $49,530 were advanced
to the Fund by W&R and are an obligation to be paid by it. These expenses are
being amortized and are payable evenly over 60 months following the date of the
initial public offering. In the event that all or a part of W&R's initial
investment in the Fund's shares is redeemed prior to the full reimbursement of
these organizational expenses, the Fund's obligation to make further
reimbursement will cease.
NOTE 3 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the annual rate of .30% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $21.5 billion of
combined net assets at March 31, 1999) 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
$223,387, out of which W&R paid sales commissions of $128,498 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 $668, 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 $26,751,029 while proceeds from maturities and sales
aggregated $16,981,151. Purchases of short-term securities and U.S. Government
securities aggregated $27,330,899 and $7,945,352, respectively. Proceeds from
maturities and sales of short-term securities and U.S. Government securities
aggregated $32,793,773 and $8,521,499, respectively.
For Federal income tax purposes, cost of investments owned at March 31,
1999 was $33,975,545, resulting in net unrealized appreciation of $2,213,690, of
which $2,623,128 related to appreciated securities and $409,438 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, which has been
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 March 31, 1999, and the related statement of
operations for the six-month period then ended, the statements of
changes in net assets for the six-month period then ended and the fiscal
year ended September 30, 1998, and the financial highlights for the six-
month period ended March 31, 1999 and for each of the four fiscal periods
in the period ended September 30, 1998. 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 March 31, 1999, 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, 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 March 31, 1999, the
results of its operations for the six-month period then ended, the
changes in its net assets for the six-month period then ended and the
fiscal year ended September 30, 1998, and the financial highlights for
the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
<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
For shareholders who have chosen the Income-Earned option or the Cash option for
their distribution method: if the dividend distribution (for Income-Earned) or
the total distribution (for Cash) is less than ten dollars, the distribution
will be automatically paid in additional shares of the same class of the Fund.
Lower sales charges are available by combining the net asset value ("NAV") of
existing Class A shares of the Fund with additional purchases of Class A shares
of any fund in the United Group, except that only the Class A shares of United
Cash Management, Inc. that were acquired by exchange of another United Group
fund's Class A shares on which a sales charge was paid, plus the shares paid as
dividends on those acquired shares, may be combined.
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(3-99)
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