Waddell & Reed Advisors
Asset Strategy
Fund, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 2000
<PAGE>
CONTENTS
3 Managers' Letter
6 Performance Summary
8 Portfolio Highlights
9 Investments
15 Statement of Assets and Liabilities
16 Statement of Operations
17 Statement of Changes in Net Assets
18 Financial Highlights
22 Notes to Financial Statements
28 Independent Auditors' Report
29 Income Tax Information
30 Directors & Officers
This report is submitted for the general information of the shareholders of
Waddell & Reed Advisors Asset Strategy Fund, Inc. It is not authorized for
distribution to prospective investors in the Fund unless accompanied with or
preceded by the Waddell & Reed Advisors Asset Strategy Fund, Inc. current
prospectus and current Fund performance information.
<PAGE>
MANAGERS' LETTER OF ASSET STRATEGY FUND
SEPTEMBER 30, 2000
----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of Waddell & Reed Advisors Asset Strategy
Fund, Inc. for the fiscal year ended September 30, 2000. The following
discussion, graphs and tables provide you with information regarding the Fund's
performance during that period.
Upon review of economic and market fluctuations during the last 12 months, it is
apparent that the past year was somewhat of a roller coaster ride. As a result
of the easing of fear over Y2K, the 1999 calendar fourth quarter witnessed a
robust rally in technology stocks. The rally continued until the end of the
2000 calendar first quarter, when the Internet mania came to a screeching halt.
Meanwhile, interest rates were rising, and bond spreads were widening. Default
rates were climbing to levels not seen since the recession early in the 1990s.
Oil and gas price increases began taking hold, not just in the market, but in
consumers' pocketbooks. The U.S. current account deficit continued to widen to
record levels, yet the dollar continued to strengthen versus the euro, while
holding its own against the yen. In spite of these issues, the U.S. economy
thundered along, growing much faster than anticipated in the first half of the
year. Record productivity growth, fueled by strong capital investment in
technology, kept inflation subdued for the time being, in spite of higher energy
prices. However, by the third quarter of 2000, the U.S. and global economic
growth began to slow down. The current focus of the markets appears to be on
the U.S. presidential election, the direction of energy prices and the stability
of the euro. This has led to greater volatility in the financial markets.
Our performance was aided by an over-weighting in technology that began in
1999's fourth quarter. The decision to under-weight technology beginning in
March 2000, and over-weight energy and healthcare, added significantly to the
performance of the Fund over the past year. Given our concern over rising
interest rates, the fixed income portion of the portfolio stayed in the one- to
three-year maturity range. In the past few months, a decision was made to raise
the percentage of fixed income assets, but remain short on maturity. This
decision was made based on the desire to provide higher income than available
from money market investments, as well as to gradually reduce the equity/cash
position.
Our strategy has been to rotate out of the technology sector and into more
fundamental sectors such as energy, consumer products and drugs/health care. We
believe these sectors will benefit when investors sell their tech stocks. As
energy shortages began to appear, our commitment to energy stocks also rose.
Given that the Federal Reserve was in a tightening mode, and that we believed
the cost of capital was rising, we wanted to become invested in companies with
more predictable earnings and earnings growth.
The strategies and techniques employed during the fiscal year resulted in the
Fund significantly outperforming the indices charted on the following page.
Waddell & Reed Advisors Asset Strategy Fund returned 26.17 percent for the
fiscal year, compared with the Lipper Flexible Portfolio Funds Universe Average
annual return of 12.78 percent and the S&P 500 Index annual return of 13.25
percent. The Fund also outperformed the Salomon Brothers Broad Investment Grade
Index annual return of 6.92 percent and the Salomon Brothers Short-Term Index
for One Month Certificates of Deposit annual return of 6.29 percent. Multiple
indices are presented because the Fund invests in stocks, bonds and other
instruments.*
Currently, it seems the financial markets are in the process of sorting out a
variety of themes. The primary concerns appear to be the direction of economic
growth, energy prices and the presidential election -- and what impact these
will have on inflation, interest rates and certain sectors of the stock market.
Also of concern are the U.S. current account deficit, the U.S. dollar and the
value of the euro.
We intend to continue to increase the Fund's short-term fixed income holdings,
while cautiously remaining invested primarily in equities. We also intend to
concentrate equity investments in those sectors whose earnings should be less
impacted by an economic slowdown. Given the expected level of volatility in the
markets, the Fund intends to opportunistically use options as both a defensive
measure and income-producing measure.
In closing, we would like to thank you for your investment, your continued
confidence and your support of Waddell & Reed Advisors Asset Strategy Fund.
Sincerely,
Micheal L. Avery
Daniel J. Vrabac
Co-managers, Waddell & Reed Advisors Asset Strategy Fund, Inc.
*These indices reflect the performance of securities that generally
represent one month certificates of deposit (Salomon Brothers Short-
Term Index for One Month Certificates of Deposit), the bond market
(the Salomon Brothers Broad Investment Grade Index), the stock market
(the S&P 500 Index) and the universe of funds with similar investment
objectives (the Lipper Flexible Portfolio Funds Universe Average).
<PAGE>
Comparison of Change in Value of $10,000 Investment
====Waddell & Reed Advisors Asset Strategy Fund, Inc., Class A Shares* --
$18,547
++++S&P 500 Composite Stock Price Index** -- $31,570
*+*+Salomon Brothers Broad Investment Grade Debt Index** -- $14,799
*-*-Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit** --
$13,594
-+-+Lipper Flexible Portfolio Funds Universe Average** -- $21,066
Salomon
Waddell Salomon Brothers Lipper
& Reed Brothers Short-Term Flexible
Advisors Broad Index Portfolio
Asset S&P Investmentfor 1 Month Funds
Strategy 500 Grade CertificatesUniverse
Fund Index Index of Deposit Average
--------- --------- --------- --------------------
04-01-95
Purchase$ 9,425 $10,000 $10,000 $10,000 $10,000
09-30-9510,271 11,825 10,813 10,301 11,365
09-30-9610,221 14,230 11,348 10,883 12,757
09-30-9712,006 19,992 12,449 11,494 15,847
09-30-9812,954 21,812 13,878 12,154 16,149
09-30-9913,848 27,878 13,841 12,789 18,678
09-30-0018,547 31,570 14,799 13,594 21,066
*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.
Average Annual Total Return+
Class A Class B Class C Class Y
----------------------------------------------
Year Ended
9-30-00 26.17% --- --- 34.21%
5 Years Ended
9-30-00 11.21% --- --- 12.92%
Since inception of
Class++ through
9-30-00 11.82% 26.22% 31.06% 13.00%
+Performance data quoted represents past performance and is based on deduction
of the maximum applicable sales load for each of the periods. Class A shares
carry a maximum front-end sales load of 5.75%. Class B and Class C shares
carry maximum contingent deferred sales charges of 5% and 1%, respectively.
Total returns reflect share price appreciation, including reinvestment of all
income and capital gains distributions. 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 for Class A shares, 10-6-99 for Class B shares, 10-5-99 for Class C
shares and 9-27-95 for Class Y shares (the date on which shares were first
acquired by shareholders).
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
--------------------------------------------------------------
Waddell & Reed Advisors Asset Strategy Fund, Inc.
PORTFOLIO STRATEGY:
Stocks 70% GOAL: 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 a mix which represents
the way the Fund's investments will
generally be allocated over the long
term as indicated below. This mix will
vary over shorter time periods as Fund
holdings change based on the current
outlook for the different markets.
These changes may be based on such
factors as interest rate changes,
security valuation levels and/or a rise
in the potential for growth stocks.
FOUNDED: 1995
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY
(March, June, September, December)
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 2000
--------------------------------------------
DIVIDEND PAID $0.03
=====
CAPITAL GAINS DISTRIBUTION $0.18
=====
NET ASSET VALUE ON
9-30-00 $7.53 adjusted to: $7.71(A)
9-30-99 5.82
-----
CHANGE PER SHARE $1.89
=====
(A)This number includes the capital gains distribution of $0.18 paid in
December 1999 added to the actual net asset value on September 30, 2000.
Past performance is not necessarily indicative of future results.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (1)
Class A Class B
----------------------- -----------------------*
With Without With Without
Period Sales Load(2) Sales Load(3) CDSC(4) CDSC(5)
------ ---------- ---------- ----------- ----------
1-year period
ended 9-30-00 26.17% 33.87% --- ---
5-year period
ended 9-30-00 11.21% 12.53% --- ---
10-year period
ended 9-30-00 --- --- --- ---
Since inception of
Class (6) 11.82% 13.01% --- ---
Cumulative return
since inception
of Class (6) --- --- 26.22% 31.22%
(1)Performance data represents share price appreciation, including reinvestment
of all income and capital gains distributions. Performance data represents
past performance and is no guarantee of future results. Share price,
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2)Performance data is based on deduction of 5.75% sales load on the initial
purchase in the periods.
(3)Performance data does not take into account the sales load deducted on an
initial purchase.
(4)Performance data reflects the effect of paying the applicable contingent
deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end
of the period.
(5)Performance data does not reflect the effect of paying the applicable CDSC
upon redemption at the end of the period.
(6)3-9-95 for Class A shares and 10-6-99 for Class B shares (the date on which
shares were first acquired by shareholders).
AVERAGE ANNUAL TOTAL RETURN (1)
Class C Class Y(2)
----------------------- ----------
With Without
Period CDSC (3) CDSC (4)
------ ---------- ----------
1-year period
ended 9-30-00 --- --- 34.21%
5-year period
ended 9-30-00 --- --- 12.92%
10-year period
ended 9-30-00 --- --- ---
Cumulative return
since inception
of Class (5) 31.06% 32.06% ---
Since inception
of Class (5) --- --- 13.00%
(1)Performance data represents share price appreciation, including reinvestment
of all income and capital gains distributions. Performance data represents
past performance and is no guarantee of future results. Share price,
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2)Performance data does not include the effect of sales charges, as Class Y
shares are not subject to these charges.
(3)Performance data reflects the effect of paying the applicable contingent
deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero at
the end of the first year after investment.
(4)Performance data does not reflect the effect of paying the applicable CDSC
upon redemption at the end of the period.
(5)10-5-99 for Class C shares and 9-27-95 for Class Y shares (the date on which
shares were first acquired by shareholders).
The recent growth rate and volatility in the stock market has helped produce
short-term returns that may not be typical and may not continue in the future.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 2000, Waddell & Reed Advisors Asset Strategy Fund, Inc. had net
assets totaling $98,327,682 invested in a diversified portfolio of:
59.39% Common Stocks
22.97% Cash and Cash Equivalents
10.42% Corporate Debt Securities
4.59% United States Government Securities
1.65% Bullion
0.98% Other Government Security
As a shareholder of Waddell & Reed Advisors Asset Strategy Fund, Inc., for every
$100 you had invested on September 30, 2000, your Fund owned:
$59.39 Common Stocks
22.97 Cash and Cash Equivalents
10.42 Corporate Debt Securities
4.59 United States Government Securities
1.65 Bullion
0.98 Other Government Security
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 2000
Troy
Ounces Value
BULLION - 1.65%
Gold ................................... 5,924 $1,620,874
(Cost: $1,709,195)
Shares
COMMON STOCKS
Business Services - 1.80%
Catalina Marketing Corporation* ........ 15,000 564,375
CheckFree Holdings Corporation* ........ 18,300 766,884
Critical Path, Inc.* ................... 7,200 434,475
Total ................................. 1,765,734
Chemicals and Allied Products - 17.66%
American Home Products Corporation* (A) . 24,600 1,391,438
Biogen, Inc.* .......................... 12,800 781,200
Bristol-Myers Squibb Company ........... 30,600 1,748,025
Forest Laboratories, Inc.* ............. 26,300 3,016,281
Johnson & Johnson ...................... 10,900 1,023,919
King Pharmaceuticals, Inc.* ............ 32,000 1,070,000
Merck & Co., Inc. (A) .................. 12,300 915,581
NOVA Chemicals Corporation (B) ......... 37,600 712,329
Pfizer Inc. (A) ......................... 36,025 1,618,873
Pharmacia Corporation .................. 13,200 794,475
Pharmacyclics, Inc.* ................... 23,200 1,162,175
QLT Inc.* .............................. 12,600 893,419
Schering-Plough Corporation (A) ......... 27,200 1,264,800
Smith International, Inc.* ............. 11,900 970,594
Total ................................. 17,363,109
Coal Mining - 1.60%
CONSOL Energy Inc. ..................... 98,200 1,577,337
Communication - 2.14%
BellSouth Corporation .................. 25,200 1,014,300
Sprint Corporation - PCS Group* ......... 31,100 1,090,444
Total ................................. 2,104,744
Depository Institutions - 2.02%
Bank of America Corporation ............ 22,600 1,183,675
Chase Manhattan Corporation (The) ...... 17,400 803,662
Total ................................. 1,987,337
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON STOCKS (Continued)
Eating and Drinking Places - 1.69%
Papa John's International, Inc.* ....... 33,300 $ 833,541
Wendy's International, Inc. ............ 41,200 826,575
Total ................................. 1,660,116
Electric, Gas and Sanitary Services - 1.92%
El Paso Energy Corporation ............. 16,300 1,004,487
Kansas City Power & Light Company ...... 33,200 886,025
Total ................................. 1,890,512
Electronic and Other Electric Equipment - 0.33%
Samsung Electronics (B) ................ 1,800 326,055
Engineering and Management Services - 0.50%
Charles River Laboratories Holdings, Inc.* 14,400 489,600
Food and Kindred Products - 0.50%
Anheuser-Busch Companies, Inc. ......... 11,600 490,825
Food Stores - 1.40%
Kroger Co. (The)* ...................... 61,000 1,376,312
General Merchandise Stores - 0.94%
BJ's Wholesale Club, Inc.* ............. 27,200 928,200
Health Services - 4.64%
HCA - The Healthcare Company ........... 36,600 1,358,775
Health Management Associates, Inc.,
Class A* .............................. 100,700 2,095,819
Tenet Healthcare Corporation* .......... 30,500 1,109,437
Total ................................. 4,564,031
Holding and Other Investment Offices - 0.88%
ABB Ltd. (B) ........................... 3,700 362,541
"Shell" Transport and Trading
Company, p.l.c. (The), ADR ............ 10,200 499,163
Total ................................. 861,704
Industrial Machinery and Equipment - 2.28%
Caterpillar Inc. ....................... 24,400 823,500
Cooper Cameron Corporation* ............ 12,900 950,569
Sun Microsystems, Inc.* ................ 4,000 469,875
Total ................................. 2,243,944
Instruments and Related Products - 1.76%
Beckman Coulter, Inc. .................. 12,100 933,212
PE Corporation - PE Biosystems Group (A) 6,800 792,200
Total ................................. 1,725,412
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON STOCKS (Continued)
Insurance Agents, Brokers & Service - 0.96%
Hartford Financial Services Group Inc. (The) 12,900 $ 940,894
Insurance Carriers - 2.01%
American International Group, Inc. ..... 9,975 954,483
Lincoln National Corporation ........... 21,300 1,025,062
Total ................................. 1,979,545
Metal Mining - 2.03%
Homestake Mining Company ............... 189,400 982,513
Newmont Mining Corporation ............. 59,800 1,016,600
Total ................................. 1,999,113
Motion Pictures - 0.43%
AT&T Corp. - Liberty Media Group,
Class A* .............................. 23,500 423,000
Nondepository Institutions - 2.50%
Fannie Mae ............................. 17,300 1,236,950
Freddie Mac ............................ 22,600 1,221,813
Total ................................. 2,458,763
Oil and Gas Extraction - 4.20%
Burlington Resources Incorporated ...... 16,700 614,769
Global Industries, Ltd.* ............... 67,000 835,406
Schlumberger Limited ................... 10,400 856,050
Transocean Sedco Forex Inc. ............ 19,119 1,120,851
USX Corporation - Marathon Group ....... 24,700 700,863
Total ................................. 4,127,939
Petroleum and Coal Products - 1.65%
Exxon Mobil Corporation ................ 9,300 828,863
Texaco Inc. ............................ 15,200 798,000
Total ................................. 1,626,863
Stone, Clay and Glass Products - 0.96%
Cabot Microelectronics Corporation* .... 19,600 940,187
Transportation Equipment - 1.97%
Boeing Company (The) ................... 20,100 1,266,300
Gentex Corporation* .................... 26,650 665,417
Total ................................. 1,931,717
Wholesale Trade -- Nondurable Goods - 0.62%
Allscripts, Inc.* ...................... 43,300 612,966
TOTAL COMMON STOCKS - 59.39% $58,395,959
(Cost: $50,726,825)
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Communication - 0.51%
Dominion Resources, Inc.,
7.4%, 9-16-02 ......................... $ 500 $ 500,020
Depository Institutions - 0.50%
Banco Latinoamericano de Exportaciones, S.A.,
6.5%, 4-2-01 (C) ...................... 500 496,750
Electric, Gas and Sanitary Services - 2.04%
El Paso Natural Gas Company,
7.75%, 1-15-02 ........................ 500 503,435
Public Service Electric and Gas Company,
7.19%, 9-6-02 ......................... 500 503,125
Transportadora de Gas del Sur S.A.,
10.375%, 4-15-03 (C) .................. 500 508,750
WMX Technologies, Inc.,
7.7%, 10-1-02 ......................... 500 495,065
Total ................................. 2,010,375
Fabricated Metal Products - 0.64%
Crown Cork & Seal Company, Inc.,
7.125%, 9-1-02 ........................ 665 632,329
Food and Kindred Products - 0.50%
Diageo Capital plc,
6.0%, 3-27-03 ......................... 500 490,735
Food Stores - 0.51%
Safeway Inc.,
7.0%, 9-15-02 ......................... 500 498,995
Furniture and Home Furnishings Stores - 0.53%
Grupo Elektra, S.A. de C.V.,
12.75%, 5-15-01 ....................... 500 517,500
General Merchandise Stores - 0.51%
Wal-Mart Stores, Inc.,
6.875%, 8-1-02 ........................ 500 501,670
Industrial Machinery and Equipment - 0.50%
Tyco International Group S.A.,
6.25%, 6-15-03 ........................ 500 487,050
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Oil and Gas Extraction - 0.52%
Apache Corporation,
9.25%, 6-1-02 ......................... $ 500 $ 516,370
Paper and Allied Products - 0.51%
Federal Paper Board Company, Inc.,
8.125%, 7-1-02 ........................ 500 505,745
Petroleum and Coal Products - 0.52%
USX Corporation,
9.8%, 7-1-01 .......................... 500 509,095
Primary Metal Industries - 0.51%
CSN Islands Corp.,
9.625%, 8-2-02 (C) .................... 500 501,250
Railroad Transportation - 1.01%
Norfolk Southern Corporation,
6.95%, 5-1-02 ......................... 500 498,015
Union Pacific Corporation,
5.78%, 10-15-01 ....................... 500 491,615
Total ................................. 989,630
Transportation Equipment - 1.11%
Lockheed Martin Corporation,
6.85%, 5-15-01 ........................ 500 498,545
TRW Inc.:
6.45%, 6-15-01 ........................ 500 496,275
6.5%, 6-1-02 .......................... 100 98,616
Total ................................. 1,093,436
TOTAL CORPORATE DEBT SECURITIES - 10.42% $10,250,950
(Cost: $10,243,135)
OTHER GOVERNMENT SECURITY - 0.98%
Argentina
Republic of Argentina (The):
0.0%, 10-15-01 ........................ 500 $ 461,250
9.25%, 2-23-01 ........................ 500 499,250
Total ................................. 960,500
(Cost: $955,628)
UNITED STATES GOVERNMENT SECURITY - 4.59%
United States Treasury,
5.625%, 12-31-02 ...................... 4,550 $ 4,514,465
(Cost: $4,525,925)
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Chemicals and Allied Products - 2.16%
PPG Industries Inc.,
6.49%, 10-12-00 ....................... $ 2,130 $ 2,125,776
Communication - 3.09%
Bell Atlantic Financial Services, Inc.,
6.5%, 10-11-00 ........................ 3,040 3,034,511
Fabricated Metal Products - 0.44%
Danaher Corporation,
6.62%, Master Note .................... 432 432,000
Industrial Machinery and Equipment - 4.97%
Hewlett-Packard Company,
6.5%, 10-12-00 ........................ 4,900 4,890,268
Nondepository Institutions - 3.27%
PACCAR Financial Corp.,
6.0329%, Master Note .................. 3,214 3,214,000
Petroleum and Coal Products - 1.86%
BP Amoco Plc,
6.62%, 11-2-00 ........................ 1,825 1,825,000
Wholesale Trade -- Nondurable Goods - 4.95%
Unilever Capital Corporation,
6.5%, 11-3-00 ......................... 4,900 4,870,804
TOTAL SHORT-TERM SECURITIES - 20.74% $20,392,359
(Cost: $20,392,359)
TOTAL INVESTMENTS - 97.77% $96,135,107
(Cost: $88,553,067)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 2.23% 2,192,575
NET ASSETS - 100.00% $98,327,682
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
SEPTEMBER 30, 2000
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) As of September 30, 2000, the following written call options were
outstanding (See Note 7 to financial statements):
Contracts
Underlying Subject Expiration Month/Premium Market
Security to Call Exercise Price Received Price
--------------------------- ----------------------------------- ------
American Home Products
Corporation 246 October/60 $ 22,570 $ 29,213
Merck & Co., Inc. 123 October/75 8,979 24,600
PE Corporation - PE
Biosystems Group 68 October/110 31,313 72,250
Pfizer Inc. 360 October/45 15,029 45,000
Schering-Plough Corporation 272 October/45 26,383 74,800
-------- --------
$104,274 $245,863
-------- --------
(B) Listed on an exchange outside the United States.
(C) 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, 2000, the value of
these securities amounted to $1,506,750 or 1.53% 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>
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investments -- at value (Notes 1 and 4):
Bullion (cost - $1,709) ......................... $ 1,621
Securities (cost - $86,844) ..................... 94,514
-------
96,135
Cash ............................................ 15
Receivables:
Investment securities sold ...................... 2,120
Fund shares sold ................................ 605
Dividends and interest .......................... 342
Prepaid insurance premium ........................ 11
-------
Total assets .................................. 99,228
-------
Liabilities
Payable for investment securities purchased ...... 467
Outstanding call options at market (Note 7) ....... 246
Payable to Fund shareholders ..................... 119
Accrued transfer agency and dividend
disbursing (Note 3) ............................. 29
Accrued service fee (Note 3) ..................... 13
Accrued distribution fee .......................... 7
Accrued management fee (Note 3) .................. 4
Accrued accounting services fee (Note 3) ......... 3
Other liabilities ................................ 12
-------
Total liabilities ............................. 900
-------
Total net assets ............................. $98,328
=======
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 131
Additional paid-in capital ...................... 80,176
Accumulated undistributed income:
Accumulated undistributed net investment income 248
Accumulated undistributed net realized gain on
investment transactions ....................... 10,333
Net unrealized appreciation in value of
investments ................................... 7,582
Net unrealized depreciation in value of written
call options ................................... (142)
-------
Net assets applicable to outstanding
units of capital ............................. $98,328
=======
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $7.53
Class B .......................................... $7.50
Class C .......................................... $7.51
Class Y .......................................... $7.53
Capital shares outstanding
Class A .......................................... 11,769
Class B .......................................... 932
Class C .......................................... 306
Class Y .......................................... 63
Capital shares authorized .......................... 1,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 2000
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 1,180
Dividends (net of foreign withholding taxes of $4) 489
-------
Total income .................................. 1,669
-------
Expenses (Notes 2 and 3):
Investment management fee ....................... 483
Transfer agency and dividend disbursing:
Class A ........................................ 255
Class B ........................................ 9
Class C ........................................ 2
Service fee:
Class A ........................................ 145
Class B ........................................ 6
Class C ........................................ 2
Registration fees ............................... 59
Distribution fee:
Class A ........................................ 19
Class B ........................................ 18
Class C ........................................ 5
Accounting services fee ......................... 30
Custodian fees .................................. 20
Audit fees ...................................... 19
Legal fees ...................................... 10
Amortization of organization expenses ........... 5
Shareholder servicing - Class Y.................. 1
Other ........................................... 59
-------
Total expenses ................................ 1,147
-------
Net investment income ........................ 522
-------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 4)
Realized net gain on securities .................. 12,655
Realized net loss on foreign currency transactions (1)
Realized net loss on put options .................. (2,301)
Realized net gain on call options ................ 990
-------
Realized net gain on investments ................ 11,343
-------
Unrealized appreciation in value of securities
during the period ............................... 5,512
Unrealized depreciation in value of written call
options during the period ....................... (142)
-------
Unrealized appreciation in value of investments
during the period ............................. 5,370
-------
Net gain on investments ....................... 16,713
-------
Net increase in net assets resulting
from operations ............................ $17,235
=======
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands) For the fiscal year
ended September 30,
-----------------------------
2000 1999
Increase in Net Assets -------------- ------------
Operations:
Net investment income ............ $ 522 $ 605
Realized net gain on investments . 11,343 1,669
Unrealized appreciation .......... 5,370 595
------- -------
Net increase in net assets
resulting from operations ..... 17,235 2,869
------- -------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ........................ (328) (627)
Class B ........................ ---** ---
Class C ........................ ---** ---
Class Y ........................ (4) (5)
Realized gains on securities transactions:
Class A ........................ (1,532) (1,478)
Class B ........................ (14) ---
Class C ........................ (4) ---
Class Y ........................ (9) (10)
------- -------
(1,891) (2,120)
------- -------
Capital share transactions
(Note 6) ......................... 34,594 14,530
------- -------
Total increase .............. 49,938 15,279
Net Assets
Beginning of period ............... 48,390 33,111
------- -------
End of period, including undistributed
net investment income of $248
and $58, respectively ............ $98,328 $48,390
======= =======
*See "Financial Highlights" on pages 18 - 21.
**Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal
year ended September 30,
------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of period $5.82 $5.78 $5.99 $5.24 $5.42
----- ----- ----- ----- -----
Income (loss) from investment operations:
Net investment
income .......... 0.04 0.09 0.15 0.16 0.15
Net realized and
unrealized gain (loss)
on investments .. 1.88 0.29 0.28 0.74 (0.17)
----- ----- ----- ----- -----
Total from investment
operations ....... 1.92 0.38 0.43 0.90 (0.02)
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.03) (0.10) (0.17) (0.15) (0.15)
From capital gains (0.18) (0.24) (0.47) (0.00) (0.00)
In excess of capital
gains ........... (0.00) (0.00) (0.00) (0.00) (0.01)
----- ----- ----- ----- -----
Total distributions (0.21) (0.34) (0.64) (0.15) (0.16)
----- ----- ----- ----- -----
Net asset value,
end of period .... $7.53 $5.82 $5.78 $5.99 $5.24
===== ===== ===== ===== =====
Total return* ...... 33.87% 6.90% 7.89% 17.46% -0.49%
Net assets, end of period
(in millions) ..... $89 $48 $33 $28 $32
Ratio of expenses to
average net assets 1.55% 1.90% 1.62% 1.70% 1.68%
Ratio of net investment
income to average net
assets ........... 0.74% 1.55% 2.45% 2.87% 2.93%
Portfolio
turnover rate .... 174.40%176.63% 230.09%173.88% 91.06%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10-6-99*
through
9-30-00
-------
Net asset value,
beginning of period $5.89
----
Income from investment
operations:
Net investment income 0.01
Net realized and
unrealized gain
on investments .. 1.79
----
Total from investment
operations ....... 1.80
----
Less distributions:
From net investment
income .......... (0.01)
From capital gains (0.18)
----
Total distributions (0.19)
----
Net asset value,
end of period .... $7.50
====
Total return ....... 31.71%
Net assets, end of
period (in
millions) ........ $7
Ratio of expenses to
average net assets 2.29%**
Ratio of net investment
income to average
net assets ....... 0.22%**
Portfolio turnover
rate ............. 174.40%***
*Commencement of operations.
**Annualized.
***For the fiscal year ended September 30, 2000.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10-5-99*
through
9-30-00
-------
Net asset value,
beginning of period $5.86
----
Income from investment
operations:
Net investment income 0.01
Net realized and
unrealized gain
on investments .. 1.83
----
Total from investment
operations ....... 1.84
----
Less distributions:
From net investment
income .......... (0.01)
From capital gains (0.18)
----
Total distributions (0.19)
----
Net asset value,
end of period .... $7.51
====
Total return ....... 32.47%
Net assets, end of
period (in millions) $2
Ratio of expenses to
average net assets 2.25%**
Ratio of net investment
income to average
net assets ....... 0.30%**
Portfolio turnover
rate ............. 174.40%***
*Commencement of operations.
**Annualized.
***For the fiscal year ended September 30, 2000.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year
year ended September 30,
-------------------------------------
2000 1999 1998 1997 1996
-------------- ------ ------ -------
Net asset value,
beginning of period $5.83 $5.78 $5.99 $5.24 $5.42
----- ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment
income .......... 0.08 0.12 0.16 0.17 0.16
Net realized and
unrealized gain
(loss) on
investments ..... 1.86 0.28 0.29 0.75 (0.17)
----- ----- ----- ----- -----
Total from investment
operations ....... 1.94 0.40 0.45 0.92 (0.01)
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.06) (0.11) (0.19) (0.17) (0.16)
From capital gains (0.18) (0.24) (0.47) (0.00) (0.00)
In excess of
capital gains ... (0.00) (0.00) (0.00) (0.00) (0.01)
----- ----- ----- ----- -----
Total distributions (0.24) (0.35) (0.66) (0.17) (0.17)
----- ----- ----- ----- -----
Net asset value,
end of period .... $7.53 $5.83 $5.78 $5.99 $5.24
===== ===== ===== ===== =====
Total return ....... 34.21% 7.35% 8.26% 17.93% -0.21%
Net assets, end of
period (000
omitted) ......... $474 $284 $243 $322 $330
Ratio of expenses
to average net
assets ........... 1.26% 1.49% 1.37% 1.28% 1.29%
Ratio of net
investment income
to average net
assets ........... 1.16% 1.96% 2.79% 3.29% 3.43%
Portfolio
turnover rate ..... 174.40%176.63% 230.09%173.88% 91.06%
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS ASSET STRATEGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 -- Significant Accounting Policies
Waddell & Reed Advisors Asset Strategy Fund, Inc. (the "Fund"), formerly
United Asset Strategy Fund, Inc., 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 accounting principles generally accepted in the
United States of America.
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 accounting
principles generally accepted in the United States of America. 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,
2000, $922,808 was reclassified between additional paid-in capital and
accumulated undistributed net realized gain on investment transactions.
Net investment income, net realized gains and net assets were not affected
by this change.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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 were an obligation to be paid by it. These expenses were
amortized and paid evenly over 60 months following the date of the initial
public offering.
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 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.
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 $ 11,000
From $ 25 to $ 50 $ 22,000
From $ 50 to $ 100 $ 33,000
From $ 100 to $ 200 $ 44,000
From $ 200 to $ 350 $ 55,000
From $ 350 to $ 550 $ 66,000
From $ 550 to $ 750 $ 77,000
From $ 750 to $1,000 $ 93,500
$1,000 and Over $110,000
In addition, for each class of shares in excess of one, the Fund pays
WARSCO a monthly per-class fee equal to 2.5% of the monthly base fee.
Prior to September 1, 2000, the Accounting Services Agreement was as 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, Class B and Class C shares, the Fund pays WARSCO a monthly per
account charge for transfer agency and dividend disbursement services of $1.4125
for each shareholder account which was in existence at any time during the prior
month. With respect to Class Y shares, the Fund pays WARSCO a monthly fee at an
annual rate of 0.15% 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.
Prior to September 1, 2000, for Class A, Class B and Class C shares, the
Fund paid 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.
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
$646,907. During the period ended September 30, 2000, W&R received $3,134 and
$74 in deferred sales charges for Class B shares and Class C shares,
respectively. With respect to Class A, Class B and Class C shares, W&R paid
sales commissions of $522,079 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 0.25% 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.
Under the Distribution and Service Plan adopted by the Fund for Class B and
Class C shares, respectively, the Fund may pay W&R, on an annual basis, a
service fee of up to 0.25% of the average daily net assets of the class to
compensate W&R for providing services to shareholders of that class and/or
maintaining shareholder accounts for that class and a distribution fee of up to
0.75% of the average daily net assets of the class to compensate W&R for
distributing the shares of that class. The Class B Plan and the Class C Plan
each permit W&R to receive compensation, through the distribution and service
fee, respectively, for its distribution activities for that class, which are
similar to the distribution activities described with respect to the Class A
Plan, and for its activities in providing personal services to shareholders of
that class and/or maintaining shareholder accounts of that class, which are
similar to the corresponding activities for which it is entitled to
reimbursement under the Class A Plan.
The Fund paid Directors' fees of $2,005, 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 $112,491,569 while proceeds from maturities and
sales aggregated $91,213,251. Purchases of options aggregated $4,571,223, while
proceeds from options aggregated $3,363,675. Purchases of short-term securities
and U.S. Government securities aggregated $91,213,251 and $986,797,
respectively. Proceeds from maturities and sales of short-term securities and
U.S. Government securities aggregated $197,455,081 and $10,570,438,
respectively. Purchases of gold bullion aggregated $1,709,195.
For Federal income tax purposes, cost of investments owned at September 30,
2000 was $89,402,361, resulting in net unrealized appreciation of $6,732,746, of
which $9,620,478 related to appreciated securities and $2,887,732 related to
depreciated securities.
NOTE 5 -- Federal Income Tax Matters
United Gold & Government Fund, Inc. ("UGG"), one of the mutual funds
managed by WRIMCO, was merged into the Fund as of June 30, 1999. At the time of
the merger UGG had capital loss carryovers available to offset future gains of
the Fund. These carryovers are limited to $489,523 for each period ending from
September 30, 2000 through 2006. UGG also had net unrealized capital gains of
$433,285 at the time of the merger which could increase the limitation above if
there is recognition of such gains.
For Federal income tax purposes, the Fund realized capital gain net income
of $11,181,446 during its fiscal year ended September 30, 2000, which included
utilization of $922,808 of UGG's capital loss carryovers. The carryover
utilization consisted of the annual limitation amount of $489,523 plus UGG's
unrealized gains as of the merger date realized during fiscal year ended
September 30, 2000 limited to $433,285. The 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. 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 each 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.
Transactions in capital stock are summarized below. Amounts are in
thousands.
For the fiscal
year ended September 30,
------------------------
2000 1999
---------- ----------
Shares issued from sale
or exchange of shares:
Class A ............ 4,751 3,708*
Class B ............. 959 ---
Class C ............. 312 ---
Class Y ............ 36 52**
Shares issued from reinvestment
of dividends and/or capital
gains distribution:
Class A ............ 292 380
Class B ............. 2 ---
Class C ............. 1 ---
Class Y ............ 2 3
Shares redeemed:
Class A ............ (1,538) (1,506)
Class B ............. (29) ---
Class C ............. (7) ---
Class Y ............ (24) (48)
----- -----
Increase in outstanding
capital shares ...... 4,757 2,589
===== =====
Value issued from sale
or exchange of shares:
Class A ............ $34,166 $20,949*
Class B ............. 6,916 ---
Class C ............. 2,263 ---
Class Y ............ 261 292**
Value issued from reinvestment
of dividends and/or capital
gains distribution:
Class A ............ 1,840 2,091
Class B ............. 14 ---
Class C ............. 4 ---
Class Y ............ 13 15
Value redeemed:
Class A ............ (10,441) (8,548)
Class B ............. (221) ---
Class C ............. (47) ---
Class Y ............ (174) (269)
------ -------
Increase in outstanding
capital ............ $34,594 $14,530
====== =======
*Includes 1,708 shares with a value of $9,989 related to merger of UGG.
**Includes 18 shares with a value of $108 related to merger of UGG.
NOTE 7 -- Options
Options purchased by the Fund are accounted for in the same manner as
marketable portfolio securities. The cost of portfolio securities acquired
through the exercise of call options is increased by the premium paid to
purchase the call. The proceeds from securities sold through the exercise of
put options are decreased by the premium paid to purchase the put.
When the Fund writes (sells) an option, an amount equal to the premium
received by the Fund is recorded as a liability. The amount of the liability is
subsequently adjusted to reflect the current market value of the option written.
The current market value of an option is the last sales price on the principal
exchange on which the option is traded or, in the absence of transactions, the
mean between the bid and asked prices or at a value supplied by a broker-dealer.
When an option expires on its stipulated expiration date or the Fund enters into
a closing purchase transaction, the Fund realizes a gain (or loss if the cost of
a closing purchase transaction exceeds the premium received when the call option
was sold) and the liability related to such option is extinguished. When a call
option is exercised, the premium is added to the proceeds from the sale of the
underlying security in determining whether the Fund has realized a gain or loss.
For the Fund, when a put written is exercised, the cost basis of the securities
purchased by the Fund is reduced by the amount of the premium.
Transactions in call options written were as follows:
Number of Premiums
Contracts Received
--------- --------
Outstanding at
September 30, 1999 --- $ ---
Options written 2,063 990,147
Options terminated
in closing purchase
transactions (994) (885,873)
Options exercised --- ---
Options expired --- ---
----- ---------
Outstanding at
September 30, 2000 1,069 $104,274
===== =========
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Advisors Asset Strategy Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Waddell & Reed Advisors Asset Strategy Fund,
Inc., formerly United Asset Strategy Fund, Inc., (the "Fund") as of September
30, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000, 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
Waddell & Reed Advisors Asset Strategy Fund, Inc. as of September 30, 2000, 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 accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Kansas City, Missouri
November 3, 2000
<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 OrdinaryLong-Term Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital Gain
----------- ----- -------- ---------------------------------------
Class A
12-15-99 $0.1965 $0.1796 $0.0169 $0.0048 $0.1748 $0.0169
03-15-00 --- --- --- --- --- ---
06-14-00 --- --- --- --- --- ---
09-13-00 .0200 .0200 --- .0176 .0024 ---
------- ------- ------- ------- ------- -------
Total $0.2165 $0.1996 $0.0169 $0.0224 $0.1772 $0.0169
======= ======= ======= ======= ======= =======
Class B and Class C
12-15-99 $0.1875 $0.1706 $0.0169 $0.0012 $0.1694 $0.0169
03-15-00 --- --- --- --- --- ---
06-14-00 --- --- --- --- --- ---
09-13-00 --- --- --- --- --- ---
------- ------- ------- ------- ------- -------
Total $0.1875 $0.1706 $0.0169 $0.0012 $0.1694 $0.0169
======= ======= ======= ======= ======= =======
Class Y
12-15-99 $0.2085 $0.1916 $0.0169 $0.0097 $0.1819 $0.0169
03-15-00 --- --- --- --- --- ---
06-14-00 --- --- --- --- --- ---
09-13-00 .0380 .0380 --- .0335 .0045 ---
------- ------- ------- ------- ------- -------
Total $0.2465 $0.2296 $0.0169 $0.0432 $0.1864 $0.0169
======= ======= ======= ======= ======= =======
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, San Mateo, 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
Kristen A. Richards, Vice President and Secretary
Daniel C. Schulte, Vice President
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 Waddell & Reed Advisors Group of Mutual Funds
Waddell & Reed Advisors Accumulative Fund
Waddell & Reed Advisors Asset Strategy Fund, Inc.
Waddell & Reed Advisors Bond Fund
Waddell & Reed Advisors Cash Management, Inc.
Waddell & Reed Advisors Continental Income Fund, Inc.
Waddell & Reed Advisors Core Investment Fund
Waddell & Reed Advisors Global Bond Fund, Inc.
Waddell & Reed Advisors Government Securities Fund, Inc.
Waddell & Reed Advisors High Income Fund, Inc.
Waddell & Reed Advisors International Growth Fund, Inc.
Waddell & Reed Advisors Municipal Bond Fund, Inc.
Waddell & Reed Advisors Municipal High Income Fund, Inc.
Waddell & Reed Advisors New Concepts Fund, Inc.
Waddell & Reed Advisors Retirement Shares, Inc.
Waddell & Reed Advisors Science and Technology Fund
Waddell & Reed Advisors Small Cap Fund, Inc.
Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.
Waddell & Reed Advisors 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
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1017A(9-00)
For more complete information regarding any of the mutual funds in Waddell &
Reed Advisors Funds, including charges and expenses, please obtain the Fund's
prospectus by calling or writing to the number or address listed above. Please
read the prospectus carefully before investing.
