United
Asset Strategy
Fund, Inc.
SEMIANNUAL
REPORT
---------------------------------------
For the six months ended March 31, 2000
<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, 2000
Dear Shareholder:
We are delighted to share with you this report on your Fund's operations for the
six months ended March 31, 2000.
This six-month period provided some remarkable gains, especially in many of the
so-called "new economy" stocks. The exceptional performance of these stocks was
evident in the Nasdaq Composite Index, which is made up primarily of technology-
oriented companies; and in the Russell 2000, which includes many small-cap
growth companies. The Nasdaq Composite recorded a remarkable gain of 67 percent
over the six months ended March 31, 2000. The Russell 2000 rose a very strong
27 percent over the period.
The performance of the two other major indices -- the Dow Jones Industrial
Average and the Standard & Poor's 500 -- did not match the Nasdaq or Russell,
reflecting a growing investor sentiment that the "old economy" companies that
they include could not provide the growth opportunity of their "new economy"
counterparts. Still, their performance, by historical standards, was very
strong. The S&P 500, the index most often used to track the performance of the
largest U.S. stocks, rose 18 percent for the six months ended March 31. The Dow
Jones Industrial Average, which includes 30 of the nation's largest companies,
rose 6 percent.
The across-the-board strength of the equity market and, especially, the enormous
gains in the Nasdaq over this period, left many investors wondering if this
upward trend was sustainable. The answer came just after the period's end, as a
sharp sell-off erased all of the market's gains of the first three months of
2000. The sell-off was most pronounced, by far, in the Nasdaq Composite.
Nonetheless, at May 1, 2000, the Nasdaq remained up 41 percent from its
September 30, 1999 level.
For the six months ended March 31, bonds remained depressed, the result of
several forces weighing on all fixed-income markets. The Federal Reserve began
raising short-term interest rates at the end of June 1999, and has now raised
interest rates five times. Tax-loss selling and investor preference for
equities over fixed-income securities placed additional pressure on bonds.
Looking ahead, the market is still trying to find direction. Currently,
economic news suggests that the economy remains sufficiently strong to perhaps
prompt additional interest rate hikes by the Federal Reserve. Other factors
that may affect the market during the coming year include the presidential
election, the high trade deficit and the implications of that deficit for the
value of the U.S. dollar abroad.
Overall, investors have been rewarded well in recent years. Those who continue
a structured and consistent investment program remain well positioned to take
advantage of opportunities, including those presented by the market's occasional
downdrafts. Just as we urge you not to become unduly concerned if the market
moves downward in the near term, we would urge that you not become too exuberant
when it moves higher in similarly short periods.
It is impossible to predict with certainty where markets will go next, but one
thing that remains certain is that a well-thought-out investment plan is
essential. Remember, a plan that is appropriate for you is appropriate
regardless of inevitable market changes. You have a partnership with your
Waddell & Reed financial advisor, and that partnership is built upon a
customized program based on your specific needs. Focusing on that plan, despite
market fluctuations, is your key to a sound financial future. Thank you for
your ongoing commitment and support.
Respectfully,
Robert L. Hechler
President
<PAGE>
SHAREHOLDER SUMMARY
--------------------------------------------------------------
United Asset Strategy Fund, Inc.
PORTFOLIO STRATEGY:
Stocks 70% OBJECTIVE: To seek high total return over
(can range from 0-100%) the long term.
Bonds 25%
(can range from 0-100%) STRATEGY: Invests in stocks, bonds
and short-term
Short-Term Instruments 5% instruments. Within each of
(can range from 0-100%) these classes, the Fund may invest in
both domestic and foreign securities.
The Fund selects an allocation mix which
represents the way the Fund's
investments will generally be allocated
over the long term as indicated in the
accompanying chart. This mix will vary
over shorter time periods as Fund
holdings change based on the current
outlook for the different markets.
FOUNDED: 1995
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY
(March, June, September, December)
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Six Months Ended March 31, 2000
---------------------------------------
DIVIDEND PAID $0.01
=====
CAPITAL GAINS DISTRIBUTION $0.18
=====
NET ASSET VALUE ON
3/31/00 $7.47 adjusted to: $7.65 (A)
9/30/99 5.82
-----
CHANGE PER SHARE $1.83
=====
(A)This number includes the capital gains distribution of $0.18 paid in
December 1999 added to the actual net asset value on March 31, 2000.
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 3-31-00 31.47% 39.49%
5-year period ended 3-31-00 12.90% 14.24%
Period from 3-9-95*
through 3-31-00 12.81% 14.14%
*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 three 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, 2000, the Fund had net assets totaling $69,892,651 invested in a
diversified portfolio of:
78.98% Common Stocks
12.63% Cash and Cash Equivalents
4.97% United States Government Securities
1.76% Bullion
1.05% Corporate Debt Securities
0.61% Other Government Security
As a shareholder of United Asset Strategy Fund, Inc., for every $100 you had
invested on March 31, 2000, your Fund owned:
$78.98 Common Stocks
12.63 Cash and Cash Equivalents
4.97 United States Government Securities
1.76 Bullion
1.05 Corporate Debt Securities
0.61 Other Government Security
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 2000
Troy
Ounces Value
BULLION - 1.76%
Gold ................................... 4,411 $1,228,139
(Cost: $1,292,658)
Shares
COMMON STOCKS
Amusement and Recreation Services - 0.99%
Walt Disney Company (The) .............. 16,800 695,100
Business Services - 5.07%
Clear Channel Communications, Inc.* .... 14,000 966,875
Microsoft Corporation* ................. 8,600 916,169
Oracle Corporation* .................... 12,400 966,812
Shared Medical Systems Corporation ..... 13,400 695,125
Total ................................. 3,544,981
Chemicals and Allied Products - 16.44%
American Home Products Corporation ..... 18,200 975,975
Biogen, Inc.* .......................... 9,100 635,294
Bristol-Myers Squibb Company ........... 12,300 710,325
Dial Corporation (The) ................. 62,800 863,500
Forest Laboratories, Inc.* ............. 18,700 1,580,150
IntraBiotics Pharmaceuticals, Inc.* .... 23,300 350,228
Lilly (Eli) and Company ................ 13,700 863,100
Merck & Co., Inc. ...................... 8,100 503,213
Pharmacia & Upjohn, Inc. ............... 20,800 1,071,200
Pharmacyclics, Inc.* ................... 14,000 779,187
Procter & Gamble Company (The) ......... 11,500 646,875
Schering-Plough Corporation ............ 21,300 782,775
Smith International, Inc.* ............. 10,600 821,500
Warner-Lambert Company ................. 9,300 906,750
Total ................................. 11,490,072
Coal Mining - 0.98%
CONSOL Energy Inc. ..................... 65,000 686,563
Communication - 1.38%
EchoStar Communications Corporation,
Class A* .............................. 12,200 963,800
Depository Institutions - 2.11%
Bank of America Corporation ............ 14,300 749,856
U. S. Bancorp. ......................... 33,200 726,250
Total ................................. 1,476,106
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Eating and Drinking Places - 2.61%
Papa John's International, Inc.* ....... 33,300 $1,099,941
Wendy's International, Inc. ............ 35,800 722,712
Total ................................. 1,822,653
Electronic and Other Electric Equipment - 9.41%
Analog Devices, Inc.* .................. 9,810 790,318
Intel Corporation ...................... 8,200 1,080,863
JDS Uniphase Corporation* .............. 5,700 687,028
LSI Logic Corporation* ................. 13,300 965,912
Maxim Integrated Products, Inc.* ....... 12,800 910,000
Nortel Networks Corporation ............ 7,150 900,900
Rambus Inc.* ........................... 1,800 528,469
Samsung Electronics (A) ................ 2,350 712,282
Total ................................. 6,575,772
Fabricated Metal Products - 0.97%
Parker Hannifin Corporation ............ 16,500 681,656
Food and Kindred Products - 1.29%
American Italian Pasta Company, Class A* 36,700 903,738
Food Stores - 1.19%
Kroger Co. (The)* ...................... 47,200 828,950
General Merchandise Stores - 3.13%
BJ's Wholesale Club, Inc.* ............. 27,200 1,050,600
Target Corporation ..................... 15,200 1,136,200
Total ................................. 2,186,800
Health Services - 1.02%
Columbia/HCA Healthcare Corporation .... 28,100 711,281
Holding and Other Investment Offices - 1.21%
ABB Ltd. (A)* .......................... 3,700 436,368
"Shell" Transport and Trading
Company, p.l.c. (The), ADR ............ 8,400 412,125
Total ................................. 848,493
Industrial Machinery and Equipment - 3.43%
Cooper Cameron Corporation* ............ 11,400 762,375
Illinois Tool Works, Inc. .............. 11,800 651,950
Ingersoll-Rand Company ................. 15,100 668,175
Invensys plc (A) ....................... 70,000 312,032
Total ................................. 2,394,532
Instruments and Related Products - 2.22%
Beckman Coulter, Inc. .................. 14,000 898,625
PE Corporation - PE Biosystems Group ... 6,800 656,200
Total ................................. 1,554,825
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Insurance Carriers - 2.18%
American International Group, Inc. ..... 6,650 $ 728,175
CIGNA Corporation ...................... 10,500 795,375
Total ................................. 1,523,550
Leather and Leather Products - 0.93%
Kenneth Cole Productions, Inc., Class A* 16,500 647,625
Lumber and Wood Products - 0.98%
Weyerhaeuser Company ................... 12,000 684,000
Metal Mining - 2.88%
Homestake Mining Company ............... 160,400 962,400
Newmont Mining Corporation ............. 46,800 1,050,075
Total ................................. 2,012,475
Motion Pictures - 1.87%
AT&T Corp. - Liberty Media Group,
Class A* .............................. 22,000 1,303,500
Nondepository Institutions - 2.14%
Fannie Mae ............................. 12,900 728,044
Freddie Mac ............................ 17,400 768,862
Total ................................. 1,496,906
Oil and Gas Extraction - 3.79%
Burlington Resources Incorporated ...... 14,100 521,700
Schlumberger Limited ................... 9,300 711,450
Transocean Sedco Forex Inc. ............ 16,419 842,500
USX Corporation - Marathon Group ....... 22,100 575,981
Total ................................. 2,651,631
Paper and Allied Products - 3.28%
Bowater Incorporated ................... 14,900 795,288
International Paper Company ............ 17,800 760,950
Smurfit-Stone Container Corporation* ... 43,200 733,050
Total ................................. 2,289,288
Petroleum and Coal Products - 2.66%
Exxon Mobil Corporation ................ 7,000 544,688
Lyondell Chemical Company .............. 50,400 743,400
Texaco Inc. ............................ 10,600 568,425
Total ................................. 1,856,513
Primary Metal Industries - 2.12%
Ak Steel Holding Corporation ........... 68,900 714,838
Reynolds Metals Company ................ 11,500 769,062
Total ................................. 1,483,900
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 2000
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 1.42%
Gentex Corporation* .................... 26,750 $ 990,586
Wholesale Trade -- Nondurable Goods - 1.28%
Cardinal Health, Inc. .................. 19,500 894,562
TOTAL COMMON STOCKS - 78.98% $55,199,858
(Cost: $45,013,332)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Fabricated Metal Products - 0.69%
Crown Cork & Seal Company, Inc.,
7.125%, 9-1-02 ........................ $500 482,860
Primary Metal Industries - 0.36%
Ispat Mexicana, S.A. de C.V.,
10.375%, 3-15-01 (B)................... 250 248,125
TOTAL CORPORATE DEBT SECURITIES - 1.05% $ 730,985
(Cost: $745,192)
OTHER GOVERNMENT SECURITY - 0.61%
Argentina
Republic of Argentina (The),
0.0%, 10-15-01 ........................ 500 $ 427,500
(Cost: $435,023)
UNITED STATES GOVERNMENT SECURITY - 4.97%
United States Treasury,
5.625%, 12-31-02 ...................... 3,550 $ 3,475,130
(Cost: $3,536,048)
Number of
Contracts
OPTIONS
Analog Devices, Inc., June 2000 Put Options,
Expires 6-17-00 ....................... 204 3,188
Applied Materials, Inc., May 2000 Put Options,
Expires 4-22-00 ....................... 106 1,325
Applied Micro Circuits Corporation, May 2000
Put Options, Expires 5-20-00 .......... 64 1,800
AT&T Corp. - Liberty Media Group, Class A, April 2000
Put Options, Expires 4-22-00........... 220 1,375
Clear Channel Communications, Inc., April 2000
Put Options, Expires 4-22-00 .......... 70 14,875
DoubleClick Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 48 3,750
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 2000
Number of
Contracts Value
OPTIONS (Continued)
EchoStar Communications Corporation, Class A,
June 2000 Put Options, Expires 6-17-00. 122 $ 762
JDS Uniphase Corporation, June 2000 Put
Options, Expires 6-17-00 .............. 104 22,750
Maxim Integrated Products, Inc., May 2000
Put Options, Expires 5-20-00 .......... 128 800
Microsoft Corporation, April 2000 Put Options,
Expires 4-22-00 ....................... 86 2,687
Nortel Networks Corporation, June 2000 Put Options,
Expires 6-17-00 ....................... 72 4,050
Oracle Corporation, June 2000 Put Options,
Expires 6-17-00 ....................... 144 2,700
Rambus Inc., May 2000 Put Options,
Expires 5-20-00 ....................... 78 8,775
TMP Worldwide Inc., June 2000 Put Options,
Expires 6-17-00 ....................... 86 8,063
Teradyne, Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 124 5,425
Time Warner Incorporated, June 2000 Put Options,
Expires 6-17-00 ....................... 84 1,575
Yahoo! Inc., April 2000 Put Options,
Expires 4-22-00 ....................... 26 3,250
TOTAL OPTIONS - 0.12% $87,150
(Cost: $558,224)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Fabricated Metal Products - 0.11%
Danaher Corporation,
6.1325%, Master Note .................. $ 79 79,000
Food and Kindred Products - 6.16%
General Mills, Inc.,
5.9875%, Master Note .................. 4,302 4,302,000
Instruments and Related Products - 4.29%
Snap-on Incorporated,
6.01%, 4-10-00 ........................ 3,000 2,995,493
Nondepository Institutions - 3.42%
PACCAR Financial Corp.,
6.0329%, Master Note .................. 2,395 2,395,000
TOTAL SHORT-TERM SECURITIES - 13.98% $ 9,771,493
(Cost: $9,771,493)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED ASSET STRATEGY FUND, INC.
MARCH 31, 2000
Value
TOTAL INVESTMENT SECURITIES - 101.47% $70,920,255
(Cost: $61,351,970)
LIABILITIES, NET OF
CASH AND OTHER ASSETS - (1.47%) (1,027,604)
NET ASSETS - 100.00% $69,892,651
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At March 31, 2000, the value of this
security amounted to $248,125 or 0.36% of net assets.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $70,920
Cash ............................................ 2
Receivables:
Investment securities sold ...................... 2,187
Fund shares sold ................................ 386
Dividends and interest .......................... 101
Prepaid insurance premium ........................ 10
-------
Total assets .................................. 73,606
-------
Liabilities
Payable for investment securities purchased ...... 3,539
Payable to Fund shareholders ..................... 114
Accrued transfer agency and dividend
disbursing (Note 3) ............................. 30
Accrued service fee (Note 3) ..................... 12
Accrued accounting services fee (Note 3) ......... 3
Accrued management fee (Note 3) .................. 1
Other liabilities ................................ 14
-------
Total liabilities ............................. 3,713
-------
Total net assets ............................. $69,893
=======
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 94
Additional paid-in capital ...................... 51,538
Accumulated undistributed income:
Accumulated undistributed net investment income 40
Accumulated undistributed net realized gain on
investment transactions ....................... 8,653
Net unrealized appreciation in value of
investments ................................... 9,568
-------
Net assets applicable to outstanding
units of capital ............................. $69,893
=======
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $7.47
Class B .......................................... $7.45
Class C .......................................... $7.45
Class Y .......................................... $7.47
Capital shares outstanding
Class A .......................................... 8,982
Class B .......................................... 250
Class C .......................................... 71
Class Y .......................................... 53
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, 2000
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 467
Dividends (net of foreign withholding
taxes of $2) ................................... 141
-------
Total income .................................. 608
-------
Expenses (Notes 2 and 3):
Investment management fee ....................... 196
Transfer agency and dividend disbursing:
Class A ........................................ 140
Class B ........................................ 1
Class C ........................................ ---*
Service fee:
Class A ........................................ 61
Class B ........................................ 1
Class C ........................................ ---*
Registration fees ............................... 29
Accounting services fee ......................... 14
Distribution fee:
Class A ........................................ 8
Class B ........................................ 3
Class C ........................................ 1
Audit fees ...................................... 9
Legal fees ...................................... 7
Custodian fees .................................. 6
Amortization of organization expenses ........... 5
Other ........................................... 43
-------
Total expenses ................................ 524
-------
Net investment income ........................ 84
-------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 4)
Realized net gain on securities .................. 8,821
Realized net loss on foreign currency
transactions .................................... (1)
Realized net loss on put options .................. (80)
-------
Realized net gain on investments ................ 8,740
-------
Unrealized appreciation in value of securities
during the period ............................... 7,969
Unrealized depreciation in value of options
during the period ............................... (471)
-------
Unrealized appreciation in value of investments
during the period ............................. 7,498
-------
Net gain on investments ....................... 16,238
-------
Net increase in net assets resulting
from operations ............................ $16,322
=======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands) For the six For the fiscal
months ended year ended
March 31, September 30,
2000 1999
Increase in Net Assets --------------------------
Operations:
Net investment income ............ $ 84 $ 605
Realized net gain on investments . 8,740 1,669
Unrealized appreciation .......... 7,498 595
------- -------
Net increase in net assets
resulting from operations ..... 16,322 2,869
------- -------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ........................ (100) (627)
Class B ........................ ---** ---
Class C ........................ ---** ---
Class Y ........................ (1) (5)
Realized gains on securities transactions:
Class A ........................ (1,532) (1,478)
Class B ........................ (14) ---
Class C ........................ (4) ---
Class Y ........................ (9) (10)
------- -------
(1,660) (2,120)
------- -------
Capital share transactions
(Note 6) ......................... 6,841 14,530
------- -------
Total increase .............. 21,503 15,279
Net Assets
Beginning of period ............... 48,390 33,111
------- -------
End of period, including undistributed
net investment income of $40
and $58, respectively ............ 69,893 $48,390
======= =======
*See "Financial Highlights" on pages 15 - 18.
**Not shown due to rounding.
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
3/31/00 1999 1998 1997 1996 9/30/95
------ ------ ------ ------ ------ -------
Net asset value,
beginning of period $5.82 $5.78 $5.99 $5.24 $5.42 $5.00
----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment
income .......... 0.01 0.09 0.15 0.16 0.15 0.07
Net realized and
unrealized gain (loss)
on investments .. 1.83 0.29 0.28 0.74 (0.17) 0.40
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 1.84 0.38 0.43 0.90 (0.02) 0.47
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.01) (0.10) (0.17) (0.15) (0.15) (0.05)
From capital gains (0.18) (0.24) (0.47) (0.00) (0.00) (0.00)
In excess of capital
gains ........... (0.00) (0.00) (0.00) (0.00) (0.01) (0.00)
----- ----- ----- ----- ----- -----
Total distributions (0.19) (0.34) (0.64) (0.15) (0.16) (0.05)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $7.47 $5.82 $5.78 $5.99 $5.24 $5.42
===== ===== ===== ===== ===== =====
Total return** ..... 32.45% 6.90% 7.89% 17.46% -0.49% 9.42%
Net assets, end of period
(in millions) ..... $67 $48 $33 $28 $32 $22
Ratio of expenses to
average net assets 1.86%***1.90% 1.62% 1.70% 1.68% 1.64%***
Ratio of net investment
income to average net
assets ........... 0.31%***1.55% 2.45% 2.87% 2.93% 3.71%***
Portfolio
turnover rate .... 111.62% 176.63%230.09% 173.88% 91.06% 9.32%
*Commencement of operations.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***Annualized.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/6/99*
through
3/31/00
-------
Net asset value,
beginning of period $5.89
----
Income from investment
operations:
Net investment loss (0.01)
Net realized and
unrealized gain
on investments .. 1.76
----
Total from investment
operations ....... 1.75
----
Less distributions:
From net investment
income .......... (0.01)
From capital gains (0.18)
----
Total distributions (0.19)
----
Net asset value,
end of period .... $7.45
====
Total return ....... 30.34%
Net assets, end of
period (in
millions) ........ $2
Ratio of expenses to
average net assets 2.56%**
Ratio of net investment
loss to average
net assets ....... -0.66%**
Portfolio turnover
rate ............. 111.62%***
*Commencement of operations.
**Annualized.
***For the six months ended March 31, 2000.
See notes to financial statements.
<PAGE>
UNITED 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
3/31/00
-------
Net asset value,
beginning of period $5.86
----
Income from investment
operations:
Net investment loss 0.00
Net realized and
unrealized gain
on investments .. 1.78
----
Total from investment
operations ....... 1.78
----
Less distributions:
From net investment
income .......... (0.01)
From capital gains (0.18)
----
Total distributions (0.19)
----
Net asset value,
end of period .... $7.45
====
Total return ....... 31.01%
Net assets, end of
period (in millions) $1
Ratio of expenses to
average net assets 2.44%**
Ratio of net investment
loss to average
net assets ....... -0.50%**
Portfolio turnover
rate ............. 111.62%***
*Commencement of operations.
**Annualized.
***For the six months ended March 31, 2000.
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 period
six For the fiscal year from
months ended September 30, 9/27/95*
ended------------------------------ through
3/31/00 1999 1998 1997 1996 9/30/95
------- -------------- ------ ------ -------
Net asset value,
beginning of period $5.83 $5.78 $5.99 $5.24 $5.42 $5.41
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.02 0.12 0.16 0.17 0.16 0.00
Net realized and
unrealized gain
(loss) on
investments ..... 1.82 0.28 0.29 0.75 (0.17) 0.01
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 1.84 0.40 0.45 0.92 (0.01) 0.01
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.02) (0.11) (0.19) (0.17) (0.16) (0.00)
From capital gains (0.18) (0.24) (0.47) (0.00) (0.00) (0.00)
In excess of
capital gains ... (0.00) (0.00) (0.00) (0.00) (0.01) (0.00)
----- ----- ----- ----- ----- -----
Total distributions (0.20) (0.35) (0.66) (0.17) (0.17) (0.00)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $7.47 $5.83 $5.78 $5.99 $5.24 $5.42
===== ===== ===== ===== ===== =====
Total return ....... 32.48% 7.35% 8.26% 17.93% -0.21% 0.18%
Net assets, end of
period (000
omitted) ......... $395 $284 $243 $322 $330 $3
Ratio of expenses
to average net
assets ........... 1.60%***1.49% 1.37% 1.28% 1.29% 0.00%
Ratio of net
investment income
to average net
assets ........... 0.56%***1.96% 2.79% 3.29% 3.43% 0.00%
Portfolio
turnover rate ..... 111.62% 176.63%230.09% 173.88% 91.06% 9.32%**
*Commencement of operations.
**Rate is for the period from March 9, 1995 through September 30, 1995.
***Annualized.
See notes to financial statements.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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 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.
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 $ 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 $1.3125
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 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.
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
$100,803. With respect to Class A, Class B and Class C shares, W&R paid sales
commissions of $87,817 and all expenses in connection with the sale of Fund
shares, except for registration fees and related expenses.
A contingent deferred sales charge ("CDSC") may be assessed against a
shareholder's redemption amount of Class B and Class C shares and is paid to
W&R. The purpose of the deferred sales charge is to compensate W&R for the
costs incurred by W&R in connection with the sale of Fund shares.
With respect to Class B shares, the amount of the CDSC will be the
following percent of the total amount invested during a calendar year to acquire
the shares or the value of the shares redeemed, whichever is less. Redemption
at any time during the first calendar year of investment, 5%; the second
calendar year, 4%; the third calendar year, 3%; the fourth calendar year, 3%;
the fifth calendar year, 2%; the sixth calendar year, 1% and thereafter, 0%.
If Class C shares are sold within 12 months of buying these shares, a 1%
CDSC will be imposed.
The deferred sales charge will not be imposed on shares representing
payment of dividends or distributions or on amounts which represent an increase
in the value of the shareholder's account resulting from capital appreciation
above the amount paid for shares purchased during the deferred sales charge
period. During the period ended March 31, 2000, W&R received $185 and $10 in
deferred sales charges from Class B shares and Class C shares, respectively.
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 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 $885, 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 $58,392,374 while proceeds from maturities and sales
aggregated $46,195,646. Purchases of options aggregated $724,298 while proceeds
from options aggregated $86,319. Purchases of short-term securities and U.S.
Government securities aggregated $67,492,559. Proceeds from maturities and
sales of short-term securities and U.S. Government securities aggregated
$62,757,835 and $10,570,437, respectively. Purchases of gold bullion aggregated
$1,292,658.
For Federal income tax purposes, cost of investments owned at March 31,
2000 was $61,389,958, resulting in net unrealized appreciation of $9,530,297, of
which $11,548,156 related to appreciated securities and $2,017,859 related to
depreciated securities.
NOTE 5 -- Federal Income Tax Matters
United Gold & Governemtn Fund, Inc. ("UGG") was merged into the Fund as
of June 30, 1999. At the time of the merger UGG had capital loss carryovers of
$3,550,047 available to offset future gains of the Fund. These carryovers are
limited to $123,386 for the fiscal year ended September 30, 1999 and $489,523
for each period ending from September 30, 2000 through 2006.
For Federal income tax purposes, the Fund realized capital gain net income
of $1,636,012 during its fiscal year ended September 30, 1999, which included
utilization of $123,386 of UGG's capital loss carryovers. The capital gain net
income has been 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 For the
six months fiscal year
ended ended
March 31, September 30,
2000 1999
------------ ------------
Shares issued from sale
of shares:
Class A ............ 1,451 3,708
Class B ............. 251 ---
Class C ............. 71 ---
Class Y ............ 6 52
Shares issued from
reinvestment of dividends
and/or capital gains
distribution:
Class A ............ 262 380
Class B ............. 2 ---
Class C ............. 1 ---
Class Y ............ 2 3
Shares redeemed:
Class A ............ (996) (1,506)
Class B ............. (3) ---
Class C ............. ---* ---
Class Y ............ (4) (48)
----- -----
Increase in
outstanding capital
shares .............. 1,043 2,589
===== =====
Value issued from sale
of shares:
Class A ............ $9,495 $20,949
Class B ............. 1,645 ---
Class C ............. 472 ---
Class Y ............ 40 292
Value issued from
reinvestment of dividends
and/or capital gains
distribution:
Class A ............ 1,615 2,091
Class B ............. 14 ---
Class C ............. 4 ---
Class Y ............ 10 15
Value redeemed:
Class A ............ (6,406) (8,548)
Class B ............. (22) ---
Class C ............. (2) ---
Class Y ............ (24) (269)
------ -------
Increase in outstanding
capital ............ $6,841 $14,530
====== =======
*Not shown due to rounding.
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.
<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, 2000, 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, 1999, and the
financial highlights for the six-month period ended March 31, 2000, and for each
of the five fiscal years in the period ended September 30, 1999. 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 March 31, 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 United
Asset Strategy Fund, Inc. as of March 31, 2000, 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, 1999, and the
financial highlights for the six-month period ended March 31, 2000, and for each
of the five fiscal years in the period ended September 30, 1999, in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
May 5, 2000
<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 United Group of Mutual Funds
United Accumulative Fund
United Asset Strategy Fund, Inc.
United Bond Fund
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Income Fund
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Science and Technology Fund
United Small Cap Fund, Inc.
nited Tax-Managed Equity Fund, Inc.
United Vanguard Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1017SA(3-00)
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