United
High Income
Fund, Inc.
SEMIANNUAL
REPORT
----------------------------------------
For the six months ended September 30, 1998<PAGE>
This report is submitted for the general information of the shareholders of
United High Income Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United High Income Fund, Inc. current prospectus.
<PAGE>
PRESIDENT'S LETTER
SEPTEMBER 30, 1998
Dear Shareholder:
As president of your Fund, I would like to thank you for your continued
confidence as an investor. From every area of Waddell & Reed, including your
personal financial advisor, our goal has been to provide the best service
possible to our shareholders.
While it is impossible to predict the future direction of the markets, there are
some basic principles that we stand by that can help investors achieve their
objectives:
. Develop a financial plan that helps you pinpoint your financial objectives,
and identify specific strategies for turning your dreams into reality. There
is no better way to plan for your future.
. Invest on a regular basis. It can be one of the best ways to invest long
term and provide a hedge against market volatility.
. Adopt a long-term view to take advantage of compounding. The key to
successful investing is time, not timing. The power of compounding is
awesome and, on a long-term basis, can overwhelm any nuances of timing.
. Review your financial plan regularly. Financial planning is an ongoing
process that requires periodic review.
Waddell & Reed is positioned to assist you as you work toward your financial
goals. We will continue to offer quality investment products and personal
service to make the financial planning and investment process convenient and
accessible to you. Our locally based financial advisors are ready to assist you
with your total financial plan to help you plan for your retirement, to help you
meet your education funding goals or to achieve other financial objectives.
We look forward to assisting you in the future. If you have any questions about
your account, wish to review your financial plan or have other financial issues
that are important to you, contact your financial advisor or your local Waddell
& Reed office.
Respectfully,
Robert L. Hechler
President
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
UNITED HIGH INCOME FUND, INC.
PORTFOLIO STRATEGY:
Invests generally in OBJECTIVE: High level of current
High-Risk, High-Yield income, by investing
Fixed Income Securities primarily in a
diversified portfolio of
Maximum 20% Common Stock high-yield, high-risk, fixed income
securities, with a secondary objective
of capital growth when consistent with
the primary objective.
STRATEGY: Invests generally in debt securities in
lower rating categories as classified by
recognized rating agencies; may also
invest up to 20% in common stocks.
FOUNDED: 1979
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Six Months Ended September 30, 1998
- -------------------------------------------
DIVIDENDS PAID $0.40
=====
NET ASSET VALUE ON
9/30/98 $ 9.29
3/31/98 $10.04
------
CHANGE PER SHARE $(0.75)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ----------- ------------
1-year period ended 9-30-98 -3.56% 2.33%
5-year period ended 9-30-98 7.49% 8.77%
10-year period ended 9-30-98 7.54% 8.18%
*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 September 30, 1998, United High Income Fund, Inc. had net assets totaling
$1,009,195,238 invested in a diversified portfolio of:
81.81% Corporate Debt Securities
13.14% Cash and Cash Equivalents
5.05% Common and Preferred Stocks and Warrants
As a shareholder of United High Income Fund, Inc., for every $100 you had
invested on September 30, 1998, your Fund owned:
$28.79 Manufacturing Bonds
28.52 Transportation, Communication, Electric
and Sanitary Services Bonds
13.14 Cash and Cash Equivalents
12.57 Services Bonds
7.74 Wholesale and Retail Trade Bonds
5.05 Common and Preferred Stocks and Warrants
4.19 Miscellaneous Bonds
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Shares Value
COMMON AND PREFERRED STOCKS AND WARRANTS
Cable and Other Pay Television Services - 0.06%
Adelphia Communications Corporation,
13.0% Preferred .................... 5,000 $ 577,500
Heartland Wireless Communications,
Inc., Warrants (A)* ................. 12,000 120
Total ............................... 577,620
Communication - 1.55%
Allegiance Telecom, Inc., Warrants (A)* 6,000 11,250
Concentric Network Corporation,
Warrants (A)* ....................... 4,000 360,000
IXC Communications, Inc.,
12.5% Preferred (A) ................. 3,950 4,206,750
Intermedia Communications, Inc.,
13.5% Preferred ..................... 6,156 6,917,784
Iridium LLC, Warrants (A)* ........... 6,500 780,000
Jacor Communications, Inc.* .......... 50,000 2,529,687
Microcell Telecommunications Inc.,
Warrants (A)* ....................... 58,000 768,500
Pathnet, Inc., Warrants (A)* ......... 2,500 37,500
Primus Telecommunications Group, Incorporated,
Warrants* ........................... 5,000 25,000
Total ............................... 15,636,471
Depository Institutions - 0.38%
California Federal Preferred Capital
Corporation, 9.125% Preferred ....... 150,000 3,843,750
Electric, Gas and Sanitary Services - 0.23%
Consolidated Hydro, Inc.,
Class B Warrants* ................... 7,578 1,895
Consolidated Hydro, Inc.,
Class C Warrants* ................... 4,919 2,459
EUA Power Corporation, Contingent
Interest Certificates* .............. 9,500 9
El Paso Electric Company,
11.4% Preferred ..................... 19,796 2,147,866
IntelCom Group Inc., Warrants (A)* ... 20,625 180,469
Total ............................... 2,332,698
Electronic & Other Electric Equipment - 0.00%
Powertel, Inc., Warrants* ............ 16,000 44,000
Furniture and Fixtures - 0.57%
Lear Corporation* .................... 132,700 5,805,625
General Building Contractors - 0.88%
Walter Industries, Inc.* ............. 710,990 8,842,938
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
General Merchandise Stores - 0.35%
Fred Meyer, Inc.* .................... 90,000 $ 3,498,750
Holding and Other Investment Offices - 0.47%
LTC Properties, Inc. ................. 200,000 3,487,500
National Health Investors, Inc. ...... 41,630 1,290,530
Total ............................... 4,778,030
Hotels and Other Lodging Places - 0.00%
Fitzgeralds Gaming Corporation,
Warrants (A)* ....................... 17,500 8,750
Miscellaneous Retail - 0.05%
Finlay Enterprises, Inc.* ............ 60,000 495,000
Paper and Allied Products - 0.16%
SF Holdings Group, Inc., Class C (A)* 18,900 37,800
SF Holdings Group, Inc.,
13.75% Preferred (A)* ............... 214 1,548,412
Total ............................... 1,586,212
Printing and Publishing - 0.35%
PRIMEDIA Inc., 10.0% Preferred ....... 35,000 3,543,750
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 5.05% $ 50,993,594
(Cost: $50,009,680)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.82%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 .................... $ 5,650 5,537,000
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. 2,550 2,706,188
Total ............................... 8,243,188
Agricultural Production - Livestock - 0.35%
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 ................... 3,500 3,552,500
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Amusement and Recreation Services - 1.46%
American Skiing Company,
12.0%, 7-15-2006 .................... $ 4,500 $ 4,612,500
Empress Entertainment, Inc.,
8.125%, 7-1-2006 (A) ................ 1,000 990,000
Premier Parks Inc.:
12.0%, 8-15-2003 .................... 1,500 1,631,250
9.25%, 4-1-2006 ..................... 2,000 1,960,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 .................... 5,500 5,500,000
Total ............................... 14,693,750
Apparel and Accessory Stores - 0.36%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 ................... 3,500 3,631,250
Apparel and Other Textile Products - 1.24%
Consoltex Group Inc.,
11.0%, 10-1-2003 .................... 7,000 7,262,500
Pillowtex Corporation,
9.0%, 12-15-2007 .................... 5,250 5,223,750
Total ............................... 12,486,250
Auto Repair, Services and Parking - 0.53%
Safelite Glass Corp.,
9.875%, 12-15-2006 (A) .............. 5,500 5,307,500
Building Materials and Garden Supplies - 1.02%
Central Tractor Farm & Country, Inc.,
10.625%, 4-1-2007 ................... 2,500 2,421,875
Henry Company,
10.0%, 4-15-2008 (A) ................ 2,250 2,162,812
JTM Industries, Inc.,
10.0%, 4-15-2008 (A) ................ 3,000 3,022,500
Reliant Building Products, Inc.,
10.875%, 5-1-2004 ................... 3,000 2,640,000
Total ............................... 10,247,187
Business Services - 2.18%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ................... 4,250 4,473,125
Coinmach Corporation,
11.75%, 11-15-2005 .................. 6,620 7,091,675
Federal Data Corporation,
10.125%, 8-1-2005 ................... 2,500 2,375,000
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Business Services (Continued)
Lamar Advertising Company:
9.625%, 12-1-2006 ................... $ 3,000 $ 3,180,000
8.625% 9-15-2007 .................... 1,500 1,541,250
Rental Service Corporation,
9.0%, 5-15-2008 ..................... 3,500 3,360,000
Total ............................... 22,021,050
Chemicals and Allied Products - 2.47%
Aqua-Chem, Inc.,
11.25%, 7-1-2008 (A) ................ 3,500 3,377,500
Dade International Inc.,
11.125%, 5-1-2006 ................... 2,500 2,687,500
Marsulex Inc.,
9.625%, 7-1-2008 (A) ................ 3,500 3,360,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 6,000 5,730,000
UCC Investors Holding, Inc.,
10.5%, 5-1-2002 ..................... 9,000 9,765,000
Total ............................... 24,920,000
Cable and Other Pay Television Services - 7.33%
Adelphia Communications Corporation:
10.25%, 7-15-2000 ................... 2,250 2,272,500
9.25%, 10-1-2002 .................... 7,000 7,280,000
10.5%, 7-15-2004 .................... 4,000 4,360,000
9.875%, 3-1-2007 .................... 3,000 3,225,000
Comcast Corporation,
9.5%, 1-15-2008 ..................... 5,250 5,881,312
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (B) ................ 9,000 7,290,000
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (B) ................ $13,500 $ 10,833,750
Marcus Cable Co.,
0.0%, 12-15-2005 (B) ................ 8,500 7,905,000
Marcus Cable Operating Company, L.P.,
0.0%, 8-1-2004 (B) .................. 10,000 9,800,000
Renaissance Media Group LLC,
0.0%, 4-15-2008 (A)(B) .............. 5,000 3,350,000
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 .................. 4,000 4,280,000
Rogers Communications Inc.,
9.125%, 1-15-2006 ................... 7,500 7,462,500
Total ............................... 73,940,062
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication - 16.93%
ACME Television, LLC,
0.0%, 9-30-2004 (B) ................. 7,400 $ 5,735,000
Allbritton Communications Company,
9.75%, 11-30-2007 ................... 4,500 4,612,500
Allegiance Telecom, Inc.,
0.0%, 2-15-2008 (B) ................. 6,000 2,580,000
American Radio Systems Corporation,
9.0%, 2-1-2006 ...................... 3,250 3,477,500
Call-Net Enterprises Inc.,
0.0%, 8-15-2008 (B) ................. 6,000 3,480,000
Centennial Cellular Corp.,
10.125%, 5-15-2005 .................. 3,000 3,705,000
Concentric Network Corporation,
12.75%, 12-15-2007 .................. 4,000 3,700,000
Crown Castle International Corp.,
0.0%, 11-15-2007 (B) ................ 3,000 1,837,500
Hyperion Telecommunications, Inc.:
0.0%, 4-15-2003 (B) ................. 8,750 6,037,500
12.25%, 9-1-2004 .................... 2,000 1,970,000
ICG Holdings, Inc.,
0.0%, 9-15-2005 (B) ................. 6,250 4,875,000
ICG Services, Inc.,
0.0%, 5-1-2008 (B) .................. 4,000 1,840,000
ITC /\ DeltaCom, Inc.,
8.875%, 3-1-2008 .................... 2,400 2,352,000
IXC Communications, Inc.,
9.0%, 4-15-2008 ..................... 5,250 5,197,500
Intermedia Communications Inc.,
8.5%, 1-15-2008 ..................... 1,000 985,000
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (B).................. 6,000 4,875,000
Iridium LLC:
10.875%, 7-15-2005 .................. 4,250 3,400,000
11.25%, 7-15-2005 ................... 1,400 1,148,000
13.0%, 7-15-2005 .................... 7,900 6,952,000
JCAC Communications, Inc.,
10.125%, 6-15-2006 .................. 2,000 2,140,000
LIN Holdings Corp.,
0.0%, 3-1-2008 (A)(B) ............... 7,000 4,585,000
LIN Television Corporation,
8.375%, 3-1-2008 (A) ................ 5,900 5,693,500
MetroNet Communications Corp.,
0.0% 6-15-2008 (A)(B) ............... 7,000 3,867,500
Microcell Telecommunications Inc.:
0.0%, 6-1-2006 (B) .................. 16,000 11,360,000
0.0%, 10-15-2007 (B) ................ 3,500 1,239,000
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Nextel Communications, Inc.:
0.0%, 8-15-2004 (B) ................. 11,750 $ 11,280,000
0.0%, 9-15-2007 (B) ................. 2,500 1,575,000
0.0%, 2-15-2008 (B) ................. 6,400 3,776,000
OnePoint Communications Corp., Units,
14.5%, 6-1-2008 (A)(C) .............. 4,000 3,160,000
Pathnet, Inc.,
12.25%, 4-15-2008 (A) ............... 2,500 1,900,000
Primus Telecommunications Group, Incorporated,
11.75%, 8-1-2004 .................... 5,000 4,812,500
Qwest Communications International Inc.,
0.0%, 10-15-2007 (B) ................ $ 2,750 $ 2,117,500
SFX Broadcasting, Inc.,
10.75%, 5-15-2006 ................... 2,303 2,510,270
Salem Communications Corporation,
9.5%, 10-1-2007 ..................... 3,425 3,442,125
Satelites Mexicanos, S.A. de C.V.,
10.125%, 11-1-2004 (A) .............. 625 425,000
Sinclair Broadcast Group, Inc.,
9.0%, 7-15-2007 ..................... 4,000 4,020,000
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (B) ................. 8,000 6,720,000
Time Warner Telecom LLC and Time Warner Telecom Inc.,
9.75%, 7-15-2008 .................... 2,250 2,261,250
Vanguard Cellular Systems, Inc.,
9.375%, 4-15-2006 ................... 4,500 4,545,000
WinStar Communications, Inc.:
0.0%, 10-15-2005 (Convertible) (A)(B) 3,400 3,009,000
0.0%, 3-15-2008 (A)(B) .............. 3,000 2,070,000
10.0%, 3-15-2008 (A)................. 4,750 3,420,000
WorldCom, Inc.:
9.375%, 1-15-2004 ................... 5,883 6,145,970
8.875%, 1-15-2006 ................... 5,534 6,070,577
Total ............................... 170,904,692
Depository Institutions - 1.04%
First Nationwide Holdings Inc.:
9.125%, 1-15-2003 ................... 5,750 6,440,000
12.5%, 4-15-2003 .................... 3,500 4,016,250
Total ............................... 10,456,250
Eating and Drinking Places - 1.21%
Foodmaker, Inc.,
8.375%, 4-15-2008 ................... 5,500 5,335,000
Fresh Foods, Inc.,
10.75%, 6-1-2006 (A) ................ 5,500 4,950,000
NE Restaurant Company, Inc.,
10.75%, 7-15-2008 (A) ............... 2,000 1,965,000
Total ............................... 12,250,000
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electric, Gas and Sanitary Services - 2.94%
Allied Waste Industries, Inc.,
0.0%, 6-1-2007 (B) .................. $ 5,000 $ 3,700,000
Allied Waste North America, Inc.,
10.25%, 12-1-2006 ................... 13,750 14,987,500
El Paso Electric Company,
9.4%, 5-1-2011 ...................... 5,000 5,927,500
Niagara Mohawk Power Corporation,
7.25%, 10-1-2002 .................... 5,000 5,095,250
Total ............................... 29,710,250
Electronic and Other Electric Equipment - 3.47%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 ..................... 4,000 4,355,000
Communications Instruments, Inc.,
10.0%, 9-15-2004 .................... 2,500 2,525,000
Echostar Communications Corporation:
0.0%, 3-15-2004 (B) ................. 6,000 5,280,000
0.0%, 6-1-2004 (B) .................. 5,500 5,307,500
Elgar Holdings, Inc.,
9.875%, 2-1-2008 .................... 4,000 3,350,000
InterCel, Inc.,
0.0%, 2-1-2006 (B) .................. 5,000 3,606,250
Omnipoint Corporation,
11.625%, 8-15-2006 .................. 5,000 3,350,000
Powertel, Inc.,
11.125%, 6-1-2007 ................... 1,500 1,440,000
Telex Communications, Inc.,
10.5%, 5-1-2007 ..................... 2,500 1,978,125
WESCO Distribution, Inc.,
9.125%, 6-1-2008 (A) ................ 3,000 2,910,000
WESCO International, Inc.,
0.0%, 6-1-2008 (A)(B) ............... 1,750 958,125
Total ............................... 35,060,000
Engineering and Management Services - 0.23%
United International Holdings, Inc.,
0.0%, 2-15-2008 (A)(B) .............. 5,000 2,350,000
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Fabricated Metal Products - 2.69%
AXIA Incorporated,
10.75%, 7-15-2008 (A) ............... $ 2,000 $ 1,930,000
American Safety Razor Company,
9.875%, 8-1-2005 .................... 1,000 1,030,000
Neenah Corporation,
11.125%, 5-1-2007 ................... 7,250 7,277,187
Nortek, Inc.,
9.875%, 3-1-2004 .................... 7,000 6,825,000
Safety Components International, Inc.,
10.125%, 7-15-2007 .................. 6,500 6,573,125
U.S. Can Corporation,
10.125%, 10-15-2006 ................. 3,500 3,552,500
Total ............................... 27,187,812
Food and Kindred Products - 1.07%
B & G Foods, Inc.,
9.625%, 8-1-2007 .................... 4,500 4,162,500
Eagle Family Foods, Inc.,
8.75%, 1-15-2008 .................... 3,500 3,132,500
Southern Foods Group, L.P.
and SFG Capital Corporation,
9.875%, 9-1-2007 .................... 3,450 3,475,875
Total ............................... 10,770,875
Food Stores - 0.93%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 .................... 5,000 5,025,000
Pueblo Xtra International, Inc.,
9.5%, 8-1-2003 ...................... 4,750 4,370,000
Total ............................... 9,395,000
Forestry - 0.19%
U.S. Timberlands Company, L.P.,
9.625%, 11-15-2007 .................. 2,000 1,947,500
Health Services - 2.83%
Fountain View, Inc.,
11.25%, 4-15-2008 (A) ............... 2,900 2,584,625
Multicare Companies, Inc. (The),
9.0%, 8-1-2007 ...................... 5,000 4,700,000
Paragon Health Network, Inc.:
0.0%, 11-1-2007 (B) ................. 3,000 1,635,000
9.5%, 11-1-2007 ..................... 4,000 3,680,000
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Health Services (Continued)
Quorum Health Group, Inc.,
8.75%, 11-1-2005 .................... $ 8,000 $ 8,200,000
Tenet Healthcare Corporation,
8.625%, 1-15-2007 ................... 7,500 7,781,250
Total ............................... 28,580,875
Heavy Construction, Except Building - 0.66%
Level 3 Communications, Inc.,
9.125%, 5-1-2008 .................... 7,000 6,632,500
Holding and Other Investment Offices - 0.69%
Grupo Industrial Durango, S.A. de C.V.,
12.625%, 8-1-2003 ................... 5,000 3,550,000
LTC Properties, Inc.,
8.5%, 1-1-2001 (Convertible) ........ 3,000 3,363,750
Total ............................... 6,913,750
Hotels and Other Lodging Places - 2.58%
CapStar Hotel Company,
8.75%, 8-15-2007 .................... 2,500 2,362,500
HMH Properties, Inc.,
7.875%, 8-1-2008 .................... 10,000 9,875,000
MGM Grand, Inc.,
6.875%, 2-6-2008 .................... 5,000 5,108,700
Prime Hospitality Corp.:
9.25%, 1-15-2006 .................... 4,000 3,930,000
9.75%, 4-1-2007 ..................... 2,500 2,300,000
Station Casinos, Inc.,
10.125%, 3-15-2006 .................. 2,500 2,500,000
Total ............................... 26,076,200
Industrial Machinery and Equipment - 3.07%
American Standard Inc.,
9.25%, 12-1-2016 .................... 1,700 1,734,000
Anchor Lamina Inc. and
Anchor Lamina America, Inc.,
9.875%, 2-1-2008 .................... 1,500 1,237,500
Axiohm Transaction Solutions, Inc.,
9.75%, 10-1-2007 .................... 2,000 1,792,500
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Industrial Machinery and Equipment (Continued)
Falcon Building Products, Inc.,
0.0%, 6-15-2007 (B) ................. $11,000 $ 6,380,000
International Comfort Products Corporation,
8.625%, 5-15-2008 (A) ............... 4,000 3,910,000
National Equipment Services, Inc.,
10.0%, 11-30-2004 (A) ............... 6,250 5,937,500
Paragon Corporate Holdings, Inc.,
9.625%, 4-1-2008 .................... 3,000 2,253,750
Terex Corporation,
8.875%, 4-1-2008 .................... 6,000 5,580,000
Walbro Corporation,
9.875%, 7-15-2005 ................... 2,400 2,160,000
Total ............................... 30,985,250
Instruments and Related Products - 1.93%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................. 6,875 7,150,000
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ..................... 9,250 9,943,750
Universal Hospital Services, Inc.,
10.25%, 3-1-2008 .................... 2,500 2,378,125
Total ............................... 19,471,875
Miscellaneous Manufacturing Industries - 0.80%
AAi.Fostergrant, Inc.,
10.75%, 7-15-2006 (A) ............... 1,750 1,655,938
Amscan Holdings, Inc.,
9.875%, 12-15-2007 .................. 3,400 3,064,250
Hedstrom Corporation,
10.0%, 6-1-2007 ..................... 3,500 3,325,000
Total ............................... 8,045,188
Miscellaneous Retail - 1.76%
Big 5 Corp.,
10.875%, 11-15-2007 ................. 2,500 2,325,000
Eye Care Centers of America, Inc.,
9.125%, 5-1-2008 (A) ................ 2,000 1,680,000
Finlay Fine Jewelry Corporation,
8.375%, 5-1-2008 .................... 1,500 1,380,000
Michaels Stores, Inc.:
6.75%, 1-15-2003 (Convertible) ...... 1,000 935,000
10.875%, 6-15-2006 .................. 7,800 8,502,000
TravelCenters of America, Inc.,
10.25%, 4-1-2007 .................... 3,000 2,940,000
Total ............................... 17,762,000
See Notes to Schedule of Investments on pages 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Motion Pictures - 1.78%
AMC Entertainment, Inc.,
9.5%, 3-15-2009 ..................... $ 6,200 $ 5,797,000
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 ................... 7,300 6,643,000
Loews Cineplex Entertainment Corporation,
8.875%, 8-1-2008 (A) ................ 2,000 1,980,000
Regal Cinemas, Inc.,
9.5%, 6-1-2008 (A) .................. 3,500 3,535,000
Total ............................... 17,955,000
Oil and Gas Extraction - 0.13%
Cross Timbers Oil,
8.75%, 11-1-2009 .................... 1,500 1,350,000
Paper and Allied Products - 1.73%
Container Corporation of America,
11.25%, 5-1-2004 .................... 3,500 3,605,000
Four M Corporation,
12.0%, 6-1-2006 ..................... 1,500 1,477,500
Mail-Well Corporation,
10.5%, 2-15-2004 .................... 3,500 3,622,500
Outsourcing Services Group, Inc.,
10.875%, 3-1-2006 (A) ............... 3,000 2,861,250
Radnor Holdings Corporation,
10.0%, 12-1-2003 .................... 2,000 1,990,000
SF Holdings Group, Inc.,
0.0%, 3-15-2008(B) .................. 5,750 2,558,750
Sweetheart Cup Company, Inc.,
10.5%, 9-1-2003 ..................... 1,725 1,345,500
Total ............................... 17,460,500
Personal Services - 0.34%
Prime Succession Acquisition Corp.,
10.75%, 8-15-2004 ................... 3,500 3,473,750
Petroleum and Coal Products - 0.34%
Building Materials Corporation of America,
0.0%, 7-1-2004 (B) .................. 3,500 3,465,000
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Primary Metal Industries - 1.35%
Commonwealth Aluminum Corporation,
10.75%, 10-1-2006 ................... $ 3,000 $ 2,880,000
Weirton Steel Corporation:
11.375%, 7-1-2004 ................... 3,950 3,555,000
10.75%, 6-1-2005 .................... 1,000 875,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 ................... 6,750 6,277,500
Total ............................... 13,587,500
Printing and Publishing - 2.33%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................. 4,000 4,140,000
K-III Communications Corporation,
8.5%, 2-1-2006 ...................... 5,000 5,050,000
Perry-Judd's Incorporated,
10.625%, 12-15-2007 ................. 5,250 5,250,000
Viacom International Inc.,
8.0%, 7-7-2006 ...................... 9,000 9,067,500
Total ............................... 23,507,500
Railroad Transportation - 0.17%
TFM, S.A. de C.V.,
0.0%, 6-15-2009 (B) ................. 3,500 1,680,000
Real Estate - 0.31%
Delco Remy International, Inc.,
10.625%, 8-1-2006 ................... 3,000 3,090,000
Rubber and Miscellaneous Plastics Products - 2.12%
Furon Company,
8.125%, 3-1-2008 .................... 1,900 1,862,000
Graham Packaging Company and GPC Capital Corp. I,
8.75%, 1-15-2008 .................... 7,000 6,667,500
Graham Packaging Holdings Company and
GPC Capital Corp. II,
0.0%, 1-15-2009 (B) ................. 2,000 1,202,500
Heafner (J.H.) Company, Inc. (The),
10.0%, 5-15-2008 (A) ................ 4,000 3,760,000
Home Products International, Inc.,
9.625%, 5-15-2008 ................... 6,500 5,752,500
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Rubber and Miscellaneous Plastics Products (Continued)
LDM Technologies, Inc.,
10.75%, 1-15-2007 ................... $ 2,500 $ 2,175,000
Total ............................... 21,419,500
Social Services - 0.64%
KinderCare Learning Centers, Inc.,
9.5%, 2-15-2009 ..................... 3,000 2,820,000
La Petite Academy, Inc. and LPA Holding Corp.,
10.0%, 5-15-2008 .................... 3,750 3,646,875
Total ............................... 6,466,875
Textile Mill Products - 3.17%
Avondale Mills, Inc.,
10.25%, 5-1-2006 .................... 3,500 3,609,375
Collins & Aikman Products Co.,
11.5%, 4-15-2006 .................... 11,000 11,550,000
Galey & Lord, Inc.,
9.125%, 3-1-2008 .................... 9,000 7,740,000
Glenoit Corporation,
11.0%, 4-15-2007 .................... 2,500 2,475,000
Globe Manufacturing Corp.,
10.0%, 8-1-2008 (A) ................. 7,000 6,580,000
Total ............................... 31,954,375
Transportation Equipment - 1.01%
Federal-Mogul Corporation,
7.875%, 7-1-2010 .................... 7,000 7,190,470
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ................... 3,000 3,030,000
Total ............................... 10,220,470
Trucking and Warehousing - 0.75%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................. 1,500 1,575,000
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... 6,000 5,940,000
Total ............................... 7,515,000
Water Transportation - 0.40%
Equimar Shipholdings Ltd.,
9.875%, 7-1-2007 .................... 5,000 4,037,500
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Wholesale Trade - Durable Goods - 1.33%
Alvey Systems, Inc.,
11.375%, 1-31-2003 .................. $ 2,500 $ 2,593,750
Exide Corporation,
10.0%, 4-15-2005 .................... 7,500 7,087,500
Sealy Mattress Company,
0.0%, 12-15-2007 (B) ................ 6,000 3,780,000
Total ............................... 13,461,250
Wholesale Trade - Nondurable Goods - 1.13%
Core-Mark International, Inc.,
11.375%, 9-15-2003 .................. 3,500 3,508,750
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 .................... 6,000 5,407,500
U.S. Office Products Company,
9.75%, 6-15-2008 (A) ................ 3,000 2,505,000
Total ............................... 11,421,250
TOTAL CORPORATE DEBT SECURITIES - 81.81% $ 825,608,224
(Cost: $847,624,511)
SHORT-TERM SECURITIES
Cable and Other Pay Television Services - 4.16%
TCI Communications, Inc.,
6.1%, 10-1-98 ....................... 35,000 35,000,000
5.65%, 10-8-98 ...................... 7,000 6,992,310
Total .............................. 41,992,310
Electric, Gas and Sanitary Services - 0.34%
Commonweatlh Edison Co.,
5.67%, 10-28-98 ..................... 3,500 3,485,116
Fabricated Metal Products - 0.07%
Danaher Corporation,
5.3438%, Master Note ................ 682 682,000
Food and Kindred Products - 1.12%
General Mills, Inc.,
5.1988% Master Note ................. 2,278 2,278,000
Seagram (Joseph E.) & Sons Inc.,
5.4%, 10-16-98 ...................... 9,000 8,979,750
Total ............................... 11,257,750
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Food Stores - 5.66%
Kroger Co. (The),
6.15%, 10-1-98 ...................... $15,000 $ 15,000,000
Safeway Inc.:
5.68%, 10-6-98 ...................... 5,000 4,996,055
5.77%, 10-6-98 ...................... 11,640 11,630,672
5.68%, 10-9-98 ...................... 8,250 8,239,587
5.76%, 10-9-98 ...................... 11,300 11,285,536
5.67%, 10-19-98 ..................... 6,000 5,982,990
Total ............................... 57,134,840
TOTAL SHORT-TERM SECURITIES - 11.35% $ 114,552,016
(Cost: $114,552,016)
TOTAL INVESTMENT SECURITIES - 98.21% $ 991,153,834
(Cost: $1,012,186,207)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.79% 18,041,404
NET ASSETS - 100.00% $1,009,195,238
See Notes to Schedule of Investments on page 20.
<PAGE>
UNITED HIGH INCOME FUND, INC.
SEPTEMBER 30, 1998
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) 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, 1998, the value of
these securities amounted to $109,692,300 or 10.87% of net assets.
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(C) Each Unit of OnePoint Communications Corp. consists of $1,000 principal
amount of 14.5% senior notes due 2008 and one warrant to purchase 0.635
shares of common stock, $0.01 par value of the company.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 3) ............................... $ 991,154
Cash ........................................... 4
Receivables:
Dividends and interest ........................ 18,109
Investment securities sold .................... 3,035
Fund shares sold .............................. 737
Prepaid insurance premium ...................... 61
----------
Total assets ................................ 1,013,100
----------
Liabilities
Payable to Fund shareholders ................... 3,548
Accrued service fee (Note 2) ................... 204
Accrued transfer agency and dividend
disbursing (Note 2) ........................... 108
Accrued management fee (Note 2) ................ 15
Accrued accounting services fee (Note 2) ....... 8
Accrued distribution fee (Class A) ............. 1
Other .......................................... 21
----------
Total liabilities ........................... 3,905
----------
Total net assets ........................... $1,009,195
==========
Net Assets
$1.00 par value capital stock
Capital stock ................................. $ 108,591
Additional paid-in capital .................... 1,234,353
Accumulated undistributed income (loss):
Accumulated undistributed net investment income 2,211
Accumulated undistributed net realized
loss on investment transactions ............. (314,928)
Net unrealized depreciation in value of
investments ................................. (21,032)
----------
Net assets applicable to outstanding
units of capital ........................... $1,009,195
==========
Net asset value per share (net assets divided
by shares outstanding)
Class A ........................................ $9.29
Class Y ........................................ $9.30
Capital shares outstanding
Class A ........................................ 108,268
Class Y ........................................ 323
Capital shares authorized ........................ 500,000
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1998
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 47,675
Dividends ....................................... 1,472
--------
Total income .................................. 49,147
--------
Expenses (Note 2):
Investment management fee ....................... 2,939
Service fee - Class A ........................... 1,331
Transfer agency and dividend disbursing - Class A 613
Accounting services fee ......................... 50
Distribution fees - Class A ..................... 14
Audit fees ...................................... 12
Custodian fees .................................. 11
Legal fees ...................................... 6
Shareholder servicing - Class Y ................. 2
Other ........................................... 121
--------
Total expenses ................................ 5,099
--------
Net investment income ........................ 44,048
--------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on investments ................. 15,557
Unrealized depreciation in value of
investments during the period ................... (97,810)
--------
Net loss on investments ....................... (82,253)
--------
Net decrease in net assets resulting
from operations ............................ $(38,205)
========
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the For the
six months fiscal year
ended ended
September 30, March 31,
1998 1998
Increase (Decrease) in Net Assets -------------- -------------
Operations:
Net investment income .......... $ 44,048 $ 88,401
Realized net gain on
investments .................. 15,557 22,509
Unrealized appreciation
(depreciation) ............... (97,810) 62,830
-------------- ------------
Net increase (decrease) in net
assets resulting from
operations .................. (38,205) 173,740
-------------- ------------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ........................ (43,145) (88,015)
Class Y ........................ (130) (261)
-------------- ------------
(43,275) (88,276)
-------------- ------------
Capital share transactions:
Proceeds from sale of shares:
Class A (4,641,520 and 11,406,679
shares, respectively) ....... 45,868 110,946
Class Y (23,794 and 43,283
shares, respectively) ....... 237 423
Proceeds from reinvestment
of dividends:
Class A (3,730,259 and
7,636,167 shares, respectively) 36,598 74,065
Class Y (13,242 and 26,963
shares, respectively) ....... 130 261
Payments for shares redeemed:
Class A (9,831,117 and 15,583,034
shares, respectively) ....... (96,892) (151,632)
Class Y (35,626 and 85,087
shares, respectively) ....... (356) (824)
-------------- ------------
Net increase (decrease) in net assets
resulting from capital share
transactions .............. (14,415) 33,239
-------------- ------------
Total increase (decrease) ... (95,895) 118,703
Net Assets
Beginning of period ............. 1,105,090 986,387
-------------- ------------
End of period, including
undistributed net investment
income of $2,211 and
$1,438, respectively ........... $1,009,195 $1,105,090
============== ============
*See "Financial Highlights" on pages 24 - 25.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
six months For the fiscal year ended March 31,
ended -----------------------------------
9/30/98 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------
Net asset value,
beginning of period $10.04 $ 9.25 $9.09 $8.70 $9.20 $9.21
------ ------ ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.40 0.82 0.80 0.79 0.80 0.80
Net realized and
unrealized gain
(loss) on
investments ..... (0.75) 0.79 0.16 0.40 (0.51) (0.01)
------ ------ ----- ----- ----- -----
Total from investment
operations ....... (0.35) 1.61 0.96 1.19 0.29 0.79
------ ------ ----- ----- ----- -----
Less dividends
from net
investment income . (0.40) (0.82) (0.80) (0.80) (0.79) (0.80)
------ ------ ----- ----- ----- -----
Net asset value,
end of period .... $9.29 $10.04 $9.25 $9.09 $8.70 $9.20
====== ====== ===== ===== ===== =====
Total return* ...... -3.68% 18.03% 10.94% 14.16% 3.41% 8.69%
Net assets, end
of period (in
millions) ........ $1,006 $1,102 $983 $972 $934 $1,007
Ratio of expenses to
average net assets 0.94%** 0.84% 0.89% 0.85% 0.84% 0.78%
Ratio of net investment
income to average
net assets ....... 8.13%** 8.38% 8.68% 8.74% 9.07% 8.51%
Portfolio turnover
rate ............. 22.80% 63.40% 53.17% 41.67% 18.94% 54.80%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the fiscal For the
six year ended period
months March 31, from 1/4/96*
ended -------------- through
9/30/98 1998 1997 3/31/96
--------- ------ ------ --------
Net asset value,
beginning of period $10.04 $ 9.25 $9.10 $9.19
------ ------ ----- -----
Income from investment
operations:
Net investment
income .......... 0.41 0.82 0.81 0.20
Net realized and
unrealized gain (loss)
on investments .. (0.75) 0.79 0.15 (0.10)
------ ------ ----- -----
Total from investment
operations ........ (0.34) 1.61 0.96 0.10
------ ------ ----- -----
Less dividends
from net
investment income . (0.40) (0.82) (0.81) (0.19)
------ ------ ----- -----
Net asset value,
end of period ..... $9.30 $10.04 $9.25 $9.10
====== ====== ===== =====
Total return ....... -3.51% 18.13% 11.07% 1.00%
Net assets, end of
period (in
millions) ........ $3 $3 $3 $2
Ratio of expenses
to average net
assets ........... 0.74%** 0.77% 0.77% 0.80%**
Ratio of net
investment income
to average net
assets ........... 8.33%** 8.46% 8.78% 8.55%**
Portfolio
turnover rate .... 22.80% 63.40% 53.17% 41.67%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 -- Significant Accounting Policies
United High Income 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 level of current income,
by investing primarily in a diversified portfolio of high-yield, high-risk fixed
income securities, with a secondary objective of capital growth when consistent
with the primary objective. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using the Nasdaq Stock Market, which provides information on bid and
asked prices quoted by major dealers in such stocks. Restricted securities
and securities for which market quotations are not readily available are
valued at fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Board of
Directors. Short-term debt securities are valued at amortized cost, which
approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums and post-1984 market discount on the purchase of
bonds are amortized for both financial and tax reporting purposes over the
remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
3 -- Investment Security Transactions.
C. 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 4 -- Federal Income Tax
Matters.
D. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. Net investment income
dividends and capital gains distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for items
such as deferral of wash sales and post-October losses, foreign currency
transactions, net operating losses and expiring capital loss carryovers.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
<PAGE>
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as
of the close of business each day at the annual rate of .15% of net assets and
(ii) a "Group" fee computed each day on the combined net asset values of all of
the funds in the United Group of mutual funds (approximately $18.9 billion of
combined net assets at September 30, 1998) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month,
plus $0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. With respect to Class Y shares, the
Fund pays WARSCO a monthly fee at an annual rate of .15% of the average daily
net assets of the class for the preceding month. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$1,315,749, out of which W&R paid sales commissions of $757,062 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
<PAGE>
and/or maintenance of shareholder accounts.
The Fund paid Directors' fees of $18,947, 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 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government obligations
and short-term securities, aggregated $205,899,147 while proceeds from
maturities and sales aggregated $300,718,767. Purchases of short-term
securities and U.S. Government securities aggregated $858,071,121 and
$26,894,141, respectively. Proceeds from maturities and sales of short-term
securities and U.S. Government securities aggregated $803,864,689 and
$27,400,000, respectively.
For Federal income tax purposes, cost of investments owned at September 30,
1998 was $1,012,186,207, resulting in net unrealized depreciation of
$21,032,373, of which $23,730,868 related to appreciated securities and
$44,763,241 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital gain net
income of $22,253,510 during its fiscal year ended March 31, 1998, which was
entirely offset by utilization of capital loss carryovers. Remaining capital
loss carryovers aggregated $331,251,576 at March 31, 1998 and are available to
offset future realized capital gain net income for Federal income tax purposes
through the following fiscal year-ends: $171,001,917 through March 31, 1999;
$114,024,403 through March 31, 2000; $17,962,753 through March 31, 2003;
$20,841,730 through March 31, 2004; and $7,420,773 through March 31, 2005.
NOTE 5 -- Multiclass Operations
On July 31, 1995, the Fund was authorized to offer two classes of shares,
Class A and Class Y, each of which has equal rights as to assets and voting
privileges. Class Y shares are not subject to a sales charge on purchases; they
are not subject to a Rule 12b-1 Service Plan and have a separate transfer agency
and dividend disbursement services fee structure. A comprehensive discussion of
the terms under which shares of either class are offered is contained in the
prospectus and the Statement of Additional Information for the Fund.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United High Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United High Income Fund, Inc. (the "Fund") as of
September 30, 1998, and the related statements of operations for the six-month
period then ended and changes in net assets for the six-month period then ended
and the fiscal year ended March 31, 1998, and the financial highlights for the
periods presented. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United High Income
Fund, Inc. as of September 30, 1998, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 6, 1998
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda 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, Birmingham, Alabama
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Louise D. Rieke, Vice President
This report is submitted for the general information of the shareholders of
United High Income Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United High Income Fund, Inc. current prospectus.
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
The United Group of Mutual Funds
United Cash Management, Inc.
United Government Securities Fund, Inc.
United Bond Fund
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Continental Income Fund, Inc.
United Retirement Shares, Inc.
United Asset Strategy Fund, Inc.
United Income Fund
United Accumulative Fund
United Vanguard Fund, Inc.
United New Concepts Fund, Inc.
United Science and Technology Fund
United International Growth Fund, Inc.
United Gold & Government Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1009SA(9-98)
printed on recycled paper
