United
High Income
Fund, Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1999
<PAGE>
MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1999
Dear Shareholder:
This report relates to the operation of United High Income Fund for the fiscal
year ended March 31, 1999. The following discussion, graphs and tables provide
you with information regarding the Fund's performance during that period.
During the first half of the fiscal year, the high yield market was strong and
there was a large supply of new issues. In August, the continuing crisis in
Asia and Russia's default on its debt obligations hit all U.S. markets,
including the high yield market. Spreads of yields for high yield bonds to U.S.
Treasuries widened significantly and the new issue market came to a virtual
standstill as the demand for new paper evaporated. By late October, the market
started to recover and new inflows of money led to a recovery in new issue
activity. At this point, however, only the very best quality companies could
raise money. Starting in January of 1999, there was a broadening of the new
issue market and spreads over higher rated issues narrowed somewhat. The market
overall has recovered approximately 50% of the loss suffered during August and
September.
We raised cash during the year and sold the majority of the Fund's emerging
market paper due to unstable global markets. We maintained the relatively high
quality of the Fund's portfolio. We were more defensive going into the fiscal
year and it paid off. The management style during the year did not change, but
our strategy went from being very aggressive with the new issue calendar in
order to gain performance to being very cautious as the high yield market
deteriorated during the year.
The strategies and techniques we applied resulted in the Fund outperforming the
Lipper High Current Yield Fund Universe Average for the fiscal year and nearly
matching the Salomon Brothers High Yield Composite Index, as charted on the
following page. The Salomon Brothers Index reflects the performance of
securities that generally represent the high-yield bond market and the Lipper
index reflects the universe of funds with similar investment objectives. The
Fund outperformed the indexes during the first nine months of the fiscal year,
but was negatively affected during the fourth quarter by a couple of
underperforming holdings.
The high yield market in general has underperformed the equity market since the
second quarter of the past fiscal year. Equities are significantly ahead of
where they were before the Asian crisis on the belief that the worst of the
financial crisis in the Asian and Latin American markets may be over. If the
crisis is over, as it appears, then one would expect the high yield market to
benefit across all sectors. To attempt to better position the Fund to benefit,
exposure to cyclicals and lower rated issues is increasing. This is being done
in small steps until a worldwide economic rebound becomes more certain.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Louise D. Rieke
Manager, United High Income Fund, Inc.
<PAGE>
Comparison of Change in Value of $10,000 Investment in
United High Income Fund, Inc., Class A Shares,
Salomon Brothers High Yield Composite Index
and the Lipper High Current Yield Fund Universe Average
Lipper
United Salomon High
High Brothers Current
Income High Yield
Fund, Yield Fund
Class Composite Universe
A Shares Index Average
--------- ------------- ----------
03/31/89 Purchase 9,425 10,000 10,000
03/31/90 7,957 9,585 9,345
03/31/91 8,161 10,927 9,890
03/31/92 10,750 14,065 12,729
03/31/93 12,332 16,482 14,718
03/31/94 13,405 17,839 16,268
03/31/95 13,864 18,996 16,534
03/31/96 15,828 22,098 18,974
03/31/97 17,560 24,551 21,150
03/31/98 20,727 28,929 24,768
03/31/99 21,079 29,419 24,368
===== United High Income Fund, Class A Shares* -- $21,079
***** Salomon Brothers High Yield Composite Index - $29,419
- ----- Lipper High Current Yield Fund Universe Average -- $24,368
*The value of the investment in the Fund is impacted by the sales load at the
time of the investment and by the ongoing expenses of the Fund.
Annual Average Total Return+
Class A++ Class Y
-----------------------------
Year Ended
3/31/99 -4.15% 1.90%
5 Years Ended
3/31/99 8.19% N/A
10 Years Ended
3/31/99 7.74% N/A
Life of Class Y+++ N/A 9.72%
+ Total return for the Class Y shares may be greater than that of the Class A
shares because the Fund's Class Y shares are not subject to a sales load or
12b-1 fees.
++ Performance data quoted represents past performance and is based on
deduction of a 5.75% sales load on the initial purchase in each of the
three periods. Investment return and principal value will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
+++ 1/4/96 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/9
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
UNITED HIGH INCOME FUND, INC.
PORTFOLIO STRATEGY:
Invests generally in OBJECTIVE: High level of current
High-Risk, High-Yield income, as its primary
objective, with a
secondary objective of
Fixed Income Securities capital growth when
consistent with the
Maximum 20% Common Stock primary objective.
STRATEGY: Invests primarily in a diversified
portfolio of high-yield, high-risk,
fixed income securities.
FOUNDED: 1979
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1999
- ----------------------------------------
DIVIDENDS PAID $0.80
=====
NET ASSET VALUE ON
3/31/99 $ 9.39
3/31/98 10.04
------
CHANGE PER SHARE $(0.65)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ----------- ------------
1-year period ended 3-31-99 -4.15% 1.70%
5-year period ended 3-31-99 8.19% 9.48%
10-year period ended 3-31-99 7.74% 8.38%
*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, 1999, United High Income Fund, Inc. had net assets totaling
$1,011,278,739 invested in a diversified portfolio of:
85.82% Corporate Debt Securities
7.50% Cash and Cash Equivalents
5.19% Common and Preferred Stocks and Warrants
1.49% Other Government Security
As a shareholder of United High Income Fund, Inc., for every $100 you had
invested on March 31, 1999, your Fund owned:
$34.13 Transportation, Communication, Electric
and Sanitary Services Bonds
30.07 Manufacturing Bonds
12.59 Services Bonds
7.50 Cash and Cash Equivalents
6.93 Wholesale and Retail Trade Bonds
5.19 Common and Preferred Stocks and Warrants
1.49 Other Government Security
1.39 Agriculture, Forestry and Fisheries Bonds
0.71 Miscellaneous Investing Institutions Bonds
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Shares Value
COMMON AND PREFERRED STOCKS AND WARRANTS
Cable and Other Pay Television Services - 0.06%
Adelphia Communications Corporation,
13.0% Preferred ..................... 5,000 $ 575,000
Communication - 2.80%
Allegiance Telecom, Inc., Warrants (A)* 7,000 294,000
IXC Communications, Inc.,
12.5% Preferred ..................... 4,200 4,620,000
Infinity Broadcasting Corporation,
Class A* ............................ 180,000 4,635,000
Intermedia Communications, Inc.,
13.5% Preferred ..................... 6,577 7,069,972
Iridium LLC, Warrants (A)* ........... 6,500 130,000
Jacor Communications, Inc., Class A* . 50,000 3,798,438
Microcell Telecommunications Inc.,
Warrants (A)* ....................... 58,000 1,011,752
OnePoint Communications Corp.,
Warrants (A)* ....................... 4,000 4,000
Pathnet, Inc., Warrants (A)* ......... 2,500 25,000
Primus Telecommunications Group, Incorporated,
Warrants* ........................... 5,000 75,000
Sprint Corporation - PCS Group* ...... 145,000 6,425,312
VersaTel Telecom International N.V.,
Warrants (A)* ....................... 3,750 262,500
Total ............................... 28,350,974
Depository Institutions - 0.39%
California Federal Preferred Capital
Corporation, 9.125% Preferred ....... 150,000 3,975,000
Electric, Gas and Sanitary Services - 0.02%
Consolidated Hydro, Inc.,
Class B Warrants* ................... 7,578 477
Consolidated Hydro, Inc.,
Class C Warrants* ................... 4,919 615
IntelCom Group Inc., Warrants (A)* ... 20,625 211,406
Total ............................... 212,498
Electronic and Other Electric Equipment - 0.01%
Powertel, Inc., Warrants* ............ 16,000 74,000
Food and Kindred Products - 0.60%
Keebler Foods Company* ............... 166,500 6,077,250
General Building Contractors - 0.10%
Walter Industries, Inc.* ............. 90,260 1,015,425
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
General Merchandise Stores - 0.52%
Fred Meyer, Inc.* .................... 90,000 $ 5,298,750
Paper and Allied Products - 0.09%
SF Holdings Group, Inc., Class C (A)* 18,900 37,800
SF Holdings Group, Inc.,
13.75% Preferred (A) ................ 228 828,164
Total ............................... 865,964
Printing and Publishing - 0.36%
PRIMEDIA Inc., 10.0% Preferred ....... 35,000 3,605,000
Wholesale Trade - Nondurable Goods - 0.24%
U.S. Foodservice* .................... 52,000 2,418,000
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 5.19% $ 52,467,861
(Cost: $44,655,039)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.83%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 .................... $ 5,650 5,607,625
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. 2,550 2,773,125
Total ............................... 8,380,750
Agricultural Production - Livestock - 0.36%
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 ................... 3,500 3,609,375
Amusement and Recreation Services - 2.15%
American Skiing Company,
12.0%, 7-15-2006 .................... 4,500 4,072,500
Empress Entertainment, Inc.,
8.125%, 7-1-2006 .................... 1,000 1,010,000
Hollywood Park, Inc.,
9.25%, 2-15-2007 (A) ................ 4,000 4,110,000
Mohegan Tribal Gaming Authority,
8.75%, 1-1-2009 (A) ................. 3,250 3,392,188
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Amusement and Recreation Services (Continued)
Premier Parks Inc.:
12.0%, 8-15-2003 .................... $ 1,500 $ 1,618,125
9.25%, 4-1-2006 ..................... 2,000 2,070,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 .................... 5,500 5,506,875
Total ............................... 21,779,688
Apparel and Accessory Stores - 0.36%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 ................... 3,500 3,622,500
Apparel and Other Textile Products - 1.21%
Consoltex Group Inc.,
11.0%, 10-1-2003 .................... 7,000 7,218,750
Pillowtex Corporation:
10.0%, 11-15-2006 ................... 1,000 1,045,000
9.0%, 12-15-2007 .................... 4,000 4,000,000
Total ............................... 12,263,750
Auto Repair, Services and Parking - 0.51%
Safelite Glass Corp.,
9.875%, 12-15-2006 .................. 5,500 5,135,625
Building Materials and Garden Supplies - 1.04%
Central Tractor Farm & Country, Inc.,
10.625%, 4-1-2007 ................... 2,500 2,593,750
Henry Company,
10.0%, 4-15-2008 .................... 2,250 2,269,687
ISG Resources, Inc.,
10.0%, 4-15-2008 .................... 3,000 3,045,000
Reliant Building Products, Inc.,
10.875%, 5-1-2004 ................... 3,000 2,598,750
Total ............................... 10,507,187
Business Services - 2.25%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ................... 4,250 4,643,125
Coinmach Corporation,
11.75%, 11-15-2005 .................. 6,620 7,298,550
Federal Data Corporation,
10.125%, 8-1-2005 ................... 2,500 2,471,875
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Business Services (Continued)
Lamar Advertising Company:
9.625%, 12-1-2006 ................... $ 3,000 $ 3,240,000
8.625%, 9-15-2007 ................... 1,500 1,578,750
Rental Service Corporation,
9.0%, 5-15-2008 ..................... 3,500 3,500,000
Total ............................... 22,732,300
Cable and Other Pay Television Services - 7.35%
Adelphia Communications Corporation:
10.25%, 7-15-2000 ................... 2,250 2,323,125
9.25%, 10-1-2002 .................... 7,000 7,297,500
10.5%, 7-15-2004 .................... 4,000 4,400,000
9.875%, 3-1-2007 .................... 3,000 3,300,000
Bresnan Communications Group LLC and
Bresnan Capital Corporation:
0.0%, 2-1-2009 (A)(B)................ 1,250 850,000
8.0%, 2-1-2009 (A) .................. 1,250 1,262,500
CSC Holdings, Inc.,
8.125%, 8-15-2009 ................... 4,000 4,298,320
Charter Communications Holdings, LLC and
Charter Communications Holdings Capital
Corporation,
8.625%, 4-1-2009 (A) ................ 17,000 17,488,750
Comcast Corporation,
9.5%, 1-15-2008 ..................... 5,250 5,533,290
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (B) ................ 9,000 7,863,750
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (B) ................ 13,500 11,745,000
Renaissance Media Group LLC,
0.0%, 4-15-2008 (B) ................. 5,000 3,493,750
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 .................. 4,000 4,485,000
Total ............................... 74,340,985
Chemicals and Allied Products - 2.40%
AMM Holdings, Inc.,
0.0%, 7-1-2009 (B) .................. 2,500 762,500
Aqua-Chem, Inc.,
11.25%, 7-1-2008 .................... 3,500 3,080,000
Dade International Inc.,
11.125%, 5-1-2006 ................... 2,500 2,793,750
Marsulex Inc.,
9.625%, 7-1-2008 .................... 3,500 3,570,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 6,000 4,200,000
UCC Investors Holding, Inc.,
10.5%, 5-1-2002 ..................... 9,000 9,821,250
Total ............................... 24,227,500
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication - 21.69%
ACME Television, LLC,
0.0%, 9-30-2004 (B) ................. $7,400 $ 6,308,500
Allbritton Communications Company,
9.75%, 11-30-2007 ................... 4,500 4,775,625
Allegiance Telecom, Inc.,
0.0%, 2-15-2008 (B) ................. 7,000 4,357,500
American Radio Systems Corporation,
9.0%, 2-1-2006 ...................... 3,250 3,526,250
Chancellor Media Corporation,
9.0%, 10-1-2008 ..................... 4,000 4,280,000
Chancellor Media Corporation of Los Angeles,
8.0%, 11-1-2008 (A) ................. 5,000 5,206,250
Citadel Broadcasting Company,
9.25%, 11-15-2008 ................... 2,000 2,145,000
Concentric Network Corporation,
12.75%, 12-15-2007 .................. 4,000 4,570,000
Hyperion Telecommunications, Inc.:
0.0%, 4-15-2003 (B) ................. 8,750 7,218,750
12.25%, 9-1-2004 .................... 2,000 2,175,000
12.0%, 11-1-2007 (A) ................ 4,500 4,702,500
ICG Holdings, Inc.,
0.0%, 9-15-2005 (B) ................. 6,250 5,531,250
ICG Services, Inc.,
0.0%, 5-1-2008 (B) .................. 4,000 2,390,000
ITC /\ DeltaCom, Inc.:
11.0%, 6-1-2007 ..................... 2,750 3,028,437
8.875%, 3-1-2008 .................... 2,400 2,412,000
9.75%, 11-15-2008 ................... 3,000 3,157,500
IXC Communications, Inc.,
9.0%, 4-15-2008 ..................... 5,250 5,460,000
Intermedia Communications Inc.,
8.5%, 1-15-2008 ..................... 1,000 995,000
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (B).................. 6,000 5,160,000
Iridium LLC and Iridium Capital Corporation:
10.875%, 7-15-2005 .................. 4,250 1,615,000
11.25%, 7-15-2005 ................... 1,400 532,000
13.0%, 7-15-2005 .................... 7,900 3,318,000
JCAC, Inc.,
10.125%, 6-15-2006 .................. 2,000 2,227,500
Level 3 Communications, Inc.:
9.125%, 5-1-2008 .................... 7,000 7,017,500
0.0%, 12-1-2008 (A)(B) .............. 13,000 8,141,250
LIN Holdings Corp.,
0.0%, 3-1-2008 (B) .................. 7,000 4,935,000
LIN Television Corporation,
8.375%, 3-1-2008 .................... 5,900 5,870,500
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
MetroNet Communications Corp.,
0.0%, 6-15-2008 (B) ................. $ 7,000 $ 5,407,500
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (B) .................. 10,000 8,150,000
Nextel Communications, Inc.:
9.75%, 8-15-2004 .................... 6,750 6,986,250
0.0%, 9-15-2007 (B) ................. 7,500 5,475,000
0.0%, 2-15-2008 (B) ................. 6,400 4,480,000
Nextel Partners, Inc.,
0.0%, 2-1-2009 (A)(B) ............... 13,000 7,540,000
OnePoint Communications Corp.,
14.5%, 6-1-2008 (A) ................. 4,000 2,100,000
Pathnet, Inc.,
12.25%, 4-15-2008 ................... 2,500 1,350,000
Primus Telecommunications Group, Incorporated,
11.75%, 8-1-2004 .................... 5,000 5,187,500
Qwest Communications International Inc.,
0.0%, 10-15-2007 (B) ................ 2,750 2,179,375
RSL Communications, Ltd.,
10.5%, 11-15-2008 ................... 16,250 17,143,750
Rogers Communications Inc.,
9.125%, 1-15-2006 ................... 7,500 7,912,500
SFX Broadcasting, Inc.,
10.75%, 5-15-2006 ................... 2,303 2,582,239
Salem Communications Corporation,
9.5%, 10-1-2007 ..................... 3,425 3,630,500
Sinclair Broadcast Group, Inc.,
9.0%, 7-15-2007 ..................... 4,000 4,100,000
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (B) ................. 10,500 9,588,180
Time Warner Telecom LLC and Time Warner Telecom Inc.,
9.75%, 7-15-2008 .................... 2,250 2,407,500
VersaTel Telecom International N.V.,
13.25%, 5-15-2008 ................... 3,750 3,909,375
Viatel, Inc.,
11.5%, 3-15-2009 (A) ................ 3,000 3,120,000
WinStar Communications, Inc.:
0.0%, 3-15-2008 (B) ................. 3,000 1,830,000
10.0%, 3-15-2008 .................... 4,750 3,182,500
Total ............................... 219,318,481
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Eating and Drinking Places - 1.96%
Domino's Pizza, Inc.,
10.375%, 1-15-2009 (A) .............. $ 5,000 $ 5,150,000
Foodmaker, Inc.,
8.375%, 4-15-2008 ................... 7,250 7,231,875
Fresh Foods, Inc.,
10.75%, 6-1-2006 .................... 5,500 5,513,750
NE Restaurant Company, Inc.,
10.75%, 7-15-2008 ................... 2,000 1,935,000
Total ............................... 19,830,625
Electric, Gas and Sanitary Services - 2.61%
Allied Waste North America, Inc.,
7.875%, 1-1-2009 .................... 12,750 12,495,000
Browning Ferris Industries Inc.,
6.375%, 1-15-2008 ................... 3,500 3,047,030
El Paso Electric Company,
9.4%, 5-1-2011 ...................... 5,000 5,751,600
Niagara Mohawk Power Corporation,
7.25%, 10-1-2002 .................... 5,000 5,092,950
Total ............................... 26,386,580
Electronic and Other Electric Equipment - 3.53%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 ..................... 4,000 4,260,000
Communications Instruments, Inc.,
10.0%, 9-15-2004 .................... 2,500 2,415,625
EchoStar DBS Corporation,
9.375%, 2-1-2009 (A) ................ 15,500 16,042,500
Elgar Holdings, Inc.,
9.875%, 2-1-2008 .................... 4,000 3,120,000
InterCel, Inc.,
0.0%, 2-1-2006 (B) .................. 5,000 4,012,500
Powertel, Inc.,
11.125%, 6-1-2007 ................... 1,500 1,545,000
WESCO Distribution, Inc.,
9.125%, 6-1-2008 .................... 3,000 3,108,750
WESCO International, Inc.,
0.0%, 6-1-2008 (B) .................. 1,750 1,211,875
Total ............................... 35,716,250
Engineering and Management Services - 0.34%
United International Holdings, Inc.,
0.0%, 2-15-2008 (B) ................. 5,000 3,400,000
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Fabricated Metal Products - 2.48%
AXIA Incorporated,
10.75%, 7-15-2008 ................... $ 2,000 $ 1,997,500
American Safety Razor Company,
9.875%, 8-1-2005 .................... 1,000 1,052,500
Neenah Corporation:
11.125%, 5-1-2007 ................... 8,250 8,662,500
11.125%, 5-1-2007 (A)................ 3,000 3,150,000
Safety Components International, Inc.,
10.125%, 7-15-2007 .................. 6,500 6,491,875
U.S. Can Corporation,
10.125%, 10-15-2006 ................. 3,500 3,688,125
Total ............................... 25,042,500
Food and Kindred Products - 0.80%
B & G Foods, Inc.,
9.625%, 8-1-2007 .................... 4,500 4,432,500
Southern Foods Group, L.P.
and SFG Capital Corporation,
9.875%, 9-1-2007 .................... 3,450 3,626,813
Total ............................... 8,059,313
Food Stores - 0.94%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 .................... 5,000 5,012,500
Pueblo Xtra International, Inc.,
9.5%, 8-1-2003 ...................... 4,750 4,542,187
Total ............................... 9,554,687
Forestry - 0.20%
U.S. Timberlands Company, L.P.,
9.625%, 11-15-2007 .................. 2,000 2,027,500
Health Services - 0.75%
Tenet Healthcare Corporation,
8.625%, 1-15-2007 ................... 7,500 7,537,500
Holding and Other Investment Offices - 0.71%
Grupo Industrial Durango, S.A. de C.V.,
12.625%, 8-1-2003 ................... 5,000 4,800,000
LTC Properties, Inc.,
8.5%, 1-1-2001 (Convertible) ........ 3,000 2,396,250
Total ............................... 7,196,250
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Hotels and Other Lodging Places - 4.71%
CapStar Hotel Company,
8.75%, 8-15-2007 .................... $ 2,500 $ 2,378,125
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-2009 (A) .................. 3,400 3,442,500
HMH Properties, Inc.,
7.875%, 8-1-2008 .................... 15,000 14,400,000
MGM Grand, Inc.,
6.875%, 2-6-2008 .................... 5,000 4,695,200
Prime Hospitality Corp.:
9.25%, 1-15-2006 .................... 4,000 4,150,000
9.75%, 4-1-2007 ..................... 2,500 2,584,375
Station Casinos, Inc.:
10.125%, 3-15-2006 .................. 2,500 2,650,000
8.875%, 12-1-2008 (A) ............... 13,000 13,325,000
Total ............................... 47,625,200
Industrial Machinery and Equipment - 3.97%
American Standard Inc.,
9.25%, 12-1-2016 .................... 1,400 1,429,750
Anchor Lamina Inc. and Anchor Lamina America, Inc.,
9.875%, 2-1-2008 .................... 1,500 1,406,250
Axiohm Transaction Solutions, Inc.,
9.75%, 10-1-2007 .................... 2,000 1,820,000
Falcon Building Products, Inc.,
0.0%, 6-15-2007 (B) ................. 7,000 4,138,750
International Comfort Products Holdings, Inc.,
8.625%, 5-15-2008 ................... 4,000 4,030,000
National Equipment Services, Inc.:
10.0%, 11-30-2004 ................... 2,500 2,562,500
10.0%, 11-30-2004 ................... 9,000 9,022,500
Paragon Corporate Holdings, Inc.,
9.625%, 4-1-2008 .................... 3,000 2,415,000
Terex Corporation,
8.875%, 4-1-2008 .................... 6,000 5,887,500
Tokheim Corporation,
11.375%, 8-1-2008 (A) ............... 4,750 5,046,875
Walbro Corporation,
9.875%, 7-15-2005 ................... 2,400 2,361,000
Total ............................... 40,120,125
Instruments and Related Products - 1.92%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................. 6,875 7,089,844
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ..................... 9,250 9,920,625
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Instruments and Related Products (Continued)
Universal Hospital Services, Inc.,
10.25%, 3-1-2008 .................... $ 2,600 $ 2,405,000
Total ............................... 19,415,469
Miscellaneous Manufacturing Industries - 0.72%
AAi.Fostergrant, Inc.,
10.75%, 7-15-2006 ................... 1,750 1,382,500
Amscan Holdings, Inc.,
9.875%, 12-15-2007 .................. 3,400 2,924,000
Hedstrom Corporation,
10.0%, 6-1-2007 ..................... 3,500 2,975,000
Total ............................... 7,281,500
Miscellaneous Retail - 1.55%
Eye Care Centers of America, Inc.,
9.125%, 5-1-2008 .................... 2,000 1,740,000
Finlay Fine Jewelry Corporation,
8.375%, 5-1-2008 .................... 1,500 1,458,750
Michaels Stores, Inc.:
6.75%, 1-15-2003 (Convertible) ...... 1,000 950,000
10.875%, 6-15-2006 .................. 7,800 8,365,500
TravelCenters of America, Inc.,
10.25%, 4-1-2007 .................... 3,000 3,135,000
Total ............................... 15,649,250
Motion Pictures - 1.22%
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 ................... 7,300 4,708,500
Loews Cineplex Entertainment Corporation,
8.875%, 8-1-2008 .................... 2,000 1,995,000
Regal Cinemas, Inc.,
9.5%, 6-1-2008 ...................... 5,500 5,616,875
Total ............................... 12,320,375
Paper and Allied Products - 1.90%
Buckeye Cellulose Corporation,
8.5%, 12-15-2005 .................... 2,750 2,818,750
Container Corporation of America,
11.25%, 5-1-2004 .................... 3,500 3,692,500
Mail-Well I Corporation,
8.75%, 12-15-2008 (A) ............... 5,000 5,175,000
Outsourcing Services Group, Inc.,
10.875%, 3-1-2006 ................... 3,000 2,970,000
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Paper and Allied Products (Continued)
Radnor Holdings Corporation,
10.0%, 12-1-2003 .................... $2,000 $ 2,065,000
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (B) ................. 5,750 1,423,125
Sweetheart Cup Company, Inc.,
10.5%, 9-1-2003 ..................... 1,725 1,095,375
Total ............................... 19,239,750
Petroleum and Coal Products - 0.49%
Building Materials Corporation of America,
8.0%, 12-1-2008 (A) ................. 5,000 4,987,500
Primary Metal Industries - 1.26%
California Steel Industries, Inc.,
8.5%, 4-1-2009 (A) .................. 1,650 1,674,750
Commonwealth Aluminum Corporation,
10.75%, 10-1-2006 ................... 3,000 3,011,250
Weirton Steel Corporation,
11.375%, 7-1-2004 ................... 1,500 1,440,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 ................... 6,750 6,648,750
Total ............................... 12,774,750
Printing and Publishing - 3.23%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................. 4,000 4,320,000
Big Flower Press Holdings, Inc.,
8.625%, 12-1-2008 (A) ............... 6,250 6,312,500
K-III Communications Corporation,
8.5%, 2-1-2006 ...................... 5,000 5,112,500
Perry-Judd's Incorporated,
10.625%, 12-15-2007 ................. 5,250 5,381,250
TransWestern Publishing Company LLC,
9.625%, 11-15-2007 (A) .............. 5,000 5,250,000
World Color Press, Inc.,
8.375%, 11-15-2008 (A) .............. 6,250 6,296,875
Total ............................... 32,673,125
Railroad Transportation - 0.20%
TFM, S.A. de C.V.,
0.0%, 6-15-2009 (B) ................. 3,500 2,047,500
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Rubber and Miscellaneous Plastics Products - 2.75%
Furon Company,
8.125%, 3-1-2008 .................... $ 1,900 $ 1,866,750
Graham Packaging Company and GPC Capital Corp. I,
8.75%, 1-15-2008 .................... 7,000 7,008,750
Graham Packaging Holdings Company and
GPC Capital Corp. II,
0.0%, 1-15-2009 (B) ................. 2,000 1,390,000
Heafner (J.H.) Company, Inc. (The):
10.0%, 5-15-2008 .................... 4,500 4,606,875
10.0%, 5-15-2008 (A) ................ 4,000 4,095,000
Home Products International, Inc.,
9.625%, 5-15-2008 ................... 6,500 6,272,500
LDM Technologies, Inc.,
10.75%, 1-15-2007 ................... 2,500 2,559,375
Total ............................... 27,799,250
Social Services _ 0.66%
KinderCare Learning Centers, Inc.,
9.5%, 2-15-2009 ..................... 3,000 3,015,000
La Petite Academy, Inc. and LPA Holding Corp.,
10.0%, 5-15-2008 .................... 3,750 3,693,750
Total ............................... 6,708,750
Textile Mill Products - 2.21%
Avondale Mills, Inc.,
10.25%, 5-1-2006 .................... 3,500 3,622,500
Collins & Aikman Products Co.,
11.5%, 4-15-2006 .................... 5,000 5,312,500
Galey & Lord, Inc.,
9.125%, 3-1-2008 .................... 9,000 7,020,000
Glenoit Corporation,
11.0%, 4-15-2007 .................... 2,500 2,315,625
Globe Manufacturing Corp.,
10.0%, 8-1-2008 ..................... 5,250 4,042,500
Total ............................... 22,313,125
Transportation by Air - 1.15%
Atlas Air, Inc.,
9.375%, 11-15-2006 (A) .............. 11,500 11,629,375
Transportation Equipment - 1.20%
Federal-Mogul Corporation,
7.875%, 7-1-2010 .................... 7,000 6,992,020
Westinghouse Air Brake Company (The):
9.375%, 6-15-2005 ................... 3,000 3,108,750
9.375%, 6-15-2005 (A) ............... 2,000 2,045,000
Total ............................... 12,145,770
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Trucking and Warehousing - 0.78%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................. $ 1,500 $ 1,620,000
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... 6,000 6,300,000
Total ............................... 7,920,000
Water Transportation - 0.35%
Equimar Shipholdings Ltd.,
9.875%, 7-1-2007 .................... 5,000 3,550,000
Wholesale Trade - Durable Goods - 0.48%
Exide Corporation,
10.0%, 4-15-2005 .................... 1,000 990,000
Sealy Mattress Company,
0.0%, 12-15-2007 (B) ................ 6,000 3,900,000
Total ............................... 4,890,000
Wholesale Trade - Nondurable Goods - 0.60%
Core-Mark International, Inc.,
11.375%, 9-15-2003 .................. 3,500 3,552,500
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 .................... 2,750 2,564,375
Total ............................... 6,116,875
TOTAL CORPORATE DEBT SECURITIES - 85.82% $ 867,877,035
(Cost: $877,816,966)
OTHER GOVERNMENT SECURITY - 1.49%
Mexico
United Mexican States,
9.75%, 4-6-2005 ..................... 15,000 $ 15,056,250
(Cost: $14,994,600)
SHORT-TERM SECURITIES
Communication - 0.99%
Dominion Resources, Inc.,
5.0%, 4-21-99 ....................... 10,000 9,972,222
Electric, Gas and Sanitary Services - 0.54%
Public Service Electric & Gas Co.,
5.0%, 4-7-99 ........................ 1,525 1,523,729
Western Resources, Inc.,
5.03%, 4-21-99 ...................... 4,000 3,988,822
Total ............................... 5,512,551
See Notes to Schedule of Investments on page 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
SHORT-SECURITIES (Continued)
Fabricated Metal Products - 0.25%
Danaher Corporation,
4.9388%, Master Note ................ $ 2,547 $ 2,547,000
Food and Kindred Products - 0.09%
General Mills, Inc.,
4.7938%, Master Note ................ 893 893,000
Food Stores - 1.98%
Kroger Co. (The),
5.43%, 4-1-99 ....................... 20,000 20,000,000
Instruments and Related Products - 0.58%
Raytheon Company,
5.05%, 4-1-99 ....................... 5,900 5,900,000
Personal Services - 0.89%
Block Financial Corp.,
4.84%, 4-20-99 ...................... 9,000 8,977,010
Petroleum and Coal Products - 1.54%
Kerr-McGee Credit Corp.:
5.05%, 4-7-99 ....................... 10,000 9,991,584
5.07%, 4-15-99 ...................... 5,615 5,603,929
Total ............................... 15,595,513
TOTAL SHORT-TERM SECURITIES - 6.86% $ 69,397,296
(Cost: $69,397,296)
TOTAL INVESTMENT SECURITIES - 99.36% $1,004,798,442
(Cost: $1,006,863,901)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.64% 6,480,297
NET ASSETS - 100.00% $1,011,278,739
See Notes to Schedule of Investments on page 20.
<PAGE>
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
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 March 31, 1999, the value of these
securities amounted to $154,340,935 or 15.26% of net assets.
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
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
MARCH 31, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 3) ............................... $1,004,798
Cash ........................................... 390
Receivables:
Dividends and interest ........................ 19,453
Investment securities sold .................... 6,510
Fund shares sold .............................. 895
Prepaid insurance premium ...................... 57
----------
Total assets ................................ 1,032,103
----------
Liabilities
Payable for investment securities purchased .... 16,645
Payable to Fund shareholders ................... 3,803
Accrued service fee (Note 2) ................... 165
Accrued transfer agency and dividend
disbursing (Note 2) ........................... 152
Accrued management fee (Note 2) ................ 15
Accrued distribution fee (Note 2) .............. 13
Accrued accounting services fee (Note 2) ....... 8
Other .......................................... 23
----------
Total liabilities ........................... 20,824
----------
Total net assets ........................... $1,011,279
==========
Net Assets
$1.00 par value capital stock
Capital stock ................................. $ 107,752
Additional paid-in capital .................... 1,069,971
Accumulated undistributed income (loss):
Accumulated undistributed net investment income 2,588
Accumulated undistributed net realized
loss on investment transactions ............. (166,967)
Net unrealized depreciation in value of
investments ................................. (2,065)
----------
Net assets applicable to outstanding
units of capital ........................... $1,011,279
==========
Net asset value per share (net assets divided
by shares outstanding)
Class A ........................................ $9.39
Class Y ........................................ $9.39
Capital shares outstanding
Class A ........................................ 107,477
Class Y ........................................ 275
Capital shares authorized ........................ 500,000
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $95,287
Dividends ....................................... 2,832
-------
Total income .................................. 98,119
-------
Expenses (Note 2):
Investment management fee ....................... 5,675
Service fee - Class A ........................... 2,399
Transfer agency and dividend disbursing - Class A 1,274
Distribution fee - Class A ...................... 100
Accounting services fee ......................... 99
Custodian fees .................................. 24
Audit fees ...................................... 18
Legal fees ...................................... 12
Shareholder servicing - Class Y ................. 5
Other ........................................... 182
-------
Total expenses ................................ 9,788
-------
Net investment income ........................ 88,331
-------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on investments ................. 6,301
Unrealized depreciation in value of
investments during the period ................... (78,843)
-------
Net loss on investments ....................... (72,542)
-------
Net increase in net assets resulting
from operations ............................ $15,789
=======
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the fiscal year ended
March 31,
-----------------------------
1999 1998
Increase (Decrease) in Net Assets -------------- --------------
Operations:
Net investment income .......... $ 88,331 $ 88,401
Realized net gain on
investments .................. 6,301 22,509
Unrealized appreciation
(depreciation) ............... (78,843) 62,830
---------- ----------
Net increase in net assets
resulting from operations ... 15,789 173,740
---------- ----------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ........................ (86,920) (88,015)
Class Y ........................ (261) (261)
---------- ----------
(87,181) (88,276)
---------- ----------
Capital share transactions:
Proceeds from sale of shares:
Class A (11,212,153 and 11,406,679
shares, respectively) ....... 107,437 110,946
Class Y (243,388 and 43,283
shares, respectively) ....... 2,313 423
Proceeds from reinvestment
of dividends:
Class A (7,730,209 and
7,636,167 shares, respectively) 73,752 74,065
Class Y (27,373 and 26,963
shares, respectively) ....... 261 261
Payments for shares redeemed:
Class A (21,192,900 and 15,583,034
shares, respectively) ....... (203,166) (151,632)
Class Y (317,451 and 85,087
shares, respectively) ....... (3,016) (824)
---------- ----------
Net increase (decrease) in net assets
resulting from capital share
transactions .............. (22,419) 33,239
---------- ----------
Total increase (decrease) . (93,811) 118,703
Net Assets
Beginning of period ............. 1,105,090 986,387
---------- ----------
End of period, including
undistributed net investment
income of $2,588 and
$1,438, respectively ........... $1,011,279 $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 fiscal year ended March 31,
-----------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of period $10.04 $ 9.25 $9.09 $8.70 $9.20
------ ------ ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.81 0.82 0.80 0.79 0.80
Net realized and
unrealized gain
(loss) on
investments ..... (0.66) 0.79 0.16 0.40 (0.51)
------ ------ ----- ----- -----
Total from investment
operations ....... 0.15 1.61 0.96 1.19 0.29
------ ------ ----- ----- -----
Less dividends
from net
investment income . (0.80) (0.82) (0.80) (0.80) (0.79)
------ ------ ----- ----- -----
Net asset value,
end of period .... $9.39 $10.04 $9.25 $9.09 $8.70
====== ====== ===== ===== =====
Total return* ...... 1.70% 18.03% 10.94% 14.16% 3.41%
Net assets, end
of period (in
millions) ........ $1,009 $1,102 $983 $972 $934
Ratio of expenses to
average net assets 0.94% 0.84% 0.89% 0.85% 0.84%
Ratio of net investment
income to average
net assets ....... 8.44% 8.38% 8.68% 8.74% 9.07%
Portfolio turnover
rate ............. 53.19% 63.40% 53.17% 41.67% 18.94%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
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 fiscal For the
year ended period
March 31, from 1/4/96*
--------------------- through
1999 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 .......... 0.83 0.82 0.81 0.20
Net realized and
unrealized gain (loss)
on investments .. (0.66) 0.79 0.15 (0.10)
------ ------ ----- -----
Total from investment
operations ........ 0.17 1.61 0.96 0.10
------ ------ ----- -----
Less dividends
from net
investment income . (0.82) (0.82) (0.81) (0.19)
------ ------ ----- -----
Net asset value,
end of period ..... $9.39 $10.04 $9.25 $9.10
====== ====== ===== =====
Total return ....... 1.90% 18.13% 11.07% 1.00%
Net assets, end of
period (in
millions) ........ $2 $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 ........... 8.62% 8.46% 8.78% 8.55%**
Portfolio
turnover rate .... 53.19% 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
MARCH 31, 1999
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 business day following record date. Net
investment income dividends and capital gains distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sales and post-October
losses, foreign currency transactions, net operating losses and expiring
capital loss carryovers. At March 31, 1999, the Fund reclassified
$157,217,033 between additional paid-in-capital and accumulated
undistributed net realized losses. Net investment income, net realized
gains and net assets were not affected by this change.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- 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 $21.5 billion of
combined net assets at March 31, 1999) at annual rates of .51% of the first $750
million of combined net assets, .49% on that amount between $750 million and
$1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between $2.25
billion and $3 billion, .43% between $3 billion and $3.75 billion, .40% between
$3.75 billion and $7.5 billion, .38% between $7.5 billion and $12 billion, and
.36% of that amount over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and 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
$2,438,427, out of which W&R paid sales commissions of $1,408,039 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts.
The Fund paid Directors' fees of $38,933, 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 $493,273,938 while proceeds from
maturities and sales aggregated $548,068,414. Purchases of short-term
securities and U.S. Government securities aggregated $2,632,750,463 and
$26,894,141, respectively. Proceeds from maturities and sales of short-term
securities and U.S. Government securities aggregated $2,625,781,194 and
$27,400,000, respectively.
For Federal income tax purposes, cost of investments owned at March 31,
1999 was $1,006,863,901, resulting in net unrealized depreciation of $2,065,459,
of which $36,309,233 related to appreciated securities and $38,374,692 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital gain net
income of $13,784,884 during its fiscal year ended March 31, 1999, which
included the effect of certain losses deferred into the next fiscal year (see
discussion below). This capital gain net income was entirely offset by
utilization of capital loss carryovers. Remaining capital loss carryovers
aggregated $160,249,659 at March 31, 1999 and are available to offset future
realized capital gain net income for Federal income tax purposes but will expire
if not utilized as follows: $114,024,403 at March 31, 2000; $17,962,753 at March
31, 2003; $20,841,730 at March 31, 2004; and $7,420,773 at March 31, 2005.
Internal Revenue Code regulations permits the Fund to defer into its next
fiscal year net capital losses or net long-term capital losses incurred between
each November 1 and the end of its fiscal year (_post-October losses_). From
November 1, 1998 through March 31, 1999, the Fund incurred net capital losses of
$6,717,770, which have been deferred to the fiscal year ending March 31, 2000.
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 March 31, 1999, and the related statement of
operations for the fiscal year then ended, the statements of changes in
net assets for each of the two fiscal years in the period then ended, and
the financial highlights for each of the five fiscal years in the period
then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of United High Income Fund, Inc. as of March 31, 1999, the
results of its operations for the fiscal year then ended, the changes in
its net assets for each of the two fiscal years in the period then ended,
and the financial highlights for each of the five fiscal years in the
period then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
<PAGE>
INCOME TAX INFORMATION
The amounts of the dividends below, multiplied by the number of shares owned by
you on the record dates, will give you the total amounts to be reported in your
Federal income tax return for the years in which the dividends were received or
reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
---------------------------------------------------------
For Individuals For Corporations
-------------------------------------------------------
Record OrdinaryLong-Term Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital Gain
- ----------- ------------- -------- ----------------------------
Class A
04-17-98 $0.066 $0.0660 $--- $0.0019 $0.0641 $---
05-15-98 0.066 .0660 --- .0020 .0640 ---
06-12-98 0.066 .0660 --- .0020 .0640 ---
07-17-98 0.066 .0660 --- .0020 .0640 ---
08-14-98 0.066 .0660 --- .0020 .0640 ---
09-11-98 0.066 .0660 --- .0020 .0640 ---
10-16-98 0.066 .0660 --- .0020 .0640 ---
11-13-98 0.066 .0660 --- .0020 .0640 ---
12-16-98 0.076 .0760 --- .0023 .0737 ---
01-13-99 0.066 .0660 --- .0017 .0643 ---
02-10-99 0.066 .0660 --- .0017 .0643 ---
03-10-99 0.066 .0660 --- .0017 .0643 ---
------ ------- ---- ------- ------- ----
Total $0.802 $0.8020 $--- $0.0233 $0.7787 $---
====== ======= ==== ======= ======= ====
Class Y
04-17-98 $0.067 $0.0670 $--- $0.0019 $0.0651 $---
05-15-98 0.066 .0660 --- .0020 .0640 ---
06-12-98 0.068 .0680 --- .0021 .0659 ---
07-17-98 0.067 .0670 --- .0020 .0650 ---
08-14-98 0.067 .0670 --- .0020 .0650 ---
09-11-98 0.067 .0670 --- .0020 .0650 ---
10-16-98 0.070 .0700 --- .0021 .0679 ---
11-13-98 0.068 .0680 --- .0021 .0659 ---
12-16-98 0.079 .0790 --- .0024 .0766 ---
01-13-99 0.067 .0670 --- .0017 .0653 ---
02-10-99 0.067 .0670 --- .0017 .0653 ---
03-10-99 0.068 .0680 --- .0017 .0663 ---
------ ------- ---- ------- ------- ----
Total $0.821 $0.8210 $--- $.0237 $0.7973 $---
====== ======= ==== ======= ======= ====
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the tax
treatment of dividends and distributions from the Fund.
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Helge K. Lee, Vice President and Secretary
Louise D. Rieke, Vice President
Lower sales charges are available by combining the net asset value ("NAV") of
existing Class A shares of the Fund with additional purchases of Class A shares
of any fund in the United Group, except that only the Class A shares of United
Cash Management, Inc. that were acquired by exchange of another United Group
fund's Class A shares on which a sales charge was paid, plus the shares paid as
dividends on those acquired shares, may be combined.
For shareholders who have chosen the Income-Earned option or the Cash option for
their distribution method: if the dividend distribution (for Income-Earned) or
the total distribution (for Cash) is less than ten dollars, the distribution
will be automatically paid in additional shares of the same class of the Fund.
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>
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
NUR1009A(3-99)
printed on recycled paper
