Waddell & Reed Advisors
High Income
Fund, Inc.
ANNUAL
REPORT
------------------
September 30, 2000
<PAGE>
CONTENTS
3 Manager's Letter
6 Performance Summary
8 Portfolio Highlights
9 Investments
19 Statement of Assets and Liabilities
20 Statement of Operations
21 Statement of Changes in Net Assets
22 Financial Highlights
26 Notes to Financial Statements
31 Independent Auditors' Report
32 Income Tax Information
34 Directors & Officers
This report is submitted for the general information of the shareholders of
Waddell & Reed Advisors High Income Fund, Inc. It is not authorized for
distribution to prospective investors in the Fund unless accompanied with or
preceded by the Waddell & Reed Advisors High Income Fund, Inc. current
prospectus and current Fund performance information.
<PAGE>
MANAGER'S LETTER
-----------------------------------------------------------------
SEPTEMBER 30, 2000
Dear Shareholder:
This report relates to the operation of Waddell & Reed Advisors High Income
Fund, Inc. for the fiscal year ended September 30, 2000. The following graphs
and tables provide you with information regarding the Fund's performance during
that period, while the following discussion provides you with information
regarding the Fund's performance during the twelve months ended September 30,
2000. The Fund's board of directors recently approved a change in the Fund's
fiscal year-end from March 31 to September 30.
During the last year, the Federal Reserve Bank has raised interest rates more
than 100 basis points, which has increased the cost of funds to new issuers.
This has also backed up prices of securities in the secondary market. In
addition, for the majority of the year, money left the high yield market.
During 1999, the market had inflows of $3.9 billion, while year-to-date in 2000
the market has seen a $5.3 billion outflow. These events have led to very small
new issuances in the market, with only $37.6 billion for the nine months ended
September 30, 2000, down 60 percent from 1999. The annualized default rate hit
a high of 5.8 percent for the quarter ended June 30, 2000, and has declined to
2.9 percent for the three months ended August 31, 2000. This compares to 5.3
percent and 3.78 percent, respectively, for comparable periods in 1999. The
increase in the default rate has led to a greater focus on credit quality and
has widened the spread between good-quality and lower-quality securities. Also
adding to market jitters has been the increased cost of energy and the impact of
that increase on the economy.
Because of the factors listed above, we have raised cash and reduced exposure to
cyclicals and telecommunications companies. In addition, we have increased
holdings in shorter duration paper as well as higher quality, non-cyclical
paper. This has been done in an attempt to reduce the sensitivity of the fund
to increased interest rates. Although there was not a significant change in
style, the cash balance is now approximately 14 percent, compared with
approximately five percent last year. We spent a few years reducing exposure to
the short yield to call paper, and we have reversed that in order to become more
defensive.
The strategies and techniques we applied resulted in the Waddell & Reed Advisors
High Income Fund slightly underperforming over the last twelve months, returning
-5.42 percent for that period, compared with the Lipper High Current Yield Funds
Universe Average of 0.03 percent return (which reflects the universe of funds
with similar investment objectives), and the Salomon Brothers High Yield Market
Index return of 1.02 percent (which reflects the performance of securities that
generally represent the high-yield bond market).
We believe all of the conditions previously listed should continue to drive the
market in 2001. However, during the next year, we believe these factors should
abate and become positives for the market. We believe that because of the rise
in oil prices and the increase in rates, the world economies should slow,
allowing the Federal Reserve to possibly reverse course and start to lower
interest rates. There are already signs of slowing in the United States and in
Europe, which we believe will become more pronounced in the next few months.
The current spreads to treasuries, mentioned above, give the market significant
upside potential when this occurs. As soon as the trends reverse, we intend to
aggressively invest the cash reserves in the market.
In closing, I would like to thank you for your investment, your continued
confidence and your support of Waddell & Reed Advisors High Income Fund.
Sincerely,
Louise D. Rieke
Manager, Waddell & Reed Advisors High Income Fund, Inc.
<PAGE>
Comparison of Change in Value of $10,000 Investment
===== Waddell & Reed Advisors High Income Fund, Inc., Class A Shares* -- $23,990
..... Salomon Brothers High Yield Market Index - $25,679
----- Lipper High Current Yield Funds Universe Average -- $24,857
Waddell & Reed Lipper
Advisors Salomon High
High Brothers Current
Income High Yield
Fund, Inc., Yield Fund
Class Market Universe
A Shares Index Average
--------- ---------- ----------
03/31/91 Purchase 9,425 10,000 10,000
03/31/92 12,415 12,799 12,972
03/31/93 14,242 14,876 15,050
03/31/94 15,481 16,129 16,617
03/31/95 16,011 17,230 16,908
03/31/96 18,279 19,784 19,422
03/31/97 20,280 21,979 21,638
03/31/98 23,937 25,529 25,414
03/31/99 24,344 25,796 25,052
03/31/00 24,186 25,181 25,148
09/30/00 23,990 25,679 24,857
*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.
Average Annual Total Return+
Class A Class B Class C Class Y
----------------------------------------------
Year Ended
9-30-00 -5.42% --- --- 0.61%
5 Years Ended
9-30-00 5.47% --- --- ---
10 Years Ended
9-30-00 9.81% --- --- ---
Since inception of
Class** through
9-30-00 --- -5.26% -1.56% 6.30%
*Performance data quoted represents past performance and is based on deduction
of the maximum applicable sales load for each of the periods. Class A shares
carry a maximum front-end sales load of 5.75%. Class B and Class C shares
carry maximum contingent deferred sales charges of 5% and 1%, respectively.
Total returns reflect share price appreciation, including reinvestment of all
income and capital gains distributions. Investment return and principal value
will fluctuate and an investor's shares, when redeemed, may be worth more or
less than their original cost.
**10-4-99 for Class B and Class C shares and 1-4-96 for Class Y shares (the date
on which shares were first acquired by shareholders).
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
--------------------------------------------------------------
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
PORTFOLIO STRATEGY:
Invests generally in GOALS: To seek, as its primary
High-Risk, High-Yield goal, a high level of
Fixed-Income Securities current income. As a
secondary goal, to seek capital growth
when
consistent with its
Maximum 20% Common Stock primary goal.
STRATEGY: Invests primarily in a diversified
portfolio of high-yield, high-risk,
fixed-income securities. The Fund
invests primarily in the lower quality,
non-investment grade bonds, commonly
called junk bonds. The Fund may invest
up to 20% of its total assets in common
stock in order to seek capital growth.
FOUNDED: 1979
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Period Ended September 30, 2000
----------------------------------------------
DIVIDENDS PAID $0.37
=====
NET ASSET VALUE ON
9/30/00 $8.10
3/31/00 8.54
------
CHANGE PER SHARE $(0.44)
======
Past performance is not necessarily indicative of future results.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (1)
Class A Class B
----------------------- -----------------------*
With Without With Without
Period Sales Load(2) Sales Load(3) CDSC(4) CDSC(5)
------ ---------- ---------- ----------- --------
1-year period
ended 9-30-00 -5.42% 0.35% --- ---
5-year period
ended 9-30-00 5.47% 6.72% --- ---
10-year period
ended 9-30-00 9.81% 10.47% --- ---
Cumulative return
since inception
of Class (6) --- --- -5.26% -0.68%
(1)Performance data represents share price appreciation, including reinvestment
of all income and capital gains distributions. Performance data represents
past performance and is no guarantee of future results. Share price,
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2)Performance data is based on deduction of 5.75% sales load on the initial
purchase in the periods.
(3)Performance data does not take into account the sales load deducted on an
initial purchase.
(4)Performance data reflects the effect of paying the applicable contingent
deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end
of the period.
(5)Performance data does not reflect the effect of paying the applicable CDSC
upon redemption at the end of the period.
(6)10-4-99 for Class B shares (the date on which shares were first acquired by
shareholders).
AVERAGE ANNUAL TOTAL RETURN (1)
Class C Class Y(2)
----------------------- ----------
With Without
Period CDSC(3) CDSC(4)
------ ---------- ----------
1-year period
ended 9-30-00 --- --- 0.61%
5-year period
ended 9-30-00 --- --- ---
10-year period
ended 9-30-00 --- --- ---
Cumulative return
since inception
of Class(5) -1.56% -0.64% ---
Since inception
of Class(5) --- --- 6.30%
(1)Performance data represents share price appreciation, including reinvestment
of all income and capital gains distributions. Performance data represents
past performance and is no guarantee of future results. Share price,
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2) Performance data does not include the effect of sales charges, as Class Y
shares are not subject to these charges.
(3)Performance data reflects the effect of paying the applicable contingent
deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero at
the end of the first year after investment.
(4)Performance data does not reflect the effect of paying the applicable CDSC
upon redemption at the end of the period.
(5)10-4-99 for Class C shares and 1-4-96 for Class Y shares (the date on which
shares were first acquired by shareholders).
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 2000, Waddell & Reed Advisors High Income Fund, Inc. had net
assets totaling $758,220,044 invested in a diversified portfolio of:
75.87% Corporate Debt Securities
14.61% Cash and Cash Equivalents
7.98% Common and Preferred Stocks and Warrants
1.54% Other Government Security
As a shareholder of Waddell & Reed Advisors High Income Fund, Inc., for every
$100 you had invested on September 30, 2000, your Fund owned:
$41.85 Transportation, Communication, Electric
and Sanitary Services Bonds
17.13 Services Bonds
14.61 Cash and Cash Equivalents
8.47 Manufacturing Bonds
7.98 Common and Preferred Stocks and Warrants
5.09 Wholesale and Retail Trade Bonds
3.33 Miscellaneous Bonds
1.54 Other Government Security
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON AND PREFERRED STOCKS AND WARRANTS
Business Services - 0.43%
Clear Channel Communications, Inc.* .. 57,865 $3,269,372
Cybernet Internet Services International,
Inc., Warrants (A)* ................. 3,250 24,375
Total ............................... 3,293,747
Chemicals and Allied Products - 1.34%
Smith International, Inc.* ........... 125,000 10,195,312
Communication - 1.52%
Adelphia Communications Corporation,
13.0% Preferred ..................... 7,500 750,000
Allegiance Telecom, Inc., Warrants (A)* 7,000 385,000
Crown Castle International Corp.* .... 60,000 1,861,875
IntelCom Group Inc., Warrants (A)* ... 20,625 2,063
Intermedia Communications Inc.,
13.5% Preferred ..................... 8,026 7,664,846
Leap Wireless International, Inc.,
Warrants (A)* ....................... 4,750 356,250
OnePoint Communications Corp.,
Warrants (A)* ....................... 4,000 340,000
Primus Telecommunications Group, Incorporated,
Warrants* ........................... 5,000 27,500
VersaTel Telecom International N.V.,
Warrants (A)* ....................... 350 108,500
Total ............................... 11,496,034
Electric, Gas and Sanitary Services - 0.00%
Consolidated Hydro, Inc.,
Class B Warrants* ................... 7,578 26,523
Consolidated Hydro, Inc.,
Class C Warrants* ................... 4,919 49
Total ............................... 26,572
Electronic and Other Electric Equipment - 0.28%
Level 3 Communications, Inc.* ........ 20,000 1,543,125
Metricom Inc., Warrants* ............. 4,000 60,000
PF.Net Communications, Warrants (A)* .. 2,375 510,625
Total ............................... 2,113,750
Food and Kindred Products - 0.92%
Keebler Foods Company ................ 166,500 6,993,000
Industrial Machinery and Equipment - 0.98%
Baker Hughes Incorporated ............ 100,000 3,712,500
Cooper Cameron Corporation* .......... 50,000 3,684,375
Total ............................... 7,396,875
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
Nondepository Institutions - 0.45%
California Federal Preferred Capital
Corporation, 9.125% Preferred ....... 150,000 $3,393,750
Paper and Allied Products - 0.15%
SF Holdings Group, Inc., Class C (A)* 1,890 9,450
SF Holdings Group, Inc.,
13.75% Preferred .................... 200 810,000
SF Holdings Group, Inc.,
13.75% Preferred (A)* ............... 78 315,143
Total ............................... 1,134,593
Petroleum and Coal Products - 1.28%
Exxon Mobil Corporation .............. 65,000 5,793,125
Royal Dutch Petroleum Company,
NY Shares ........................... 65,000 3,895,938
Total ............................... 9,689,063
Radiotelephone Communications - 0.62%
GT Group Telecom, Inc., Warrants (A) .. 3,950 266,625
Microcell Telecommunications Inc.,
Warrants (A)* ....................... 58,000 3,619,026
Powertel, Inc., Warrants* ............ 16,000 864,000
Total ............................... 4,749,651
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 7.97% $60,482,347
(Cost: $50,543,753)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.36%
Hines Horticulture, Inc.,
11.75%, 10-15-05 .................... $ 2,750 2,763,750
Amusement and Recreation Services - 4.34%
Aztar Corporation,
8.875%, 5-15-07 ..................... 2,500 2,431,250
Hollywood Park, Inc.,
9.25%, 2-15-07 ...................... 12,750 13,005,000
Mohegan Tribal Gaming Authority,
8.75%, 1-1-09 ....................... 4,250 4,218,125
Premier Parks Inc.,
9.75%, 6-15-07 ...................... 3,250 3,055,000
Station Casinos, Inc.:
8.875%, 12-1-08 ..................... 5,650 5,416,938
9.875%, 7-1-10 (A) .................. 4,750 4,755,937
Total ............................... 32,882,250
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Auto Repair, Services and Parking - 0.72%
Avis Rent A Car, Inc.,
11.0%, 5-1-09 ....................... $ 5,000 $ 5,437,500
Automotive Dealers and Service Stations - 0.30%
TravelCenters of America, Inc.,
10.25%, 4-1-07 ...................... 2,250 2,278,125
Business Services - 2.55%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-06 ..................... 5,000 5,181,250
Cybernet Internet Services
International, Inc.,
14.0%, 7-1-09 ....................... 3,250 1,511,250
Lamar Advertising Company:
9.625%, 12-1-06 ..................... 4,500 4,606,875
8.625%, 9-15-07 ..................... 2,750 2,695,000
National Equipment Services, Inc.,
10.0%, 11-30-04 ..................... 4,600 3,254,500
Outdoor Systems, Inc.,
8.875%, 6-15-07 ..................... 2,000 2,052,500
Total ............................... 19,301,375
Chemicals and Allied Products - 0.40%
Sterling Chemicals, Inc.,
12.375%, 7-15-06 .................... 3,000 3,060,000
Communication - 21.19%
Adelphia Communications Corporation:
9.25%, 10-1-02 ...................... 3,700 3,672,250
10.5%, 7-15-04 ...................... 5,000 4,993,750
Alestra, S. de R.L. de C.V.,
12.625%, 5-15-09 .................... 6,500 6,223,750
CSC Holdings, Inc.,
8.125%, 8-15-09 ..................... 4,000 3,945,960
Century Communications Corp.,
0.0%, 3-15-03 ....................... 2,000 1,525,000
Comcast UK Cable Partners Limited,
0.0%, 11-15-07 (B) .................. 9,000 8,505,000
Concentric Network Corporation,
12.75%, 12-15-07 .................... 4,000 4,020,000
Crown Castle International Corp.:
0.0%, 5-15-11 (B) ................... 10,250 6,611,250
9.0%, 5-15-11 ....................... 5,000 4,750,000
Diamond Cable Communications Plc,
0.0%, 12-15-05 (B) .................. 15,500 14,570,000
See Notes to Schedule of Investments on page 18.
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
EchoStar DBS Corporation,
9.375%, 2-1-09 ...................... $15,500 $ 15,190,000
FrontierVision Holdings, L.P.,
11.0%, 10-15-06 ..................... 3,500 3,526,250
Global Crossing Holdings Ltd.,
9.5%, 11-15-09 ...................... 4,500 4,477,500
Grupo Iusacell, S.A. de C.V.,
14.25%, 12-1-06 ..................... 1,650 1,753,125
Hyperion Telecommunications, Inc.:
0.0%, 4-15-03 (B) ................... 10,125 8,226,562
12.0%, 11-1-07 ...................... 1,250 812,500
ITC /\ DeltaCom, Inc.,
11.0%, 6-1-07 ....................... 4,350 4,132,500
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-06 (B).................... 4,500 4,275,000
Leap Wireless International, Inc.,
12.5%, 4-15-10 ...................... 4,750 3,823,750
MetroNet Communications Corp.,
0.0%, 6-15-08 (B) ................... 7,000 5,844,020
NEXTLINK Communications, Inc.:
9.625%, 10-1-07 ..................... 2,250 2,002,500
10.75%, 6-1-09 ...................... 3,500 3,237,500
ONO Finance Plc,
13.0%, 5-1-09 ....................... 3,500 3,115,000
OnePoint Communications Corp.,
14.5%, 6-1-08 ....................... 4,000 4,020,000
Primus Telecommunications Group, Incorporated:
11.75%, 8-1-04 ...................... 5,000 2,825,000
12.75%, 10-15-09 .................... 1,775 994,000
Qwest Communications International Inc.,
0.0%, 10-15-07 (B) .................. 2,750 2,432,430
Renaissance Media Group LLC,
0.0%, 4-15-08 (B) ................... 6,000 4,080,000
Rhythms NetConnections Inc.,
14.0%, 2-15-10 ...................... 5,000 3,200,000
Rogers Cablesystems Limited,
10.0%, 12-1-07 ...................... 3,555 3,714,975
SpectraSite Holdings, Inc.,
0.0%, 3-15-10 (B) ................... 9,750 4,972,500
Telewest Communications plc,
0.0% 10-1-07 (B) .................... 7,300 6,971,500
Time Warner Telecom LLC and Time
Warner Telecom Inc.,
9.75%, 7-15-08 ...................... 2,500 2,318,750
United International Holdings, Inc.,
0.0%, 2-15-08 (B) ................... 8,750 5,950,000
Total ............................... 160,712,322
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Depository Institutions - 0.40%
Sovereign Bancorp, Inc.,
10.25%, 5-15-04 ..................... $ 3,000 $ 3,036,240
Eating and Drinking Places - 2.22%
Domino's, Inc.,
10.375%, 1-15-09 .................... 6,850 6,533,188
Foodmaker, Inc.,
8.375%, 4-15-08 ..................... 9,250 8,741,250
NE Restaurant Company, Inc.,
10.75%, 7-15-08 ..................... 2,000 1,530,000
Total ............................... 16,804,438
Electric, Gas and Sanitary Services - 1.44%
El Paso Electric Company,
9.4%, 5-1-11 ........................ 5,000 5,360,950
Transportadora de Gas del Sur S.A.,
10.375%, 04-15-03 (A) ............... 5,500 5,596,250
Total ............................... 10,957,200
Electronic and Other Electric Equipment - 1.22%
Elgar Holdings, Inc.,
9.875%, 2-1-08 ...................... 4,000 2,300,000
Level 3 Communications, Inc.:
11.0%, 3-15-08 ...................... 4,000 3,840,000
9.125%, 5-1-08 ...................... 1,500 1,293,750
PF.Net Communications,
13.75%, 5-15-10 (A) ................. 2,375 1,816,875
Total ............................... 9,250,625
Food and Kindred Products - 0.89%
B & G Foods, Inc.,
9.625%, 8-1-07 ...................... 4,500 3,262,500
Pilgrim's Pride Corporation,
10.875%, 8-1-03 ..................... 3,500 3,508,750
Total ............................... 6,771,250
Food Stores - 0.45%
Big V Supermarkets, Inc.,
11.0%, 2-15-04 ...................... 5,000 3,425,000
Furniture and Fixtures - 0.59%
Sealy Mattress Company,
0.0%, 12-15-07 (B) .................. 6,000 4,470,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Health Services - 4.56%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-02 ....................... $10,500 $ 10,434,375
Columbia/HCA Healthcare Corporation:
7.0%, 7-1-07 ........................ 3,500 3,233,125
7.25%, 5-20-08 ...................... 2,250 2,092,500
Extendicare Health Services, Inc.,
9.35%, 12-15-07 ..................... 2,000 1,160,000
IASIS Healthcare Corporation,
13.0%, 10-15-09 ..................... 4,750 4,607,500
Tenet Healthcare Corporation:
8.0%, 1-15-05 ....................... 3,500 3,447,500
8.625%, 1-15-07 ..................... 4,750 4,678,750
9.25%, 9-1-10 (A) ................... 4,750 4,940,000
Total ............................... 34,593,750
Holding and Other Investment Offices - 1.37%
Grupo Industrial Durango, S.A. de C.V.,
12.625%, 8-1-03 ..................... 6,000 6,157,500
Host Marriott, L.P.,
9.25%, 10-1-07 (A) .................. 4,250 4,196,492
Total ............................... 10,353,992
Hotels and Other Lodging Places - 4.96%
CapStar Hotel Company,
8.75%, 8-15-07 ...................... 3,000 2,812,500
HMH Properties, Inc.,
7.875%, 8-1-08 ...................... 12,000 11,070,000
Lodgian Financing Corp.,
12.25%, 7-15-09 ..................... 1,100 935,000
MGM Grand, Inc.,
9.75%, 6-1-07 ....................... 5,750 5,936,875
Park Place Entertainment Corporation,
8.875%, 9-15-08 (A) ................. 7,750 7,672,500
Prime Hospitality Corp.:
9.25%, 1-15-06 ...................... 5,750 5,699,687
9.75%, 4-1-07 ....................... 3,500 3,517,500
Total ............................... 37,644,062
Industrial Machinery and Equipment - 0.49%
American Standard Inc.,
9.25%, 12-1-16 ...................... 1,099 1,099,000
Terex Corporation,
8.875%, 4-1-08 ...................... 3,000 2,640,000
Total ............................... 3,739,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Insurance Carriers - 0.42%
LifePoint Hospitals Holdings, Inc.,
10.75%, 5-15-09 ..................... $ 3,000 $ 3,172,500
Miscellaneous Retail - 1.51%
Michaels Stores, Inc.,
10.875%, 6-15-06 .................... 11,000 11,440,000
Oil and Gas Extraction - 0.78%
Canadian Forest Oil Co. Ltd.,
8.75%, 9-15-07 ...................... 3,000 2,910,000
R&B Falcon Corporation,
9.5%, 12-15-08 ...................... 2,750 2,973,438
Total ............................... 5,883,438
Paper and Allied Products - 1.80%
Buckeye Cellulose Corporation,
8.5%, 12-15-05 ...................... 2,750 2,722,500
Container Corporation of America,
11.25%, 5-1-04 ...................... 5,000 5,056,250
Fonda Group, Inc. (The),
9.5%, 3-1-07 ........................ 1,500 1,252,500
SF Holdings Group, Inc.,
0.0%, 3-15-08 (B) ................... 5,750 3,018,750
Sweetheart Cup Company, Inc.,
10.5%, 9-1-03 ....................... 1,725 1,604,250
Total ............................... 13,654,250
Petroleum and Coal Products - 0.41%
Building Materials Corporation of America,
8.0%, 12-1-08 ....................... 5,000 3,075,000
Primary Metal Industries - 0.77%
Commonwealth Aluminum Corporation,
10.75%, 10-1-06 ..................... 3,000 2,790,000
ISG Resources, Inc.,
10.0%, 4-15-08 ...................... 1,600 1,336,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-07 ..................... 4,875 1,706,250
Total ............................... 5,832,250
Radio and Television Broadcasting Stations - 6.03%
ACME Television, LLC,
10.78%, 9-30-04 ..................... 7,400 7,039,250
Allbritton Communications Company,
9.75%, 11-30-07 ..................... 5,750 5,627,813
American Radio Systems Corporation,
9.0%, 2-1-06 ........................ 3,750 3,881,250
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Radio and Television Broadcasting Stations (Continued)
LIN Holdings Corp.,
0.0%, 3-1-08 (B) .................... $ 7,000 $ 5,040,000
LIN Television Corporation,
8.375%, 3-1-08 ...................... 5,900 5,649,250
Rogers Communications Inc.,
9.125%, 1-15-06 ..................... 7,500 7,575,000
Salem Communications Corporation,
9.5%, 10-1-07 ....................... 4,300 4,214,000
Spanish Broadcasting System, Inc.,
9.625%, 11-1-09 ..................... 4,250 4,234,063
Susquehanna Media Co.,
8.5%, 5-15-09 ....................... 2,500 2,450,000
Total ............................... 45,710,626
Radiotelephone Communications - 8.50%
GT Group Telecom, Inc.,
0.0%, 2-1-10 (A)(B) ................. 3,950 1,718,250
Intercel, Inc.,
0.0%, 2-1-06 (B) .................... 5,000 5,025,000
Microcell Telecommunications Inc.,
0.0%, 6-1-06 (B) .................... 15,000 14,362,500
Nextel Communications, Inc.,
0.0%, 9-15-07 (B) ................... 2,500 2,050,000
Nextel International, Inc.:
0.0%, 4-15-08 (B) ................... 11,875 7,689,063
12.75%, 8-1-10 (A) .................. 5,500 5,403,750
Nextel Partners, Inc.:
0.0%, 2-1-09 (B) .................... 9,350 6,545,000
11.0%, 3-15-10 (A) .................. 3,625 3,652,187
Powertel, Inc.,
11.125%, 6-1-07 ..................... 1,500 1,603,125
Sprint Spectrum L.P.,
0.0%, 8-15-06 (B) ................... 12,000 11,809,920
VoiceStream Wireless Corporation,
10.375%, 11-15-09 ................... 4,250 4,568,750
Total ............................... 64,427,545
Railroad Transportation - 1.10%
Kansas City Southern Railway Company (The),
9.5%, 10-1-08 (A) ................... 1,000 1,012,500
TFM, S.A. de C.V.:
10.25%, 6-15-07 ..................... 1,750 1,610,000
0.0%, 6-15-09 (B) ................... 7,500 5,700,000
Total ............................... 8,322,500
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Rubber and Miscellaneous Plastics Products - 0.89%
Graham Packaging Company and GPC Capital Corp. I,
8.75%, 1-15-08 ...................... $ 2,500 $ 2,125,000
Graham Packaging Holdings Company,
0.0%, 1-15-09 (B) ................... 1,250 656,250
Home Products International, Inc.,
9.625%, 5-15-08 ..................... 6,500 3,965,000
Total ............................... 6,746,250
Textile Mill Products - 0.83%
Anvil Knitwear, Inc.,
10.875%, 3-15-07 .................... 1,275 1,144,312
Consoltex Group Inc.,
11.0%, 10-1-03 ...................... 7,000 5,127,500
Total ............................... 6,271,812
Transportation by Air - 1.69%
Atlas Air, Inc.:
10.75%, 8-1-05 ...................... 1,250 1,295,312
9.375%, 11-15-06 .................... 11,500 11,543,125
Total ............................... 12,838,437
Transportation Equipment - 0.18%
Federal-Mogul Corporation,
7.875%, 7-1-10 ...................... 3,600 1,368,000
Trucking and Warehousing - 1.90%
Iron Mountain Incorporated:
10.125%, 10-1-06 .................... 3,500 3,561,250
8.125%, 5-15-08 ..................... 4,150 3,776,500
Pierce Leahy Corp.,
9.125%, 7-15-07 ..................... 7,250 7,050,625
Total ............................... 14,388,375
Wholesale Trade - Durable Goods - 0.21%
Heafner (J.H.) Company, Inc. (The),
10.0%, 5-15-08 ...................... 4,250 1,593,750
Wholesale Trade - Nondurable Goods - 0.40%
Core-Mark International, Inc.,
11.375%, 9-15-03 .................... 3,250 3,071,250
TOTAL CORPORATE DEBT SECURITIES - 75.87% $575,276,862
(Cost: $611,491,358)
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITY - 1.54%
Mexico
United Mexican States,
9.75%, 4-6-05 ....................... $11,000 $11,660,000
(Cost: $10,996,473)
SHORT-TERM SECURITIES
Amusement and Recreation Services - 2.03%
Harrah's Entertainment, Inc.:
7.0%, 10-16-00 ...................... 2,800 2,791,833
7.02%, 11-1-00 ...................... 12,700 12,623,229
Total ............................... 15,415,062
Communication - 0.55%
Viacom Inc.,
6.71%, 10-5-00 ...................... 4,167 4,163,893
Electric, Gas and Sanitary Services - 3.99%
Detroit Edison Co.:
6.85%, 10-3-00 ...................... 7,500 7,497,146
6.8%, 10-16-00 ...................... 10,000 9,971,667
New York State Electric & Gas Corp.,
6.72%, 10-24-00 ..................... 12,800 12,745,045
Total ............................... 30,213,858
Food Stores - 3.14%
Kroger Co. (The),
7.05%, 10-2-00 ...................... 23,828 23,823,334
Motion Pictures - 0.16%
Time Warner Entertainment Company, L.P.,
7.0%, 10-2-00 ....................... 1,174 1,173,772
Nondepository Institutions - 1.56%
PACCAR Financial Corp.,
6.49%, Master Note .................. 135 135,000
Penney (J.C.) Funding Corp.,
6.85%, 10-25-00 ..................... 11,750 11,696,342
Total ............................... 11,831,342
Railroad Transportation - 0.99%
Union Pacific Corporation,
6.95%, 10-6-00 ...................... 7,525 7,517,736
TOTAL SHORT-TERM SECURITIES - 12.42% $94,138,997
(Cost: $94,138,997)
TOTAL INVESTMENT SECURITIES - 97.80% $741,558,206
(Cost: $767,170,581)
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
SEPTEMBER 30, 2000
Value
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.20% 16,661,838
NET ASSETS - 100.00% $758,220,044
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, 2000, the value of
these securities amounted to $46,701,798 or 6.16% 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>
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 3) ............................... $741,558
Cash .......................................... 5,750
Receivables:
Dividends and interest ........................ 13,401
Investment securities sold .................... 13,248
Fund shares sold .............................. 285
Prepaid insurance premium ...................... 61
--------
Total assets ................................ 774,353
--------
Liabilities
Payable for investment securities purchased .... 12,378
Payable to Fund shareholders ................... 3,137
Accrued service fee (Note 2) ................... 151
Accrued transfer agency and dividend
disbursing (Note 2) ........................... 117
Accrued management fee (Note 2) ................ 26
Accrued accounting services fee (Note 2) ....... 8
Accrued distribution fee (Note 2) .............. 7
Other .......................................... 309
--------
Total liabilities ........................... 16,133
--------
Total net assets ........................... $758,220
========
Net Assets
$1.00 par value capital stock
Capital stock ................................. $93,558
Additional paid-in capital .................... 846,660
Accumulated undistributed income (loss):
Accumulated undistributed net investment income 616
Accumulated undistributed net realized
loss on investment transactions ............. (157,002)
Net unrealized depreciation in value of
investments ................................. (25,612)
--------
Net assets applicable to outstanding
units of capital ........................... $758,220
========
Net asset value per share (net assets divided
by shares outstanding)
Class A ........................................ $8.10
Class B ........................................ $8.10
Class C ........................................ $8.10
Class Y ........................................ $8.11
Capital shares outstanding
Class A ........................................ 92,532
Class B ........................................ 625
Class C ........................................ 106
Class Y ........................................ 295
Capital shares authorized ........................ 500,000
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
(In Thousands)
For the Fiscal For the Fiscal
Period Ended Year Ended
September 30, March 31,
2000 2000
-------------- --------------
Investment Income
Income (Note 1B):
Interest and amortization .......... $38,926 $88,826
Dividends .......................... 1,256 2,302
------- -------
Total income ..................... 40,182 91,128
------- -------
Expenses (Note 2):
Investment management fee .......... 2,470 5,601
Service fee:
Class A ........................... 939 2,214
Class B ........................... 5 2
Class C ........................... 1 ---*
Transfer agency and dividend disbursing:
Class A ........................... 635 1,491
Class B ........................... 6 2
Class C ........................... 1 ---*
Distribution fee:
Class A ........................... 49 133
Class B ........................... 14 5
Class C ........................... 2 1
Accounting services fee ............ 44 86
Audit fees ......................... 12 19
Legal fees ......................... 4 13
Shareholder servicing - Class Y .... 2 4
Custodian fees ..................... ---* 21
Other .............................. 105 218
------- -------
Total expenses ................... 4,289 9,810
------- -------
Net investment income ........... 35,893 81,318
------- -------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net loss on securities ..... (49,241) (55,152)
Realized net gain on
forward currency contracts ......... 333 27
Realized net gain (loss) on
foreign currency transactions....... (274) 14
................................. ------- -------
Realized net loss on investments ... (49,182) (55,111)
------- -------
Unrealized appreciation (depreciation)
in value of securities
during the period ................ 7,045 (30,658)
Unrealized appreciation in value of
open forward currency contracts
during the period --- 66
------- -------
Unrealized appreciation (depreciation)
in value of investments during
the period ...................... 7,045 (30,592)
------- -------
Net loss on investments .......... (42,137) (85,703)
------- -------
Net decrease in net assets resulting
from operations ............... $(6,244) $(4,385)
======= =======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the For the fiscal
fiscal year ended
period ended March 31,
September 30, -----------------
2000 2000 1999
--------- ------ -----
Increase (decrease) in Net Assets
Operations:
Net investment income .......... $ 35,893 $ 81,318 $ 88,331
Realized net gain (loss) on
investments .................. (49,182) (55,111) 6,301
Unrealized appreciation
(depreciation) ................ 7,045 (30,592) (78,843)
-------- -------- --------
Net increase (decrease) in net assets
resulting from operations ... (6,244) (4,385) 15,789
-------- -------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ........................ (35,714) (82,674) (86,920)
Class B ........................ (153) (47) ---
Class C ........................ (24) (10) ---
Class Y ........................ (96) (232) (261)
-------- -------- --------
(35,987) (82,963) (87,181)
-------- -------- --------
Capital share transactions
(Note 5) ....................... (30,763) (92,717) (22,419)
-------- -------- --------
Total decrease ............ (72,994) (180,065) (93,811)
Net Assets
Beginning of period ............. 831,214 1,011,279 1,105,090
-------- -------- --------
End of period, including undistributed
net investment income of $616, $984
and $2,588, respectively ....... $758,220 $831,214$1,011,279
======== ======== =========
*See "Financial Highlights" on pages 22 - 25.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
fiscal
period For the fiscal year ended March 31,
ended -----------------------------------
9/30/00 2000 1999 1998 1997 1996
------- ------ ------ ------ ------ ------
Net asset value,
beginning of period $8.54 $9.39 $10.04 $ 9.25 $9.09 $8.70
----- ------ ------ ------ ----- -----
Income (loss) from investment
operations:
Net investment
income .......... 0.37 0.78 0.81 0.82 0.80 0.79
Net realized and
unrealized gain
(loss) on
investments ..... (0.44) (0.84) (0.66) 0.79 0.16 0.40
----- ----- ------ ------ ----- -----
Total from investment
operations ....... (0.07) (0.06) 0.15 1.61 0.96 1.19
----- ----- ------ ------ ----- -----
Less dividends
from net
investment income . (0.37) (0.79) (0.80) (0.82) (0.80) (0.80)
----- ----- ------ ------ ----- -----
Net asset value,
end of period .... 8.10 $8.54 $ 9.39 $10.04 $9.25 $9.09
===== ===== ====== ====== ===== =====
Total return* ...... -0.81% -0.65% 1.70% 18.03% 10.94% 14.16%
Net assets, end
of period (in
millions) ........ $750 $826 $1,009 $1,102 $983 $972
Ratio of expenses to
average net assets 1.06%** 1.04% 0.94% 0.84% 0.89% 0.85%
Ratio of net investment
income to average
net assets ....... 8.94%** 8.65% 8.44% 8.38% 8.68% 8.74%
Portfolio turnover
rate ............. 24.20% 41.55% 53.19% 63.40% 53.17% 41.67%
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
fiscal from
period 10/4/99*
ended through
9/30/00 3/31/00
------- -------
Net asset value,
beginning of period $8.54 $8.84
---- ----
Income (loss) from investment
operations:
Net investment income 0.33 0.36
Net realized and
unrealized loss
on investments .. (0.44) (0.30)
---- ----
Total from investment
operations ....... (0.11) 0.06
---- ----
Less dividends from
net investment
income ........... (0.33) (0.36)
---- ----
Net asset value,
end of period .... $8.10 $8.54
==== ====
Total return ....... -1.28% 0.61%
Net assets, end of
period (in
millions) ........ $5 $3
Ratio of expenses to
average net assets 1.99%** 1.96%**
Ratio of net investment
income to average
net assets ....... 8.02%** 7.79%**
Portfolio turnover
rate ............. 24.20% 41.55%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
fiscal from
period 10/4/99*
ended through
9/30/00 3/31/00
------- -------
Net asset value,
beginning of period $8.54 $8.84
---- ----
Income (loss) from investment
operations:
Net investment income 0.33 0.36
Net realized and
unrealized loss
on investments .. (0.43) (0.30)
---- ----
Total from investment
operations ....... (0.10) 0.06
---- ----
Less dividends from
net investment
income ........... (0.33) (0.36)
---- ----
Net asset value,
end of period .... $8.11 $8.54
==== ====
Total return ....... -1.28% 0.65%
Net assets, end of
period (000
omitted) ......... $856 $404
Ratio of expenses to
average net assets 2.07%** 1.91%**
Ratio of net investment
income to average
net assets ....... 7.94%** 7.88%**
Portfolio turnover
rate ............. 24.20% 41.55%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
fiscal For the fiscal from
period year ended March 31, 1/4/96*
ended --------------------------- through
9/30/00 2000 1999 1998 1997 3/31/96
------- ----- ----- ----- ----- -------
Net asset value,
beginning of period $8.54 $9.39 $10.04 $ 9.25 $9.10 $9.19
----- ----- ------ ------ ----- -----
Income (loss) from investment
operations:
Net investment
income .......... 0.39 0.81 0.83 0.82 0.81 0.20
Net realized and
unrealized gain (loss)
on investments .. (0.44) (0.84) (0.66) 0.79 0.15 (0.10)
----- ----- ------ ------ ----- -----
Total from investment
operations ........ (0.05) (0.03) 0.17 1.61 0.96 0.10
----- ----- ------ ------ ----- -----
Less dividends from
net investment
income ............ (0.39) (0.82) (0.82) (0.82) (0.81) (0.19)
----- ----- ------ ------ ----- -----
Net asset value,
end of period ..... $8.10 $8.54 $9.39 $10.04 $9.25 $9.10
===== ===== ====== ====== ===== =====
Total return ....... -0.69% -0.39% 1.90% 18.13% 11.07% 1.00%
Net assets, end of
period (in
millions) ........ $2 $2 $2 $3 $3 $2
Ratio of expenses
to average net
assets ........... 0.80%** 0.79% 0.74% 0.77% 0.77% 0.80%**
Ratio of net
investment income
to average net
assets ........... 9.21%** 8.91% 8.62% 8.46% 8.78% 8.55%**
Portfolio
turnover rate .... 24.20% 41.55% 53.19% 63.40% 53.17% 41.67%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 -- Significant Accounting Policies
Waddell & Reed Advisors High Income Fund, Inc. (the "Fund"), formerly
United High Income Fund, Inc., is registered under the Investment Company Act of
1940 as a diversified, open-end management investment company. Its investment
objective is to provide a high 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. Effective for the fiscal period ended September 30, 2000, the Fund
changed its fiscal year end for both financial reporting and Federal income tax
purposes to September 30 to March 31. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with accounting principles
generally accepted in the United States of America.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using the Nasdaq Stock Market, which provides information on bid and
asked prices quoted by major dealers in such stocks. Restricted securities
and securities for which market quotations are not readily available are
valued at fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Board of
Directors. Short-term debt securities are valued at amortized cost, which
approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. 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 accounting
principles generally accepted in the United States of America. These
differences are due to differing treatments for items such as deferral of
wash sales and post-October losses, foreign currency transactions, net
operating losses and expiring capital loss carryovers. Net investment
income, net realized gains and net assets were not affected by this change.
29
11/22/00
3:45 PM
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
is payable by the Fund at the annual rates of 0.625% of net assets up to $500
million, 0.60% of net assets over $500 million and up to $1 billion, 0.55% of
net assets over $1 billion and up to $1.5 billion; and 0.50% of net assets over
$1.5 billion. The Fund accrues and pays the 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 $ 11,000
From $ 25 to $ 50 $ 22,000
From $ 50 to $ 100 $ 33,000
From $ 100 to $ 200 $ 44,000
From $ 200 to $ 350 $ 55,000
From $ 350 to $ 550 $ 66,000
From $ 550 to $ 750 $ 77,000
From $ 750 to $1,000 $ 93,500
$1,000 and Over $110,000
In addition, for each class of shares in excess of one, the Fund pays
WARSCO a monthly per-class fee equal to 2.5% of the monthly base fee.
Prior to September 1, 2000, the Accounting Services Agreement was as shown
in the following table.
<PAGE>
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A, Class B and Class C shares, the Fund pays WARSCO a monthly per
account charge for transfer agency and dividend disbursement services of $1.6125
for each shareholder account which was in existence at any time during the prior
month. With respect to Class Y shares, the Fund pays WARSCO a monthly fee at an
annual rate of 0.15% of the average daily net assets of the class for the
preceding month. The Fund also reimburses W&R and WARSCO for certain out-of-
pocket costs.
Prior to September 1, 2000, for Class A, Class B and Class C shares, the
Fund paid WARSCO a monthly per account charge for transfer agency and dividend
disbursement services of $1.3125 for each shareholder account which was in
existence at any time during the prior month, plus $0.30 for each account on
which a dividend or distribution of cash or shares had a record date in that
month.
As principal underwriter for the Fund's shares, W&R received gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$574,009. During the period ended September 30, 2000, W&R received $11,604 and
$144 in deferred sales charges for Class B shares and Class C shares,
respectively. With respect to Class A, Class B and Class C shares, W&R paid
sales commissions of $390,592 and all expenses in connection with the sale of
Fund shares, except for registration fees and related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed 0.25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts.
Under the Distribution and Service Plan adopted by the Fund for Class B and
Class C shares, respectively, the Fund may pay W&R, on an annual basis, a
service fee of up to 0.25% of the average daily net assets of the class to
compensate W&R for providing services to shareholders of that class and/or
maintaining shareholder accounts for that class and a distribution fee of up to
0.75% of the average daily net assets of the class to compensate W&R for
distributing the shares of that class. The Class B Plan and the Class C Plan
each permit W&R to receive compensation, through the distribution and service
fee, respectively, for its distribution activities for that class, which are
similar to the distribution activities described with respect to the Class A
Plan, and for its activities in providing personal services to shareholders of
that class and/or maintaining shareholder accounts of that class, which are
similar to the corresponding activities for which it is entitled to
reimbursement under the Class A Plan.
The Fund paid Directors' fees of $12,060, 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 $173,581,180, while proceeds from
maturities and sales aggregated $265,300,619. Purchases of short-term
securities aggregated $4,300,469,652, while proceeds from maturities and sales
aggregated $4,236,253,000. No U.S. Government securities were bought or sold
during the period ended September 30, 2000.
For Federal income tax purposes, cost of investments owned at September 30,
2000 was $767,170,580, resulting in net unrealized depreciation of $25,612,374,
of which $23,776,034 related to appreciated securities and $49,388,408 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital losses of
$69,897,740 during its fiscal period ended September 30, 2000, which included
the effect of certain losses recognized from the prior year (see discussion
below). Capital loss carryovers aggregated $157,001,807 at September 30, 2000
and are available to offset future realized capital gain net income for Federal
income tax purposes but will expire if not utilized as follows: $17,962,753 at
September 30, 2002; $20,841,730 at September 30, 2003; $7,420,773 at September
30, 2004; $40,878,811 at September 30, 2007; and $69,897,740 at September 30,
2008.
Internal Revenue Code regulations permit 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"). During
the year ended September 30, 2000, the Fund recognized post-October losses of
$20,990,651 that had been deferred from the year ended March 31, 2000.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A, Class B,
Class C and Class Y, each of which have equal rights as to assets and voting
privileges. Class Y shares are not subject to a sales charge on purchases, are
not subject to a Rule 12b-1 Distribution and Service Plan and are subject to a
separate transfer agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of each class are
offered is contained in the Prospectus and the Statement of Additional
Information for the Fund.
Income, non-class specific expenses, and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of their
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
Transactions in capital stock are summarized below. Amounts are in
thousands.
For the For the For the
fiscal period fiscal year fiscal year
ended ended ended
September 30, March 31, March 31,
2000 2000 1999
------------ ------------ -----------
Shares issued from sale
of shares:
Class A ............ 6,368 11,205 11,212
Class B ............. 342 321 ---
Class C ............. 63 51 ---
Class Y ............ 108 65 244
Shares issued from
reinvestment of dividends:
Class A ............ 3,661 7,881 7,730
Class B ............. 17 5 ---
Class C ............. 2 1 ---
Class Y ............ 11 26 27
Shares redeemed:
Class A ............ (14,191) (29,870) (21,193)
Class B ............. (42) (16) ---
Class C ............. (7) (5) ---
Class Y ............ (68) (122) (317)
------ ------ --------
Decrease in outstanding
capital shares ...... (3,736) (10,458) (2,297)
====== ====== ========
Value issued from sale
of shares:
Class A ............ $ 53,219 $100,747 $107,437
Class B ............. 2,847 2,822 ---
Class C ............. 525 453 ---
Class Y ............ 893 591 2,313
Value issued from
reinvestment of dividends:
Class A ............ 30,560 70,485 73,752
Class B ............. 140 42 ---
Class C ............. 21 6 ---
Class Y ............ 96 233 261
Value redeemed:
Class A ............ (118,082) (266,830) (203,166)
Class B ............. (353) (141) ---
Class C ............. (57) (43) ---
Class Y ............ (572) (1,082) (3,016)
-------- -------- --------
Decrease in outstanding
capital ............ $(30,763) $(92,717) $(22,419)
======== ======== ========
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Advisors High Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Waddell & Reed Advisors High Income Fund, Inc.
(formerly United High Income Fund, Inc.) (the "Fund") as of September 30, 2000,
and the related statements of operations for the fiscal period then ended and
the fiscal year ended March 31, 2000, the statements of changes in net assets
for the fiscal period ended September 30, 2000 and each of the two fiscal years
in the period ended March 31, 2000, and the financial highlights for the fiscal
period ended September 30, 2000, and for each of the five fiscal years in the
period ended March 31, 2000. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of September 30, 2000, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Waddell & Reed Advisors High Income Fund, Inc. as of September 30, 2000, the
results of its operations for the fiscal period then ended and the fiscal year
ended March 31, 2000, the changes in its net assets for the fiscal period ended
September 30, 2000 and each of the two fiscal years in the period ended March
31, 2000, and the financial highlights for the fiscal period ended September 30,
2000, and for each of the five fiscal years in the period ended March 31, 2000,
in conformity with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Kansas City, Missouri
November 3, 2000
<PAGE>
INCOME TAX INFORMATION
The amounts of the 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
04-12-00 $0.0630 $0.0630 $--- $0.0021 $0.0609 $---
05-10-00 .0630 .0630 --- .0021 .0609 ---
06-14-00 .0630 .0630 --- .0021 .0609 ---
07-12-00 .0620 .0620 --- .0021 .0599 ---
08-09-00 .0620 .0620 --- .0021 .0599 ---
09-13-00 .0620 .0620 --- .0021 .0599 ---
------- ------- ---- ------- ------- ----
Total $0.3750 $0.3750 $--- $0.0126 $0.3624 $---
======= ======= ==== ======= ======= ====
Class B
04-12-00 $0.0560 $0.0560 $--- $.0.0019 $0.0541 $---
05-10-00 .0560 .0560 --- .0019 .0541 ---
06-14-00 .0560 .0560 --- .0019 .0541 ---
07-12-00 .0560 .0560 --- .0019 .0541 ---
08-09-00 .0560 .0560 --- .0019 .0541 ---
09-13-00 .0550 .0550 --- .0018 .0532 ---
------- ------- ---- ------- ------- ----
Total $0.3350 $0.3350 $--- $0.0113 $0.3237 $---
======= ======= ==== ======= ======= ====
Class C
04-12-00 $0.0580 $0.0580 $--- $0.0019 $0.0561 $---
05-10-00 .0570 .0570 --- .0019 .0551 ---
06-14-00 .0550 .0550 --- .0018 .0532 ---
07-12-00 .0560 .0560 --- .0019 .0541 ---
08-09-00 .0550 .0550 --- .0018 .0532 ---
09-13-00 .0540 .0540 --- .0018 .0522 ---
------- ------- ---- ------- ------- ----
Total $0.3350 $0.3350 $--- $0.0111 $0.3239 $---
======= ======= ==== ======= ======= ====
Class Y
04-12-00 $0.0650 $0.0650 $--- $0.0022 $0.0628 $---
05-10-00 .0640 .0640 --- .0021 .0619 ---
06-14-00 .0650 .0650 --- .0022 .0628 ---
07-12-00 .0640 .0640 --- .0021 .0619 ---
08-09-00 .0640 .0640 --- .0021 .0619 ---
09-13-00 .0630 .0630 --- .0021 .0609 ---
------- ------- ---- ------- ------- ----
Total $0.3850 $0.3850 $--- $0.0128 $0.3722 $---
======= ======= ==== ======= ======= ====
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the tax
treatment of dividends and distributions from the Fund.
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, San Mateo, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Kristen A. Richards, Vice President and Secretary
Louise D. Rieke, Vice President
Daniel C. Schulte, Vice President
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
The Waddell & Reed Advisors Group of Mutual Funds
Waddell & Reed Advisors Accumulative Fund
Waddell & Reed Advisors Asset Strategy Fund, Inc.
Waddell & Reed Advisors Bond Fund
Waddell & Reed Advisors Cash Management, Inc.
Waddell & Reed Advisors Continental Income Fund, Inc.
Waddell & Reed Advisors Core Investment Fund
Waddell & Reed Advisors Global Bond Fund, Inc.
Waddell & Reed Advisors Government Securities Fund, Inc.
Waddell & Reed Advisors High Income Fund, Inc.
Waddell & Reed Advisors International Growth Fund, Inc.
Waddell & Reed Advisors Municipal Bond Fund, Inc.
Waddell & Reed Advisors Municipal High Income Fund, Inc.
Waddell & Reed Advisors New Concepts Fund, Inc.
Waddell & Reed Advisors Retirement Shares, Inc.
Waddell & Reed Advisors Science and Technology Fund
Waddell & Reed Advisors Small Cap Fund, Inc.
Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.
Waddell & Reed Advisors Vanguard Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1009SA(9-00)
For more complete information regarding any of the mutual funds in Waddell &
Reed Advisors fund, including charges and expenses, please obtain the Fund's
prospectus by calling or writing to the number or address listed above. Please
read the prospectus carefully before investing.
