United
High Income
Fund II, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1994
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
SEPTEMBER 30, 1994
Dear Shareholder:
This report relates to the operation of your Fund for the fiscal year ended
September 30, 1994. The following discussion, graphs and tables provide you
with information regarding the Fund's performance during that period.
During the past fiscal year, the Federal Reserve increased interest rates
several times as it sought to preempt the inflationary pressures that might
accompany rapid economic growth. Throughout the year, however, inflation
remained at relatively low levels by historic standards. As a result of rising
interest rates, the market for new issues of high-yield debt securities slowed
substantially.
The Fund continued to emphasize relatively higher quality bonds for the
purpose of maintaining liquidity and protecting against declining values in a
rising interest rate environment. The Fund did, however, invest a small portion
of its portfolio in distressed companies that appeared poised for a turnaround,
and those investments outperformed the Fund's higher quality bonds during the
past year.
The strategies and techniques we applied resulted in the direction of the
Fund's performance remaining fairly consistent with that of the indexes charted
on the following page. Those indexes reflect the performance of securities that
generally represent the high-yield bond market (the First Boston High Yield
Index) and the universe of funds with similar investment objectives (the Lipper
High Current Yield Bond Fund Universe Average). The Fund's performance over the
past year trailed these indexes slightly because the indexes were more heavily
weighted toward the lowest quality bonds, which performed better than the
relatively higher quality bonds held by the Fund.
We anticipate relatively strong economic growth to continue in the coming
year, which could lead the Federal Reserve to increase interest rates further.
Thus, we plan to continue emphasizing higher quality bonds, despite the
relatively better performance of the lowest grade bonds over the past year. Of
course, we will not exclude lower-rated bonds when it appears an extraordinary
investment opportunity exists.
Thank you for your continued confidence.
Respectfully,
Louise D. Rieke
Manager, United High Income Fund II
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
UNITED HIGH INCOME FUND II, INC.,
THE FIRST BOSTON HIGH YIELD INDEX,
AND THE LIPPER HIGH CURRENT YIELD BOND FUND UNIVERSE AVERAGE
The line graph which appears here is the paper version which was filed on Form
SE on November 23, 1994.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United High Income Fund II, Inc.
PORTFOLIO STRATEGY:
Invests generally in High OBJECTIVE: High level of current
Yield Fixed Income income with secondary
Securities objective of capital growth when
consistent
Maximum 20% Common Stocks with the primary objective.
STRATEGY: Invests generally in debt securities in
lower rating categories as classified by
recognized rating agencies; may also
invest up to 20% in common stocks.
FOUNDED: 1986
DIVIDENDS: PAID MONTHLY
<PAGE>
PERFORMANCE SUMMARY
PER SHARE DATA
For the Fiscal Year Ended September 30, 1994
- --------------------------------------------
DIVIDENDS PAID $ 0.35
======
NET ASSET VALUE ON
9/30/94 $ 3.96
9/30/93 4.21
------
CHANGE PER SHARE $(0.25)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load** Sales Load***
- ------ ---------- ----------
1-year period ended 9-30-94 -3.57% 2.31%
5-year period ended 9-30-94 8.15% 9.43%
Period from 7-1-86*
through 9-30-94 7.40% 8.17%
Initial public offering of the Fund.
Performance data quoted represents past performance and is based on deduction of
5.75% sales load on the initial purchase in each of the three periods.
Performance data quoted in this column represents past performance without
taking into account the sales load deducted on an initial purchase.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1994, United High Income Fund II, Inc. had net assets totaling
$362,642,618 invested in a diversified portfolio of:
88.28% Corporate Debt Securities
9.49% Cash and Cash Equivalents
2.23% Common and Preferred Stocks and Warrants
As a shareholder in United High Income Fund II, Inc., for every $100 you had
invested on September 30, 1994, your Fund owned:
$45.00 Consumer Bonds
26.42 Basic Industries Bonds
11.38 Technological Bonds
9.49 Cash and Cash Equivalents
3.91 Energy and Energy-Related Bonds
2.23 Common and Preferred Stocks and Warrants
1.08 Financial Bonds
0.49 Public Utilities Bonds
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Banks and Savings and Loans - 0.15%
California Federal Bank, F.S.B.,
Preferred ............................. 5,000 $ 529,375
Reliance Group Holdings, Inc., Warrants* 1,061 2,122
WestFed Holdings, Inc., Preferred* ..... 14,243 14
WestFed Holdings, Inc., Series B* ...... 7,610 8
Total ................................. 531,519
Building - 0.49%
NVR L.P., Warrants* ................... 34,286 47,143
Triangle Pacific Corp.* ................ 127,442 1,744,299
Total ................................. 1,791,442
Chemicals Specialty and Miscellaneous
Technology - 0.01%
Plastic Specialties and Technologies, Inc. 20,000 20,000
Hospital Management - 0.49%
LTC Properties, Inc. ................... 75,000 1,021,875
National Health Investors, Preferred,
Convertible ........................... 30,000 761,250
Total ................................. 1,783,125
Leisure Time - 0.43%
FLAGSTAR COMPANIES, INC.* .............. 24,600 212,175
Infinity Broadcasting Corporation* ..... 45,000 1,361,250
Total ................................. 1,573,425
Public Utilities - Electric - 0.38%
Consolidated Hydro, Inc., Preferred* ... 3,000 1,350,000
Consolidated Hydro, Inc., Warrants (A)* 5,400 32,400
Total ................................. 1,382,400
Publishing and Advertising - 0.27%
Advanstar Communications Inc.* ......... 30,000 960,000
Textiles and Apparel - 0.01%
American Marketing Industries
Holdings, Inc., Preferred (A)* ........ 2,275 20,475
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 2.23% $ 8,062,386
(Cost: $14,524,139)
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Airlines - 1.87%
GP Group, Inc.,
8.75%, 12-15-98 ....................... $ 3,500 $ 2,913,750
NWA, Inc.,
8.625%, 8-1-96 ........................ 4,000 3,860,000
Total ................................. 6,773,750
Automotive - 3.01%
Aftermarket Technology Corp.,
12.0%, 8-1-2004 (A) ................... 1,500 1,530,000
Burlington Motor Holdings Inc.,
11.5%, 11-1-2003 ...................... 2,500 2,425,000
Doehler-Jarvis Limited Partnership,
11.875%, 6-1-2002 ..................... 1,500 1,511,250
Lear Siegler Seating Corp.,
8.25%, 2-1-2002 ....................... 4,000 3,570,000
Motor Wheel Corporation,
11.5%, 3-1-2000 ....................... 1,000 990,000
Venture Holdings Trust,
9.75%, 4-1-2004 ....................... 1,000 897,500
Total ................................. 10,923,750
Beverages - 1.10%
Dr Pepper Bottling Company of Texas,
10.25%, 2-15-2000 ..................... 500 510,000
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (B) ................... 1,000 705,000
ROYAL CROWN CORPORATION,
9.75%, 8-1-2000 ....................... 3,000 2,775,000
Total ................................. 3,990,000
Biotechnology and Medical Services - 1.68%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-2002 ....................... 2,000 1,835,000
Quorum Health Group, Inc.,
11.875%, 12-15-2002 ................... 4,000 4,260,000
Total ................................. 6,095,000
Building - 10.64%
American Standard Inc.:
9.875%, 6-1-2001 ...................... 2,500 2,450,000
14.25%, 6-30-2003 ..................... 800 823,504
11.375%, 5-15-2004 .................... 500 532,500
0.0%, 6-1-2005 (B) .................... 1,250 815,625
9.25%, 12-1-2016 ...................... 5,000 4,662,500
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Building (Continued)
Beazer Homes USA, Inc.,
9.0%, 3-1-2004 ........................ $ 3,000 $ 2,595,000
Del Webb Corporation:
9.75%, 3-1-2003 ....................... 3,000 2,730,000
9.0%, 2-15-2006 ....................... 2,000 1,650,000
Eagle Industries, Inc.,
0.0%, 7-15-2003 (B) ................... 4,000 2,540,000
Hillsborough Company:
16.625%, 1-1-95 (C) ................... 5,863 5,100,659
17.0%, 1-1-96 (C) ..................... 11,000 9,020,000
NVR L.P.,
11.0%, 4-15-2003 ...................... 1,500 1,350,000
Nortek, Inc.,
9.875%, 3-1-2004 ...................... 2,000 1,860,000
Triangle Pacific Corp.,
10.5%, 8-1-2003 ....................... 2,500 2,450,000
Total ................................. 38,579,788
Chemicals Major - 2.02%
UCC Investors Holding, Inc.:
10.5%, 5-1-2002 ....................... 5,500 5,665,000
0.0%, 5-1-2005 (B) .................... 2,500 1,662,500
Total ................................. 7,327,500
Chemicals Specialty and Miscellaneous
Technology - 2.12%
Carlisle Plastics, Inc.,
10.25%, 6-15-97 ....................... 2,000 2,000,000
Envirotest Systems Corp.,
9.125%, 3-15-2001 ..................... 1,000 925,000
LaRoche Industries Inc.,
13.0%, 8-15-2014 ...................... 2,500 2,468,750
OSi Specialties, Inc.,
9.25%, 10-1-2003 ...................... 2,500 2,300,000
Total ................................. 7,693,750
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Computers and Office Equipment - 0.75%
Corporate Express, Inc.,
9.625%, 3-15-2004 (A) ................. $ 2,000 $ 1,835,000
Mail-Well Corporation,
10.5%, 2-15-2004 ...................... 1,000 880,000
Total ................................. 2,715,000
Consumer Electronics and Appliances - 1.49%
Levitz Furniture Corporation,
9.625%, 7-15-2003 ..................... 4,000 3,520,000
Sealy Corporation,
9.5%, 5-1-2003 ........................ 2,000 1,900,000
Total ................................. 5,420,000
Domestic Oil - 0.97%
Clark R&M Holdings, Inc.,
0.0%, 2-15-2000 ...................... 6,000 3,525,000
Drugs and Hospital Supply - 1.28%
Alco Health Distribution Corporation,
11.25%, 7-15-2005 ..................... 1,668 1,636,596
General Medical Corporation,
10.875%, 8-15-2003 .................... 3,000 3,015,000
Total ................................. 4,651,596
Electronics - 0.54%
Essex Group, Inc.,
10.0%, 5-1-2003 ....................... 2,000 1,945,000
Food and Related - 1.19%
Specialty Foods Corporation:
10.25%, 8-15-2001 .................... 2,000 1,780,000
11.25%, 8-15-2003 .................... 3,000 2,520,000
Total ................................. 4,300,000
Hospital Management - 3.24%
Hallmark Healthcare Corporation,
10.625%, 11-15-2003 ................... 1,250 1,262,500
Hillhaven Corporation (The),
10.125%, 9-1-2001 ..................... 3,000 3,030,000
LTC Properties, Inc.,
8.5%, 1-1-2000 ........................ 2,000 2,010,000
Multicare Companies, Inc. (The),
12.5%, 7-1-2002 ....................... 415 458,575
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Hospital Management (Continued)
Pathmark:
9.625%, 5-1-2003 ...................... $ 3,000 $ 2,715,000
0.0%, 11-1-2003 (B) ................... 2,500 1,237,500
Surgical Health Corporation,
11.5%, 7-15-2004 ...................... 1,000 1,022,500
Total ................................. 11,736,075
Household Products - 1.25%
Exide Corporation:
10.75%, 12-15-2002 .................... 3,000 3,090,000
0.0%, 12-15-2004 (B) .................. 2,000 1,430,000
Total ................................. 4,520,000
Insurance - 1.08%
American Annuity Group, Inc.:
9.5%, 8-15-2001 ....................... 2,500 2,400,000
11.125%, 2-1-2003 ..................... 1,500 1,515,000
Total ................................. 3,915,000
Leisure Time - 15.75%
Act III Broadcasting, Inc.,
9.625%, 12-15-2003 .................... 2,000 1,900,000
Argosy Gaming Company,
12.0%, 6-1-2001 ....................... 2,200 2,403,500
Cablevision Industries Corporation:
10.75%, 1-30-2002 ..................... 3,000 2,985,000
9.25%, 4-1-2008 ...................... 2,000 1,750,000
California Hotel Finance Corporation,
11.0%, 12-1-2002 ...................... 4,000 3,880,000
COMCAST CELLULAR CORPORATION,
0.0%, 3-5-2000 ........................ 3,700 2,284,750
Comcast Corporation,
9.5%, 1-15-2008 ....................... 4,000 3,660,000
Continental Cablevision, Inc.:
10.625%, 6-15-2002 .................... 1,000 1,010,000
8.875%, 9-15-2005 ..................... 2,000 1,800,000
11.0%, 6-1-2007 ....................... 1,200 1,218,000
Embassy Suites, Inc.,
10.875%, 4-15-2002 .................... 2,000 2,110,000
Family Restaurants, Inc.:
9.75%, 2-1-2002 ....................... 2,500 2,200,000
0.0%, 2-1-2004 (B) .................... 1,000 590,000
FLAGSTAR COMPANIES, INC.,
10.75%, 9-15-2001 ..................... 6,000 5,655,000
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Leisure Time (Continued)
GNS Finance Corp.,
9.25%, 3-15-2003 ...................... $ 1,500 $ 1,410,000
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 5,000 5,175,000
La Quinta Motor Inns, Inc.,
9.25%, 5-15-2003 ...................... 2,000 1,880,000
NewCity Communications, Inc.,
11.375%, 11-1-2003 .................... 1,000 977,500
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................... 2,000 1,990,000
Rogers Communications Incorporated,
10.875%, 4-15-2004 .................... 4,000 4,080,000
Showboat, Inc.,
9.25%, 5-1-2008 ....................... 4,000 3,300,000
Sinclair Broadcast Group, Inc.,
10.0%, 12-15-2003 ..................... 1,250 1,209,375
Treasure Island Finance Corp.,
9.875%, 10-1-2000 ..................... 1,000 1,040,000
Viacom International, Inc.,
8.0%, 7-7-2006 ........................ 3,000 2,610,000
Total ................................. 57,118,125
Machinery - 0.55%
Fairfield Manufacturing Company, Inc.,
11.375%, 7-1-2001 ..................... 2,000 2,000,000
Multi-Industry - 1.42%
Federal Industries Ltd.,
10.25%, 6-15-2000 ..................... 2,000 1,942,500
Jordan Industries, Inc.,
10.375%, 8-1-2003 ..................... 2,000 1,825,000
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,500 1,395,000
Total ................................. 5,162,500
Oil Services - 1.65%
Falcon Drilling, Inc.,
9.75%, 1-15-2001 ...................... 1,500 1,470,000
Noble Drilling Corporation,
9.25%, 10-1-2003 ...................... 2,500 2,406,250
Wainoco Oil Corporation,
12.0%, 8-1-2002 ....................... 2,000 2,120,000
Total ................................. 5,996,250
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Packaging and Containers - 4.20%
Anchor Glass Container Corporation,
9.875%, 12-15-2008 .................... $ 2,500 $ 2,275,000
Container Corporation of America,
10.75%, 5-1-2002 ...................... 2,000 2,060,000
Gaylord Container Corporation,
11.5%, 5-15-2001 ...................... 4,000 4,090,000
Owens-Illinois, Inc.,
9.75%, 8-15-2004 ...................... 4,500 4,365,000
Silgan Corporation,
0.0%, 12-15-2002 (B) .................. 3,000 2,430,000
Total ................................. 15,220,000
Paper - 3.74%
Fort Howard Corporation:
9.25%, 3-15-2001 ...................... 4,500 4,320,000
11.0%, 1-2-2002 ....................... 4,270 4,313,066
Stone Container Corporation,
10.75%, 10-1-2002 ..................... 3,000 3,003,750
Williamhouse-Regency of Delaware, Inc.,
11.5%, 6-15-2005 ...................... 2,000 1,940,000
Total ................................. 13,576,816
Propane - 1.29%
National Propane Corporation,
13.125%, 3-1-99 ....................... 4,669 4,680,673
Public Utilities - Electric - 0.49%
Consolidated Hydro, Inc.,
0.0%, 7-15-2003 (B) ................... 3,000 1,791,180
Publishing and Advertising - 1.96%
Big Flower Press, Inc.,
10.75%, 8-1-2003 ...................... 2,500 2,325,000
Lamar Advertising Company,
11.00%, 5-15-2003 ..................... 2,000 1,960,000
Outdoor Systems, Inc.,
10.75%, 8-15-2003 ..................... 3,000 2,820,000
Total ................................. 7,105,000
Railroad Equipment - 0.49%
Harmon Industries, Inc.,
12.0%, 8-1-2002 ....................... 1,635 1,765,800
Railroads - 1.07%
Southern Pacific Rail Corporation,
9.375%, 8-15-2005 ..................... 4,000 3,892,520
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Retailing - 12.38%
Barnes & Noble, Inc.,
11.875%, 1-15-2003 ................... $ 1,000 $ 1,086,250
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ...................... 1,500 1,230,000
Bradlees, Inc.,
9.25%, 3-1-2003 ...................... 3,000 2,655,000
COLOR TILE, INC.,
10.75%, 12-15-2001 .................... 2,500 2,350,000
Eckerd (Jack) Corporation,
9.25%, 2-15-2004 ...................... 5,500 5,280,000
Grand Union Capital Company (The),
0.0%, 7-15-2004 (B) ................... 8,500 935,000
Grand Union Company (The):
11.375%, 2-15-99 ..................... 2,500 2,318,750
12.25%, 7-15-2002 ..................... 2,500 1,856,250
Macy (R.H.) & Co., Incorporated,
14.5%, 10-15-98 (C) ................... 4,000 2,800,000
Musicland Stores Corporation,
9.0%, 6-15-2003 ....................... 2,000 1,800,000
Orchard Supply Hardware Stores Corporation,
9.375%, 2-15-2002 ..................... 2,500 2,187,500
Penn Traffic Company:
10.25%, 2-15-2002...................... 3,500 3,543,750
8.625%, 12-15-2003 .................... 3,000 2,745,000
9.625%, 4-15-2005 ..................... 4,000 3,640,000
Safeway Inc.,
10.0%, 12-1-2001 ...................... 5,000 5,275,000
SuperRite, Inc.,
10.625%, 4-01-2002..................... 3,400 3,400,000
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................... 2,000 1,805,000
Total ................................. 44,907,500
Services, Consumer and Business - 1.00%
Bell & Howell Company:
9.25%, 7-15-2000 ...................... 2,000 1,840,000
10.75%, 10-01-2002 .................... 1,750 1,767,500
Total ................................. 3,607,500
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Steel - 1.61%
AK Steel, Inc.,
10.75%, 4-1-2004 ...................... $ 3,000 $ 3,022,500
Inland Steel Industries, Inc.,
12.75%, 12-15-2002 .................... 2,500 2,806,250
Total ................................. 5,828,750
Telecommunications - 5.01%
CenCall Communications Corp.,
0.0%, 1-15-2004 (B) ................... 4,000 1,940,000
Dial Call Communications, Inc., Units,
0.0%, 4-15-2004 (B)(D) ................ 2,000 1,060,000
Dial Page, Inc.,
12.25%, 2-15-2000 ..................... 1,000 1,002,500
MFS Communications Company, Inc.,
0.0%, 1-15-2004 (B) ................... 2,000 1,160,000
PanAmSat, L.P.:
9.75%, 8-1-2000 ....................... 2,500 2,506,250
0.0%, 8-1-2003 (B) .................... 5,000 3,375,000
Rogers Cantel Mobile Communications, Inc.,
10.75%, 11-1-2001 ..................... 3,000 3,090,000
Summit Communications Group, Inc.,
10.5%, 4-15-2005 ...................... 3,000 3,165,000
USA Mobile Communications, Inc. II,
9.5%, 2-1-2004 ........................ 1,000 880,000
Total ................................. 18,178,750
Textiles and Apparel - 1.44%
CMI Industries, Inc.,
9.5%, 10-1-2003 ....................... 1,500 1,260,000
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 ...................... 2,000 1,875,000
JPS Textile Group, Inc.,
10.25%, 6-1-99 ........................ 2,724 2,043,000
Linter Textiles Corporation Limited,
13.75%, 10-1-2000 (C) ................. 2,500 25,000
Total ................................. 5,203,000
TOTAL CORPORATE DEBT SECURITIES - 88.28% $320,145,573
(Cost: $332,172,819)
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Banks and Savings and Loans - 1.68%
U.S. Bancorp,
Master Note............................ $ 6,094 $ 6,094,000
Computers and Office Equipment - 2.49%
Electronic Data Systems Corp.,
4.79%, 10-14-94........................ 9,050 9,034,346
Financial - 3.15%
AT&T Capital Corp.,
4.86%, 10-21-94 ....................... 9,015 8,990,660
Associates Corporation of North America,
Master Note............................ 2,438 2,438,000
Total ................................. 11,428,660
Food and Related - 0.24%
Sara Lee Corporation,
Master Note............................ 865 865,000
TOTAL SHORT-TERM SECURITIES - 7.56% $ 27,422,006
(Cost: $27,422,006)
TOTAL INVESTMENT SECURITIES - 98.07% $355,629,965
(Cost: $374,118,964)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.93% 7,012,653
NET ASSETS - 100.00% $362,642,618
See Notes to Schedule of Investments on page 15.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1994
Notes to Schedule of Investments
* No income dividends were paid during the preceding 12 months.
(A) As of September 30, 1994, the following restricted securities were owned:
Shares/
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
American Marketing
Industries
Holdings, Inc.,
Preferred Stock 5/12/89 2,275$ 56,875 $ 20,475
Consolidated Hydro, Inc.,
Warrants 6/15/93 5,400 127,817 32,400
Aftermarket Technology Corp.,
12.0%, 8-1-2004 7/21/94 $1,500 1,500,000 1,530,000
Corporate Express, Inc.,
9.625%, 3-15-2004 2/22/94 2,000 2,000,000 1,835,000
---------- ----------
$3,684,692 $3,417,875
========== ==========
The total market value of restricted securities represents approximately
0.94% of the total net assets at September 30, 1994.
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(C) Non-income producing as the issuer has either missed its most recent
interest payment or declared bankruptcy.
(D) Each unit consists of one bond and one warrant.
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 II, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $355,629,965
Cash ............................................. 9,990
Receivables:
Interest and dividends .......................... 7,067,782
Investment securities sold ...................... 4,413,194
Fund shares sold ................................ 273,950
Prepaid insurance premium ........................ 19,381
------------
Total assets .................................. 367,414,262
------------
Liabilities
Payable for investment securities purchased ...... 2,980,590
Payable for Fund shares redeemed ................. 1,370,358
Dividends payable ................................ 285,091
Accrued service fee .............................. 75,283
Accrued transfer agency and dividend disbursing .. 45,204
Accrued accounting services fee .................. 5,000
Other ............................................ 10,118
------------
Total liabilities ............................. 4,771,644
------------
Total net assets ............................. $362,642,618
============
Net Assets
$1.00 par value capital stock, authorized --
400,000,000; shares outstanding -- 91,462,458
Capital stock ................................... $ 91,462,458
Additional paid-in capital ...................... 330,125,857
Accumulated undistributed loss:
Accumulated undistributed net realized
loss on investment transactions ............... (40,456,698)
Net unrealized depreciation in value of
investments at end of period .................. (18,488,999)
------------
Net assets applicable to outstanding
units of capital ............................. $362,642,618
============
Net asset value per share (net assets divided
by shares outstanding) ........................... $3.96
Sales load (offering price x 5.75%)................. .24
-----
Offering price per share (net asset value divided
by 94.25%) ........................................ $4.20
=====
On sales of $100,000 or more the sales load is reduced as set forth in the
Prospectus.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1994
Investment Income
Income:
Interest ....................................... $35,195,288
Dividends ....................................... 203,706
-----------
Total income .................................. 35,398,994
-----------
Expenses (Note 2):
Investment management fee ....................... 2,157,608
Transfer agency and dividend disbursing ......... 583,175
Service fee ..................................... 376,074
Accounting services fee ......................... 60,000
Audit fees ...................................... 33,418
Custodian fees .................................. 28,278
Legal fees ...................................... 11,485
Other ........................................... 110,222
-----------
Total expenses ................................ 3,360,260
-----------
Net investment income ........................ 32,038,734
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on investments ................. 7,099,487
Unrealized depreciation in value of investments
during the period ............................... (30,013,344)
-----------
Net loss on investments ......................... (22,913,857)
-----------
Net increase in net assets resulting
from operations .............................. $ 9,124,877
===========
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended September 30,
------------ ------------
1994 1993
------------ ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ...............$ 32,038,734 $ 31,212,297
Realized net gain on investments .... 7,099,487 7,571,126
Unrealized appreciation
(depreciation) .................... (30,013,344) 6,403,334
------------ ------------
Net increase in net assets
resulting from operations ........ 9,124,877 45,186,757
------------ ------------
Dividends to shareholders from
net investment income* .............. (32,038,734) (31,212,297)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(9,117,319 and 10,779,291
shares, respectively) ............. 38,145,169 44,311,353
Proceeds from reinvestment of
dividends (6,784,080 and 6,652,442
shares, respectively) ............. 28,264,415 27,439,954
Payments for shares redeemed
(14,806,281 and 12,223,553 shares,
respectively) ..................... (61,672,228) (50,282,400)
------------ ------------
Net increase in net assets
resulting from capital share
transactions ..................... 4,737,356 21,468,907
------------ ------------
Total increase (decrease) ........ (18,176,501) 35,443,367
Net Assets
Beginning of period .................. 380,819,119 345,375,752
------------ ------------
End of period ........................$362,642,618 $380,819,119
============ ============
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on page 19.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended
September 30,
------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Net asset value,
beginning of
period ............ $4.21 $4.06 $3.75 $3.45 $4.22
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... .35 .36 .39 .45 .44
Net realized and
unrealized gain
(loss) on
investments ..... (0.25) .15 .31 .30 (0.77)
----- ----- ----- ----- -----
Total from investment
operations ....... .10 .51 .70 .75 (0.33)
Less dividends declared
from net investment
income ............ (0.35) (0.36) (0.39) (0.45) (0.44)
----- ----- ----- ----- -----
Net asset value,
end of period .... $3.96 $4.21 $4.06 $3.75 $3.45
===== ===== ===== ===== =====
Total return* ...... 2.31% 13.07% 19.31% 23.66% -8.03%
Net assets, end of
period (000
omitted) ......... $362,643$380,819$345,376$291,436$257,118
Ratio of expenses to
average net assets 0.88% 0.80% 0.82% 0.89% 0.89%
Ratio of net investment
income to average
net assets ....... 8.41% 8.64% 9.79% 12.94% 11.74%
Portfolio turnover
rate ............. 47.05% 69.24% 80.28% 53.88% 55.94%
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 II, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 1 -- Significant Accounting Policies
United High Income Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. 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 major 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 NASDAQ
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing 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 on the purchase of bonds and post-1984 market
discount 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 -- The Fund intends to distribute all of its net
investment income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under 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 -- All of the Fund's net investment income is
declared and recorded by the Fund as dividends payable on each day to
shareholders of record at the time of the previous determination of net
asset value. During the period ended September 30, 1994, the Fund adopted
Statement of Position 93-2 Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. Accordingly, permanent book and tax
basis differences relating to future shareholder distributions have been
reclassified to additional paid-in capital. As of October 1, 1993, the
cumulative effect of such differences totaling $1,428,894 was reclassified
from accumulated undistributed net realized gain on investment transactions
to additional paid-in capital. Net investment income, net realized gains
and net assets were not affected by this change.
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 $11.2 billion of
combined net assets at September 30, 1994) 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
The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 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. 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 direct and
indirect gross sales commissions (which are not an expense of the Fund) of
$1,437,569, out of which W&R paid sales commissions of $803,800 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay monthly a fee to W&R in an
amount not to exceed .25% of the Fund's average annual net assets. The fee is
to be paid to reimburse W&R for amounts it expends in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts.
The Fund paid Directors' fees of $14,236.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, 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 and short-
term securities, aggregated $169,179,639 while proceeds from maturities and
sales aggregated $181,785,540. Purchases of short-term securities aggregated
$255,221,024. Proceeds from maturities and sales of short-term securities and
U.S. Government securities aggregated $234,291,104 and $5,633,594, respectively.
For Federal income tax purposes cost of investments owned at September 30,
1994 was $373,650,228, resulting in net unrealized depreciation of $18,020,263,
of which $9,967,486 related to appreciated securities and $27,987,749 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $7,099,487 during its fiscal year ended September 30, 1994, which was fully
offset by utilization of capital loss carryforwards. Remaining prior year
capital loss carryforwards of the Fund aggregated $40,649,981 at September 30,
1994. This amount is available to offset future net realized gains for Federal
income tax purposes through September 30, 1998; $40,158,670 of this amount is
available through September 30, 1999 and $8,229,670 is available through
September 30, 2000.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United High Income Fund II, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United High Income Fund II, Inc.
(the "Fund") at September 30, 1994, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1994 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
October 31, 1994
<PAGE>
INCOME TAX INFORMATION
Dividends are declared and recorded by the Fund on each day the New York Stock
Exchange is open for business. Dividends are paid monthly on the 27th of the
month or on the preceding business day if the 27th is a weekend or holiday.
The tables below show the taxability of dividends paid during the fiscal year
ended September 30, 1994:
PERCENTAGE OF AMOUNTS PAID REPORTABLE AS:
- ---------------------------------------------------------------
For Individuals For Corporations
-----------------------------------------------------------
Non-
Record Ordinary Long-TermQualifyingQualifying Long-Term
Date DividendsCapital GainsDividendsDividendsCapital Gains
- ---- -----------------------------------------------------
October through
December 1993 100.0000%0.0000% 0.2914% 99.7086%0.0000%
January through
September 1994 100.0000 0.0000 0.4055 99.5945 0.0000
CORPORATE DEDUCTIONS - Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction as
provided by Section 243 of the Internal Revenue Code.
The tax status of dividends 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
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Jay B. Dillingham, Kansas City, Missouri
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Los Angeles, California
Doyle Patterson, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel, III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
Leslie S. Wright, Birmingham, Alabama
OFFICERS
Keith A. Tucker, President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Sharon K. Pappas, Vice President and Secretary
Louise D. Rieke, Vice President
Carl E. Sturgeon, Vice President
This report is submitted for the general information of the shareholders of
United High Income Fund II, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United High Income Fund II, Inc. current prospectus.
To all IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from an 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 Continental Income Fund, Inc.
United Income Fund
United Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
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.
United Retirement Shares, 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
(913) 236-1303
NUR1015A(9-94)
printed on recycled paper
