<PAGE>
United
High Income
Fund II, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1995
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
SEPTEMBER 30, 1995
Dear Shareholder:
This report relates to the operation of your Fund for the fiscal year ended
September 30, 1995. The discussion, graphs and tables contained in this report
provide you with information regarding the Fund's performance during that
period.
During the first two quarters of the fiscal year, the Federal Reserve increased
short-term interest rates several times to preempt possible inflationary
tendencies resulting from the strengthening economy. However, during the latter
stages of the second quarter, the economy slowed and the Federal Reserve
responded by lowering the short-term federal funds rate. Lower interest rates
have resulted in generally higher securities prices. The market has also been
impacted by ongoing budget negotiations and by the telecommunications
deregulation legislation pending in Congress.
The Fund emphasized cyclical issues during most of the fiscal year and
eventually shifted to high quality issues as the year ended. In recent months,
we have increased cash reserves to provide for future investment flexibility.
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 lower quality bonds, which performed better than the relatively
higher quality and lower risk bonds held by the Fund.
We expect the economy and inflation to continue their slow pace of growth, which
could lead the Federal Reserve to reduce interest rates. We plan to continue
emphasizing higher quality bonds until the economy improves, at which time we
will again concentrate on cyclical and longer term issues.
Thank you for your continued confidence.
Respectfully,
Louise D. Rieke
Manager, United High Income Fund II, Inc.
<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
Average Annual Total Return*
1 year 5 years 9+ years**
4.85% 12.34% 7.81%
United First Lipper High
High Boston Current Yield
Income High Bond Fund
Fund II, Yield Universe
Inc. Index Average
------------------ ----------
07/01/86 Purchase 9,42510,000 10,000
09/30/86 9,588 10,051 10,003
09/30/87 10,152 10,652 10,618
09/30/88 11,267 12,119 11,579
09/30/89 11,488 12,792 12,198
09/30/90 10,565 11,655 10,808
09/30/91 13,065 15,959 13,472
09/30/92 15,587 19,226 16,357
09/30/93 17,625 22,242 18,839
09/30/94 18,033 23,009 19,228
09/30/95 20,061 26,244 21,495
++++ First Boston High Yield Index -- $26,244
---- Lipper High Current Yield Bond Fund Universe Average -- $21,495
==== United High Income Fund II, Inc. -- $20,061***
Past performance is not predictive of future performance.
Indexes are unmanaged.
*Performance data quoted represents past performance and is based on deduction
of a 5.75% sales load on the initial purchase in each of the three periods.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
**7/1/86 (inception) through 9/30/95. For the period from July 1, 1986 through
December 31, 1986, Waddell & Reed, Inc. agreed to a voluntary assumption of
Fund expenses. The 9+ years total return shown above would have been
slightly lower without this assumption of expenses.
***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.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United High Income Fund II, Inc.
PORTFOLIO STRATEGY:
Invests generally in High- OBJECTIVE: High level of current
Risk, High-Yield Fixed Income income, by investing
Securities primarily in a diversified portfolio of
Maximum 20% Common Stock high-yield, high-risk fixed income
securities, with a secondary objective
of capital growth when consistent
with the primary objective.
STRATEGY: Invests generally in debt securities in
lower rating categories as classified by
recognized rating agencies; may also
invest up to 20% in common stocks. (May
purchase securities subject to
repurchase agreements. May invest in
certain options and futures.)
FOUNDED: 1986
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY
PER SHARE DATA
For the Fiscal Year Ended September 30, 1995
- --------------------------------------------
DIVIDENDS PAID $0.35
=====
NET ASSET VALUE ON
9/30/95 $4.03
9/30/94 3.96
-----
CHANGE PER SHARE $0.07
=====
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 9-30-95 4.85% 11.25%
5-year period ended 9-30-95 12.34% 13.68%
Period from 7-1-86*
through 9-30-95 7.81% 8.50%
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, 1995, United High Income Fund II, Inc. had net assets totaling
$367,781,645 invested in a diversified portfolio of:
86.92% Corporate Debt Securities
8.68% Cash and Cash Equivalents
4.40% Common and Preferred Stocks and Warrants
As a shareholder of United High Income Fund II, Inc., for every $100 you had
invested on September 30, 1995, your Fund owned:
$48.17 Consumer Bonds
24.76 Basic Industries Bonds
9.78 Technological Bonds
8.68 Cash and Cash Equivalents
4.40 Common and Preferred Stocks and Warrants
2.44 Energy and Energy-Related Bonds
1.69 Financial Bonds
0.08 Public Utilities Bonds
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Banks and Savings and Loans - 0.15%
California Federal Bank, F.S.B.,
Preferred, Series B ................... 5,000 $ 550,000
Reliance Group Holdings, Inc., Warrants* 1,061 2,122
WestFed Holdings, Inc., Preferred,
Series A* ............................. 14,243 28
WestFed Holdings, Inc., Series B* ...... 7,610 15
Total ................................. 552,165
Building - 2.62%
NVR L.P., Warrants* ................... 33,086 74,444
National Health Investors, Inc. ........ 27,150 821,288
Triangle Pacific Corp.* ................ 127,442 2,166,514
Walter Industries, Inc.* ............... 516,814 6,589,379
Total ................................. 9,651,625
Chemicals Specialty and Miscellaneous
Technology - 0.01%
Plastic Specialties and Technologies, Inc.* 20,000 25,000
Hospital Management - 0.29%
LTC Properties, Inc. ................... 75,000 1,087,500
Leisure Time - 0.81%
FLAGSTAR COMPANIES, INC.* .............. 24,600 132,225
Infinity Broadcasting Corporation,
Class A* .............................. 67,500 2,210,625
Sinclair Broadcast Group, Inc.* ........ 3,250 91,812
Trump Hotels & Casino Resorts, Inc.* ... 31,250 531,250
Total ................................. 2,965,912
Public Utilities - Electric - 0.11%
Consolidated Hydro, Inc., Preferred* ... 3,000 405,000
Consolidated Hydro, Inc., Warrants (A)* 5,400 5
Total ................................. 405,005
Publishing and Advertising - 0.14%
Advanstar Holdings, Inc.* .............. 30,000 510,000
Services, Consumer and Business - 0.26%
Bell & Howell Holdings Company* ........ 37,500 956,250
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS (Continued)
Textiles and Apparel - 0.01%
American Marketing Industries
Holdings, Inc., Preferred (A)* ........ 2,275 $ 18,200
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 4.40% $ 16,171,657
(Cost: $22,746,533)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Airlines - 1.94%
GP Group, Inc.,
8.75%, 12-15-98 ....................... $ 3,500 3,115,000
NWA, Inc.,
8.625%, 8-1-96 ........................ 4,000 4,040,000
Total ................................. 7,155,000
Automotive - 1.63%
Burlington Motor Holdings Inc.,
11.5%, 11-1-2003 ...................... 2,500 1,125,000
Lear Seating Corporation,
8.25%, 2-1-2002 ....................... 4,000 3,890,000
Walbro Corporation,
9.875%, 7-15-2005 (A).................. 1,000 980,000
Total ................................. 5,995,000
Beverages - 0.21%
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (B) ................... 1,000 785,000
Biotechnology and Medical Services - 0.57%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-2002 ....................... 2,000 2,085,000
Building - 7.92%
American Standard Inc.:
9.875%, 6-1-2001 ...................... 2,500 2,650,000
11.375%, 5-15-2004 .................... 500 550,000
0.0%, 6-1-2005 (B) .................... 1,250 1,015,625
9.25%, 12-1-2016 ...................... 5,000 5,150,000
Beazer Homes USA, Inc.,
9.0%, 3-1-2004 ........................ 1,500 1,365,000
Del Webb Corporation:
9.75%, 3-1-2003 ....................... 2,000 1,960,000
9.0%, 2-15-2006 ....................... 2,000 1,855,000
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Building (Continued)
Eagle Industries, Inc.,
0.0%, 7-15-2003 (B) ................... $ 4,000 $ 3,120,000
NVR L.P.,
11.0%, 4-15-2003 ...................... 1,500 1,455,000
Nortek, Inc.,
9.875%, 3-1-2004 ...................... 2,000 1,815,000
Triangle Pacific Corp.,
10.5%, 8-1-2003 ....................... 2,500 2,587,500
Walter Industries, Inc.,
12.19%, 3-15-2000 ..................... 5,500 5,592,840
Total ................................. 29,115,965
Chemicals Major - 2.05%
UCC Investors Holding, Inc.:
10.5%, 5-1-2002 ....................... 5,500 5,665,000
0.0%, 5-1-2005 (B) .................... 2,500 1,862,500
Total ................................. 7,527,500
Chemicals Specialty and Miscellaneous
Technology - 1.32%
LaRoche Industries Inc.,
13.0%, 8-15-2004 ...................... 500 532,500
OSi Specialties, Inc.,
9.25%, 10-1-2003 ...................... 2,500 2,725,000
Scotsman Group, Inc.,
9.5%, 12-15-2000 ...................... 1,000 997,500
UCAR International Inc.,
12.0%, 1-15-2005 ...................... 535 596,525
Total ................................. 4,851,525
Computers and Office Equipment - 0.80%
Corporate Express, Inc.,
9.125%, 3-15-2004 ..................... 2,000 1,975,000
Mail-Well Corporation,
10.5%, 2-15-2004 ...................... 1,000 970,000
Total ................................. 2,945,000
Domestic Oil - 1.05%
Clark R&M Holdings, Inc.,
0.0%, 2-15-2000 ...................... 6,000 3,847,500
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Drugs and Hospital Supply - 1.79%
AmeriSource Distribution Corporation,
11.25%, 7-15-2005 ..................... $ 1,100 $ 1,156,499
General Medical Corporation:
10.875%, 8-15-2003 .................... 3,000 3,105,000
12.125%, 8-15-2005 .................... 2,250 2,320,890
Total ................................. 6,582,389
Electronics - 0.53%
Essex Group, Inc.,
10.0%, 5-1-2003 ....................... 2,000 1,940,000
Food and Related - 1.54%
Specialty Foods Corporation:
10.25%, 8-15-2001 ..................... 2,000 1,905,000
11.125%, 10-1-2002 (A)................. 1,000 980,000
11.25%, 8-15-2003 ..................... 3,000 2,782,500
Total ................................. 5,667,500
Hospital Management - 4.29%
Assisted Living Concepts, Inc.,
Convertible,
7.0%, 7-31-2005 (A).................... 1,000 1,155,000
GranCare, Inc.,
9.375%, 9-15-2005 ..................... 500 503,750
LTC Properties, Inc., Convertible:
8.5%, 1-1-2000 ........................ 2,000 2,010,000
8.5%, 1-1-2001 ........................ 1,000 1,002,500
Multicare Companies, Inc. (The),
12.5%, 7-1-2002 ....................... 415 472,581
Pathmark Stores, Inc.,
9.625%, 5-1-2003 ...................... 2,000 1,970,000
Quorum Health Group, Inc.,
11.875%, 12-15-2002 ................... 4,000 4,420,000
Tenet Healthcare Corporation:
9.625%, 9-1-2002 ...................... 2,000 2,115,000
10.125%, 3-1-2005 ..................... 2,000 2,115,000
Total ................................. 15,763,831
Household Products - 1.73%
Exide Corporation:
10.75%, 12-15-2002 .................... 3,000 3,195,000
0.0%, 12-15-2004 (B) .................. 2,000 1,580,000
10.0%, 4-15-2005 (A)................... 1,500 1,582,500
Total ................................. 6,357,500
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Insurance - 1.69%
American Annuity Group, Inc.:
9.5%, 8-15-2001 ....................... $ 2,500 $ 2,525,000
11.125%, 2-1-2003 ..................... 3,500 3,683,750
Total ................................. 6,208,750
Leisure Time - 20.75%
Act III Broadcasting, Inc.,
9.625%, 12-15-2003 .................... 2,000 2,030,000
Alliance Entertainment Corp.,
11.25%, 7-15-2005 (A).................. 1,500 1,496,250
American Safety Razor Company,
9.875%, 8-1-2005 (A)................... 2,000 2,000,000
CAI Wireless Systems, Inc.,
12.25%, 9-15-2002 ..................... 1,000 1,037,500
Cablevision Industries Corporation:
10.75%, 1-30-2002 ..................... 3,000 3,270,000
9.25%, 4-1-2008 ...................... 2,000 2,125,000
California Hotel Finance Corporation,
11.0%, 12-1-2002 ...................... 4,000 4,140,000
COMCAST CELLULAR CORPORATION,
0.0%, 3-5-2000 ........................ 3,700 2,830,500
COMCAST CORPORATION,
9.5%, 1-15-2008 ....................... 4,000 4,050,000
Continental Cablevision, Inc.:
10.625%, 6-15-2002 .................... 1,000 1,055,000
8.875%, 9-15-2005 ..................... 2,000 2,045,000
11.0%, 6-1-2007 ....................... 1,200 1,326,000
FLAGSTAR COMPANIES, INC.,
10.75%, 9-15-2001 ..................... 4,750 4,465,000
GNS Finance Corp.,
9.25%, 3-15-2003 ...................... 1,500 1,597,500
Granite Broadcasting Corporation,
10.375%, 5-15-2005 (A)................. 1,000 1,020,000
Harrah's Operating Company, Inc.,
10.875%, 4-15-2002 .................... 2,000 2,155,000
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 5,000 5,350,000
LaQuinta Motor Inns, Inc.,
9.25%, 5-15-2003 ...................... 4,000 4,190,000
Marcus Cable Operating Company, L.P.,
0.0%, 8-1-2004 (B)..................... 3,500 2,380,000
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................... 2,000 1,930,000
Premier Parks Inc.,
12.0%, 8-15-2003 (A)................... 1,000 1,025,000
Rio Hotel & Casino, Inc.,
10.625%, 7-15-2005 (A)................. 2,000 1,940,000
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Leisure Time (Continued)
Rogers Communications Incorporated,
10.875%, 4-15-2004 .................... $ 4,000 $ 4,160,000
Showboat, Inc.,
9.25%, 5-1-2008 ....................... 4,000 3,780,000
Sinclair Broadcast Group, Inc.:
10.0%, 12-15-2003 ..................... 1,250 1,268,750
10.0%, 9-30-2005 ...................... 1,500 1,526,250
Trump Hotels & Casino Resorts Holdings, L.P.,
15.5%, 6-15-2005....................... 2,000 1,980,000
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 4,125 4,134,570
Viacom International, Inc.:
9.125%, 8-15-99 ....................... 2,000 2,095,000
8.0%, 7-7-2006 ........................ 4,000 3,920,000
Total ................................. 76,322,320
Machinery - 0.52%
Fairfield Manufacturing Company, Inc.,
11.375%, 7-1-2001 ..................... 2,000 1,900,000
Metals and Mining - 0.26%
Russel Metals Inc.,
10.25%, 6-15-2000 ..................... 1,000 970,000
Multi-Industry - 1.89%
Jordan Industries, Inc.,
10.375%, 8-1-2003 ..................... 2,000 1,870,000
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 5,000 5,100,000
Total ................................. 6,970,000
Oil Services - 1.10%
Falcon Drilling, Inc.,
9.75%, 1-15-2001 ...................... 1,500 1,500,000
Noble Drilling Corporation,
9.25%, 10-1-2003 ...................... 2,500 2,562,500
Total ................................. 4,062,500
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Packaging and Containers - 4.25%
Container Corporation of America,
10.75%, 5-1-2002 ...................... $ 2,000 $ 2,105,000
Gaylord Container Corporation:
11.5%, 5-15-2001 ...................... 2,000 2,080,000
0.0%, 5-15-2005 (B) ................... 2,000 1,970,000
Owens-Illinois, Inc.:
10.0%, 8-1-2002 ....................... 2,000 2,060,000
9.75%, 8-15-2004 ...................... 4,500 4,612,500
Silgan Corporation,
0.0%, 12-15-2002 (B) .................. 3,000 2,805,000
Total ................................. 15,632,500
Paper - 4.63%
Asia Pulp & Paper Company Ltd,
11.75%, 10-1-2005 ..................... 2,000 2,022,500
Fort Howard Corporation:
9.25%, 3-15-2001 ...................... 4,500 4,443,750
11.0%, 1-2-2002 ....................... 4,214 4,404,447
Repap New Brunswick Inc.,
10.625%, 4-15-2005 .................... 1,250 1,268,750
S. D. Warren Company,
12.0%, 12-15-2004 .................... 1,000 1,105,000
Stone Container Corporation,
10.75%, 10-1-2002 ..................... 1,750 1,815,625
Williamhouse-Regency of Delaware, Inc.,
11.5%, 6-15-2005 ...................... 2,000 1,980,000
Total ................................. 17,040,072
Propane - 0.29%
AmeriGas Partners, L.P.,
10.125%, 4-15-2007 .................... 1,000 1,065,000
Public Utilities - Electric - 0.08%
Consolidated Hydro, Inc.,
0.0%, 7-15-2003 (B) ................... 500 288,230
Publishing and Advertising - 3.42%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................... 3,000 3,097,500
Big Flower Press, Inc.,
10.75%, 8-1-2003 ...................... 2,500 2,537,500
Herff Jones, Inc.,
11.0%, 8-15-2005 (A)................... 2,000 2,045,000
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Publishing and Advertising (Continued)
Lamar Advertising Company,
11.00%, 5-15-2003 ..................... $ 2,000 $ 2,020,000
Outdoor Systems, Inc.,
10.75%, 8-15-2003 ..................... 3,000 2,895,000
Total ................................. 12,595,000
Railroad Equipment - 0.90%
Harman International Industries, Incorporated,
12.0%, 8-1-2002 ....................... 1,635 1,737,187
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ..................... 1,500 1,560,000
Total ................................. 3,297,187
Railroads - 2.08%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 (A).................... 2,000 2,045,000
IntelCom Group Inc., Units,
0.0%, 9-15-2005 (A)(D)................. 22 1,248,750
Southern Pacific Rail Corporation,
9.375%, 8-15-2005 ..................... 4,000 4,340,000
Total ................................. 7,633,750
Retailing - 9.31%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ...................... 1,500 1,207,500
Bruno's, Inc.,
10.5%, 8-1-2005 ....................... 2,000 1,940,000
Dominick's Finer Foods, Inc.,
10.875%, 5-1-2005 (A).................. 1,000 1,015,000
Eckerd Corporation,
9.25%, 2-15-2004 ...................... 5,500 5,788,750
Orchard Supply Hardware Stores Corporation,
9.375%, 2-15-2002 ..................... 2,500 2,312,500
Penn Traffic Company:
10.25%, 2-15-2002...................... 3,500 3,360,000
8.625%, 12-15-2003 .................... 2,500 2,150,000
9.625%, 4-15-2005 ..................... 2,350 1,903,500
Ralphs Grocery Company,
10.45%, 6-15-2004 ..................... 2,500 2,443,750
Safeway Inc.,
10.0%, 12-1-2001 ...................... 5,000 5,550,000
SuperRite, Inc.,
10.625%, 4-01-2002..................... 3,400 3,638,000
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................... 3,000 2,917,500
Total ................................. 34,226,500
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Services, Consumer and Business - 1.78%
Bell & Howell Company:
9.25%, 7-15-2000 ...................... $ 2,000 $ 2,000,000
10.75%, 10-01-2002 .................... 1,750 1,863,750
United Stationers Supply Co.,
12.75%, 5-1-2005 (A)................... 2,500 2,675,000
Total ................................. 6,538,750
Steel - 0.94%
AK Steel Corporation,
10.75%, 4-1-2004 ...................... 625 667,969
Inland Steel Industries, Inc.,
12.75%, 12-15-2002 .................... 2,500 2,787,500
Total ................................. 3,455,469
Telecommunications - 4.77%
MFS Communications Company, Inc.,
0.0%, 1-15-2004 (B) ................... 3,500 2,651,250
Metrocall, Inc.,
10.375%, 10-1-2007 .................... 1,000 1,014,380
PanAmSat, L.P.:
9.75%, 8-1-2000 ....................... 2,500 2,612,500
0.0%, 8-1-2003 (B) .................... 5,000 3,900,000
Rogers Cantel Mobile Communications Inc.,
10.75%, 11-1-2001 ..................... 3,000 3,150,000
Summit Communications Group, Inc.,
10.5%, 4-15-2005 ...................... 3,000 3,300,000
USA Mobile Communications, Inc. II,
9.5%, 2-1-2004 ........................ 1,000 930,000
Total ................................. 17,558,130
Textiles and Apparel - 0.89%
CMI Industries, Inc.,
9.5%, 10-1-2003 ....................... 1,500 1,380,000
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 ...................... 2,000 1,880,000
Linter Textiles Corporation Limited,
13.75%, 10-1-2000 (C) ................. 2,500 12,500
Total ................................. 3,272,500
TOTAL CORPORATE DEBT SECURITIES - 86.92% $319,655,368
(Cost: $316,329,651)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.28%
U.S. Bancorp,
Master Note ........................... 1,018 1,018,000
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Financial - 0.81%
PHH Corp.,
5.73%, 10-5-95 ........................ $ 150 $ 149,905
Textron Financial Corp.,
5.94%, 10-27-95 ....................... 2,830 2,817,859
Total ................................. 2,967,764
Food and Related - 1.36%
ConAgra, Inc.,
5.85%, 11-1-95 ........................ 1,000 994,962
General Mills, Inc.,
Master Note ........................... 1,735 1,735,000
Sara Lee Corporation,
Master Note ........................... 2,283 2,283,000
Total ................................. 5,012,962
Retailing - 2.92%
K Mart Corporation,
5.90%, 10-24-95 ....................... 5,000 4,981,153
Kroger Co., (The):
6.07%, 10-26-95 ....................... 5,000 4,978,924
6.10%, 10-27-95 ....................... 800 796,476
Total ................................. 10,756,553
Telecommunications - 0.45%
NYNEX Corporation,
5.77%, 10-23-95 ....................... 1,670 1,664,111
TOTAL SHORT-TERM SECURITIES - 5.82% $ 21,419,390
(Cost: $21,419,390)
TOTAL INVESTMENT SECURITIES - 97.14% $357,246,415
(Cost: $360,495,574)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.86% 10,535,230
NET ASSETS - 100.00% $367,781,645
See Notes to Schedule of Investments on page 16.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Notes to Schedule of Investments
* No income dividends were paid during the preceding 12 months.
(A) As of September 30, 1995, the following restricted securities were owned:
Shares/
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
American Marketing
Industries
Holdings, Inc.,
Preferred Stock 5/12/89 2,275$ 56,875$ 18,200
Consolidated Hydro, Inc.,
Warrants 6/15/93 5,400 127,817 5
Alliance Entertainment Corp.,
11.25%, 7-15-2005 7/18/95 $1,000 1,000,000 997,500
7/21/95 500 503,750 498,750
American Safety Razor Company,
9.875%, 8-1-2005 7/27/95 2,000 2,000,000 2,000,000
Assisted Living Concepts,
Inc., Convertible,
7.0%, 7-31-2005 8/2/95 1,000 1,000,000 1,155,000
Communications & Power Industries,
Inc.,
12.0%, 8-1-2005 8/2/95 2,000 2,000,000 2,045,000
Dominick's Finer Foods, Inc.,
10.875%, 5-1-2005 8/2/95 1,000 1,027,500 1,015,000
Exide Corporation,
10.0%, 4-15-2005 4/21/95 1,500 1,500,000 1,582,500
Granite Broadcasting Corporation,
10.375%, 5-15-20055/12/95 1,000 1,000,000 1,020,000
Herff Jones, Inc.,
11.0%, 8-15-2005 8/14/95 2,000 2,000,000 2,045,000
IntelCom Group Inc.,
Units,
0.0%, 9-15-2005 8/3/95 22 1,155,240 1,248,750
Premier Parks Inc.,
12.0%, 8-15-2003 8/10/95 1,000 1,000,000 1,025,000
Rio Hotel & Casino, Inc.,
10.625%, 7-15-20057/18/95 2,000 2,000,000 1,940,000
Specialty Foods Corporation,
11.125%, 10-1-20027/12/95 1,000 1,000,000 980,000
United Stationers Supply Co.,
12.75%, 5-1-2005 4/26/95 2,500 2,500,000 2,675,000
Walbro Corporation,
9.875%, 7-15-2005 7/21/95 1,000 996,500 980,000
-----------------------
$20,867,682$21,225,705
=======================
The total market value of restricted securities represents approximately
5.77% of the total net assets at September 30, 1995.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Notes to Schedule of Investments (Continued)
(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 10 Senior Discount Notes and 33 Warrants to purchase
one share of Common Stock.
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, 1995
Assets
Investment securities - at value (Notes 1 and 3) . $357,246,415
Cash ............................................. 6,654
Receivables:
Investment securities sold ...................... 7,743,125
Interest and dividends .......................... 7,148,571
Fund shares sold ................................ 286,349
Prepaid insurance premium ........................ 17,925
------------
Total assets .................................. 372,449,039
------------
Liabilities
Payable for investment securities purchased ...... 3,000,000
Payable for Fund shares redeemed ................. 1,234,847
Dividends payable ................................ 261,178
Accrued service fee .............................. 71,287
Accrued transfer agency and dividend disbursing .. 47,666
Accrued accounting services fee .................. 5,000
Other ............................................ 47,416
------------
Total liabilities ............................. 4,667,394
------------
Total net assets ............................. $367,781,645
============
Net Assets
$1.00 par value capital stock, authorized --
400,000,000; shares outstanding -- 91,160,325
Capital stock ................................... $ 91,160,325
Additional paid-in capital ...................... 329,390,006
Accumulated undistributed loss:
Accumulated undistributed net realized
loss on investment transactions ............... (49,519,527)
Net unrealized depreciation in value of
investments at end of period .................. (3,249,159)
------------
Net assets applicable to outstanding
units of capital ............................. $367,781,645
============
Net asset value per share (net assets divided
by shares outstanding) ........................... $4.03
Sales load (offering price x 5.75%)................. .25
-----
Offering price per share (net asset value divided
by 94.25%) ........................................ $4.28
=====
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, 1995
Investment Income
Income:
Interest ....................................... $35,000,614
Dividends ....................................... 208,003
-----------
Total income .................................. 35,208,617
-----------
Expenses (Note 2):
Investment management fee ....................... 2,021,032
Transfer agency and dividend disbursing ......... 551,431
Service fee ..................................... 398,763
Accounting services fee ......................... 57,500
Audit fees ...................................... 32,692
Legal fees ...................................... 24,289
Custodian fees .................................. 23,347
Other ........................................... 95,342
-----------
Total expenses ................................ 3,204,396
-----------
Net investment income ........................ 32,004,221
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net loss on investments ................. (9,062,829)
Unrealized appreciation in value of investments
during the period ............................... 15,239,840
-----------
Net gain on investments ......................... 6,177,011
-----------
Net increase in net assets resulting
from operations .............................. $38,181,232
===========
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
September 30,
-------------------------
1995 1994
------------ ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ...............$ 32,004,221 $ 32,038,734
Realized net gain (loss) on
investments ........................ (9,062,829) 7,099,487
Unrealized appreciation
(depreciation) .................... 15,239,840 (30,013,344)
------------ ------------
Net increase in net assets
resulting from operations ........ 38,181,232 9,124,877
------------ ------------
Dividends to shareholders from
net investment income* .............. (32,004,221) (32,038,734)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(7,993,791 and 9,117,319
shares, respectively) ............. 31,537,803 38,145,169
Proceeds from reinvestment of
dividends (7,199,082 and 6,784,080
shares, respectively) ............. 28,417,425 28,264,415
Payments for shares redeemed
(15,495,006 and 14,806,281 shares,
respectively) ..................... (60,993,212) (61,672,228)
------------ ------------
Net increase (decrease) in net
assets resulting from capital
share transactions ............... (1,037,984) 4,737,356
------------ ------------
Total increase (decrease) ........ 5,139,027 (18,176,501)
Net Assets
Beginning of period .................. 362,642,618 380,819,119
------------ ------------
End of period ........................$367,781,645 $362,642,618
============ ============
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on page 20.
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,
------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net asset value,
beginning of
period ............ $3.96 $4.21 $4.06 $3.75 $3.45
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.35 .35 .36 .39 .45
Net realized and
unrealized gain
(loss) on
investments ..... 0.07 (0.25) .15 .31 .30
----- ----- ----- ----- -----
Total from investment
operations ....... 0.42 .10 .51 .70 .75
Less dividends declared
from net investment
income ............ (0.35) (0.35) (0.36) (0.39) (0.45)
----- ----- ----- ----- -----
Net asset value,
end of period .... $4.03 $3.96 $4.21 $4.06 $3.75
===== ===== ===== ===== =====
Total return* ...... 11.25% 2.31% 13.07% 19.31% 23.66%
Net assets, end of
period (000
omitted) ......... $367,782$362,643$380,819$345,376$291,436
Ratio of expenses to
average net assets 0.89% 0.88% 0.80% 0.82% 0.89%
Ratio of net investment
income to average
net assets ....... 8.93% 8.41% 8.64% 9.79% 12.94%
Portfolio turnover
rate ............. 26.82% 47.05% 69.24% 80.28% 53.88%
*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, 1995
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. Net investment income distributions and capital gains
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are due to differing treatments for items such as deferral of
wash sales and post-October losses, foreign currency transactions, net
operating losses and expiring capital loss carryforwards.
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 $13.3 billion of
combined net assets at September 30, 1995) 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
$1,064,115, out of which W&R paid sales commissions of $607,092 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 $13,376.
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 $87,999,760 while proceeds from maturities and sales
aggregated $89,549,172. Purchases of short-term securities aggregated
$322,216,364 while proceeds from maturities and sales aggregated $329,422,492.
For Federal income tax purposes cost of investments owned at September 30,
1995 was $360,026,838, resulting in net unrealized depreciation of $2,780,423,
of which $13,775,482 related to appreciated securities and $16,555,905 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital losses of
$390,078 during its fiscal year ended September 30, 1995 including the effect of
losses of $8,672,751 which were deferred to the year ending September 30, 1996
(see discussion below). Capital loss carryforwards aggregated $41,040,060 at
September 30, 1995 and are available to offset future net realized capital gain
net income for Federal income tax purposes through September 30, 1998;
$40,548,748 of these amounts are available through September 30, 1999;
$8,619,748 are available through September 30, 2000 and $390,078 are available
through September 30, 2003.
Internal Revenue Code regulations permit the Fund to defer into its next
fiscal year net capital losses incurred between each November 1, and the end of
its next fiscal year ("post-October losses"). From November 1, 1994 through
September 30, 1995, the Fund incurred net long-term capital losses of $8,672,751
which have been deferred to the fiscal year ending September 30, 1996.
<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, 1995, 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, 1995 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
November 3, 1995
<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 table below shows the taxability of dividends paid during the fiscal year
ended September 30, 1995:
PERCENTAGE OF AMOUNTS PAID REPORTABLE AS:
-----------------------------------------------
For Individuals For Corporations
----------------- -----------------------------
Record Ordinary Long-Term Non- Long-Term
Date IncomeCapital GainsQualifyingQualifyingCapital Gains
- --------- ---------------------------------------------------
October through
December 1994 100.00% 0.00% 0.6299% 99.3701% 0.0000%
January through
September 1995 100.00 0.00 0.6536 99.3464 0.0000
CORPORATION 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
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
James B. Judd, Kansas City, Missouri
William T. Morgan, Los Angeles, California
Doyle Patterson, Kansas City, Missouri
Eleanor B. Schwartz, 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 Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Continental Income Fund, Inc.
United Retirement Shares, Inc.
United Asset Strategy Fund, Inc.
United Income Fund
United Accumulative Fund
United Vanguard Fund, Inc.
United New Concepts Fund, Inc.
United Science and Technology Fund
United International Growth Fund, Inc.
United Gold & Government Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(913) 236-1303
Our INTERNET address is:
http://www.waddell.com
NUR1015A(9-95)
printed on recycled paper
