United
High Income
Fund II, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1997
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
SEPTEMBER 30, 1997
Dear Shareholder:
This report relates to the operation of United High Income Fund II, Inc.
for the fiscal year ended September 30, 1997. The discussion, graphs and tables
contained in this report provide you with information regarding the Fund's
performance during that period.
Strong demand for high yield securities had a significant impact on the
Fund's performance during the past fiscal year. Due to the scarcity of higher
yielding fixed income investments, more and different investors were involved in
bidding for the available supply of high yield bonds. Although the market
experienced a record issuance of high yield bonds, the demand for such
instruments still exceeded supply. High demand increased the prices of high
yield bonds, resulting in reduced yield and a narrowing of the spread between
high yield bonds and Treasury securities. Increased merger and acquisition
activity, as well as an upturn in refinancings and upgrades of high yield bonds
contributed to more calls and tenders for bonds at premium prices and enhanced
the Fund's total return.
The Fund continued to reduce its exposure to higher rated non-investment
grade debt securities (BB rated bonds) that tend to underperform during periods
of increased demand for higher yielding securities. We continued to invest in
slightly lower-rated debt securities (B rated bonds) in an effort to increase
yields for the Fund. The Fund maintained a fully-invested position throughout
most of the fiscal year.
The strategies and techniques we applied resulted in the direction of the
Fund's performance during the fiscal year remaining above 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 Salomon
Brothers High Yield Index) and the universe of funds with similar investment
objectives (the Lipper High Current Yield Bond Fund Universe Average). We have
chosen to use the Salomon Brothers Index beginning with this year's Annual
Report to reflect the performance of the bond market, instead of the First
Boston Index that had been presented in prior years. We believe that the
Salomon Brothers Index provides a more accurate basis for comparing the Fund's
performance to the performance of the types of fixed income securities in which
the Fund invests. Both indexes are presented on the following page in this
year's Annual Report for comparison purposes.
We expect continued strong demand for high yield bonds. Accordingly, we
intend to continue reducing the Fund's exposure to BB rated bonds and turn to B
rated bonds in an attempt to increase yields for the Fund and the potential for
capital appreciation.
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, Ind. Class A Shares,
The First Boston High Yield Indes,
The Salomon Brothers High Yield Index,
and The Lipper High Currnet Yield Bond Fund Universe Average
United First Salomon Lipper High
High Boston Brothers CurrentYield
Income High High Bond Fund
Fund II, Yield Yield Universe
Inc. Index Index Average
------------------ ---------- ----------
09/30/87 Purchase 9,425 10,000 10,000 10,000
09/30/88 10,460 11,378 11,475 10,905
09/30/89 10,665 12,009 12,219 11,488
09/30/90 9,809 10,942 10,849 10,180
09/30/91 12,129 14,983 14,796 12,688
09/30/92 14,471 18,050 18,249 15,405
09/30/93 16,363 20,881 21,079 17,743
09/30/94 16,741 21,601 21,379 18,109
09/30/95 18,624 24,638 25,015 20,244
09/30/96 20,842 27,291 27,748 22,874
09/30/97 24,219 31,582 32,232 26,504
==== United High Income Fund II, Inc. -- $24,219*
++++ First Boston High Yield Index -- $31,582
- - - Salomon Brothers High Yield Index -- $32,232
---- Lipper High Current Yield Bond Fund Universe Average -- $26,504
*The value of the investment in the Fund is impacted by the sales load at the
time of the investment and by the ongoing expenses of the Fund.
Average Annual Total Return +
Class A++ Class Y
-----------------------------
Year Ended
9/30/97 9.52% 16.38%
5 Years Ended
9/30/97 9.54% N/A
10 Years Ended
9/30/97 9.25% N/A
Aggregate Total
Return for Life
of Class Y +++ N/A 13.43%
+Total return for the Class Y shares may be greater than that of the Class A
shares because the Fund's Class Y shares are not subject to a sales load or
12b-1 fees.
++Performance data quoted represents past performance and is based on deduction
of a 5.75% sales load on the initial purchase in each of the three periods.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
+++2/27/96 (the date on which Fund Class Y shares were first acquired by
shareholders) through 9/30/97.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<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
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 1997
- --------------------------------------------
DIVIDENDS PAID $0.36
=====
NET ASSET VALUE ON
9/30/97 $4.42
9/30/96 4.14
-----
CHANGE PER SHARE $0.28
=====
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 9-30-97 9.52% 16.20%
5-year period ended 9-30-97 9.54% 10.85%
10-year period ended 9-30-97 9.25% 9.90%
*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, 1997, United High Income Fund II, Inc. had net assets totaling
$408,557,429 invested in a diversified portfolio of:
89.23% Corporate Debt Securities
7.50% Common and Preferred Stocks and Warrants
3.27% Cash and Cash Equivalents
As a shareholder of United High Income Fund II, Inc., for every $100 you had
invested on September 30, 1997, your Fund owned:
$34.48 Manufacturing Bonds
22.80 Transportation, Communication, Electric
and Sanitary Services Bonds
16.16 Services Bonds
8.89 Wholesale and Retail Trade Bonds
7.50 Common and Preferred Stocks and Warrants
3.27 Cash and Cash Equivalents
2.35 Mining Bonds
2.16 Finance, Insurance and Real Estate Bonds
1.47 Miscellaneous Investing Institutions Bonds
0.52 Agriculture, Forestry and Fisheries Bonds
0.40 Contract Construction Bonds
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Agricultural Production - Livestock - 0.18%
Pilgrim's Pride Corporation .......... 50,000 $ 743,750
Communication _ 1.87%
Adelphia Communications Corporation,
13% Preferred (A)* .................. 5,000 555,000
Globalstar Telecommunications Limited,
Warrants (A)* ....................... 1,000 120,000
IXC Communications, Inc.,
12.5% Preferred (A)* ................ 1,000 1,160,000
Intermedia Communications
of Florida, Inc., 13.5% Preferred.... 2,695 3,233,983
Iridium LLC, Warrants (A)* ........... 3,000 450,000
Jacor Communications, Inc.* .......... 25,000 1,103,900
Microcell Telecommunications Inc.,
Conditional Warrants (A)* ........... 20,000 200
Microcell Telecommunications Inc.,
Warrants (A)*........................ 20,000 450,000
Young Broadcasting Inc., Class A* .... 17,000 581,179
Total ............................... 7,654,262
Depository Institutions _ 0.38%
California Federal Bank, F.S.B.,
10.625% Preferred, Series B ......... 5,000 556,875
California Federal Preferred Capital
Corporation, 9.125% Preferred ....... 37,500 984,375
Total ............................... 1,541,250
Electric, Gas and Sanitary Services _ 0.35%
Consolidated Hydro, Inc.,
13.5% Preferred* .................... 3,000 6,750
Consolidated Hydro, Inc.,
Warrants (A)* ....................... 5,400 5
El Paso Electric Company,
11.4% Preferred ..................... 11,794 1,309,134
IntelCom Group Inc., Warrants (A)* ... 7,425 126,225
Total ............................... 1,442,114
Electronic & Other Electric Equipment - 0.03%
Electronic Retailing Systems
International, Inc., Warrants* ...... 1,750 105,000
Furniture and Fixtures _ 0.41%
Lear Corporation* .................... 34,000 1,674,500
General Building Contractors _ 2.35%
Walter Industries, Inc.* ............. 482,265 9,599,967
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
Holding and Other Investment Offices - 0.26%
National Health Investors, Inc. ...... 27,150 $ 1,055,457
Hotels and Other Lodging Places _ 0.08%
Trump Hotels & Casino Resorts, Inc.* . 31,250 322,250
Industrial Machinery and Equipment _ 0.15%
Bell & Howell Company* ............... 18,750 608,194
Instruments and Related Products - 0.01%
Powertel, Inc., Warrants* ............ 5,600 50,400
Lumber and Wood Products _ 1.09%
Triangle Pacific Corp.* .............. 127,442 4,452,441
Motion Pictures - 0.06%
Film Roman, Inc.* .................... 100,000 225,000
Primary Metal Industries - 0.02%
PureTec Corporation* ................. 40,000 85,600
Printing and Publishing _ 0.26%
K-III Communications Corporation,
$10 Preferred ....................... 10,000 1,067,500
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS _ 7.50% $ 30,627,685
(Cost: $27,462,689)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.52%
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. $ 2,000 2,140,000
Amusement and Recreation Services _ 2.43%
American Skiing Company,
12.0%, 7-15-2006 .................... 2,500 2,806,250
Premier Parks, Inc.,
12.0%, 8-15-2003 .................... 1,000 1,120,000
Showboat Marina Casino Partnership,
13.5%, 3-15-2003 .................... 1,500 1,725,000
Trump Atlantic City Associates,
11.25%, 5-1-2006 .................... 2,000 1,940,000
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Amusement and Recreation Services (Continued)
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 .................... $ 2,000 $ 2,335,000
Total ............................... 9,926,250
Apparel and Accessory Stores - 0.25%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 (A) ............... 1,000 1,010,000
Apparel and Other Textile Products _ 1.28%
Consoltex Group Inc.,
11.0%, 10-1-2003 .................... 2,000 2,087,500
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................. 3,000 3,150,000
Total ............................... 5,237,500
Auto Repair, Services and Parking _ 0.39%
Safelite Glass Corp.,
9.875%, 12-15-2006 (A)............... 1,500 1,597,500
Automotive Dealers & Service Stations - 0.49%
Chief Auto Parts Inc.,
10.5%, 5-15-2005 .................... 2,000 2,015,000
Building Materials & Garden Supplies - 0.26%
Central Tractor Farm & Country, Inc.,
10.625%, 4-1-2007 ................... 1,000 1,060,000
Business Services _ 3.54%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ................... 1,500 1,646,250
DecisionOne Corporation,
9.75%, 8-1-2007 ..................... 2,000 2,090,000
Federal Data Corporation,
10.125%, 8-1-2005 (A) ............... 1,000 1,030,000
Katz Media Group, Inc.,
10.5%, 1-15-2007 .................... 2,000 2,145,000
Lamar Advertising Company,
9.625%, 12-1-2006 ................... 2,000 2,115,000
Protect One, Convertible,
6.75%, 9-15-2003 .................... 2,000 2,350,000
Shared Technologies Fairchild
Communications Corp.,
0.0%, 3-1-2006 (B) .................. 2,000 2,010,000
See Notes to Schedule of Investments on page 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Business Services (Continued)
Universal Outdoor, Inc.,
9.75%, 10-15-2006 ................... $ 1,000 $ 1,070,000
Total ............................... 14,456,250
Chemicals and Allied Products _ 4.04%
Dade International Inc.,
11.125%, 5-1-2006 ................... 1,000 1,126,250
Freedom Chemical Company,
10.625%, 10-15-2006 ................. 2,500 2,650,000
Packard BioScience Company,
9.375%, 3-1-2007 .................... 1,000 1,022,500
Sovereign Specialty Chemicals, Inc.,
9.5%, 8-1-2007 (A) .................. 1,000 1,020,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 2,000 2,060,000
UCC Investors Holding, Inc.:
10.5%, 5-1-2002 ..................... 5,500 6,215,000
0.0%, 5-1-2005 (B) .................. 2,500 2,393,750
Total ............................... 16,487,500
Communication _ 19.30%
Adelphia Communications Corporation:
10.25%, 7-15-2000 ................... 1,250 1,312,500
12.5%, 5-15-2002 .................... 1,000 1,061,250
9.25%, 10-1-2002 (A) ................ 2,450 2,468,375
10.5%, 7-15-2004 (A) ................ 1,500 1,590,000
Allbritton Communications Company,
9.75%, 11-30-2007 ................... 2,000 2,000,000
American Radio Systems Corporation,
9.0%, 2-1-2006 ...................... 1,000 1,060,000
Argyle Television Operations, Inc.,
9.75%, 11-1-2005 .................... 3,000 3,255,000
Brooks Fiber Properties, Inc.,
0.0%, 3-1-2006 (B) .................. 5,000 4,000,000
CenCall Communications Corp.,
0.0%, 1-15-2004 (B).................. 2,500 2,206,250
Comcast Corporation,
9.5%, 1-15-2008 ..................... 1,750 1,881,250
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (B) ................ 4,000 3,140,000
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (B) ................ 2,000 1,497,500
Globalstar, L.P.,
11.375%, 2-15-2004 .................. 1,000 1,042,500
See Notes to Schedule of Investments on page 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
IntelCom Group Inc.,
0.0%, 9-15-2005 (B) ................. $ 2,250 $ 1,788,750
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (B) ................. 2,250 1,766,250
Iridium LLC,
13.0%, 7-15-2005 (A) ................ 3,000 3,142,500
Jacor Communications, Inc.,
10.125%, 6-15-2006 .................. 1,000 1,085,000
Marcus Cable Co.,
0.0%, 12-15-2005 (B) ................ 2,000 1,660,000
Marcus Cable Operating Company, L. P.,
0.0%, 8-1-2004 (B) .................. 3,500 3,154,375
MetroNet Communications Corp., Units,
12%, 8-15-2007 (A)(C) ............... 1,000 1,105,000
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (B) .................. 5,900 4,041,500
Nextel Communications, Inc.:
0.0%, 8-15-2004 (B) ................. 2,500 2,162,500
0.0%, 9-15-2007 (A)(B) .............. 1,500 937,500
NEXTLINK Communications, Inc.,
9.625%, 10-1-2007 ................... 2,000 2,090,000
Primus Telecommunications Group, Units,
11.75%, 8-1-2004 (D) ................ 2,000 2,130,000
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 .................. 1,500 1,627,500
Rogers Cantel Inc.,
9.375%, 6-1-2008 .................... 1,500 1,605,000
Rogers Communications Inc.:
9.125%, 1-15-2006 ................... 3,000 3,067,500
8.875%, 7-15-2007 ................... 1,000 1,007,500
SFX Broadcasting, Inc.,
10.75%, 5-15-2006 ................... 1,500 1,635,000
Salem Communications Corporation,
9.5%, 10-1-2007 (A) ................. 1,000 1,017,500
Sinclair Broadcasting Group,
9.0%, 7-15-2007 (A) ................. 2,000 2,000,000
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (B) ................. 2,500 1,900,000
Sullivan Broadcasting Company, Inc.,
10.25%, 12-15-2005 .................. 500 523,750
Teleport Communications Group Inc.:
9.875%, 7-1-2006 .................... 1,000 1,087,500
0.0%, 7-1-2007 (B) .................. 3,250 2,518,750
USA Mobile Communications, Inc. II,
9.5%, 2-1-2004 ...................... 1,000 977,500
See Notes to Schedule of Investments on page 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Vanguard Cellular Systems, Inc.,
9.375%, 4-15-2006 ................... $ 1,000 $ 1,035,000
Videotron Plc,
0.0%, 8-15-2005 (B) ................. 1,750 1,509,375
WinStar Communications, Inc.,
0.0%, 10-15-2005 (A)(B).............. 1,000 1,043,750
Wireless One, Inc., Units,
0.0%, 8-1-2006 (B)(E)................ 2,000 430,000
WorldCom, Inc.:
9.375%, 1-15-2004 ................... 2,157 2,294,120
8.875%, 1-15-2006 ................... 1,844 1,977,653
Total ............................... 78,835,398
Depository Institutions _ 0.92%
First Nationwide Holdings Inc.:
9.125%, 1-15-2003 ................... 2,000 2,080,000
12.5%, 4-15-2003 .................... 1,500 1,687,500
Total ............................... 3,767,500
Eating and Drinking Places - 0.82%
AmeriKing, Inc.,
10.75%, 12-1-2006 ................... 1,500 1,593,750
Foodmaker, Inc.,
9.25%, 3-1-99 ....................... 715 731,088
SC International Services, Inc.,
9.25%, 9-1-2007 (A) ................. 1,000 1,017,500
Total ............................... 3,342,338
Electric, Gas and Sanitary Services _ 2.30%
Allied Waste North America, Inc.:
10.25%, 12-1-2006 ................... 2,725 2,983,875
0.0%, 6-1-2007 (A)(B) ............... 3,000 2,032,500
El Paso Electric Company:
8.9%, 2-1-2006 ...................... 2,000 2,168,780
9.4%, 5-1-2011 ...................... 2,000 2,216,100
Total ............................... 9,401,255
Electronic and Other Electric Equipment _ 2.36%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 ..................... 2,000 2,230,000
Communications Instruments, Inc.,
10.0%, 9-15-2004 (A) ................ 1,000 1,020,000
DII Group, Inc. (The),
8.5%, 9-15-2007 (A) ................. 1,000 1,005,000
See Notes to Schedule of Investments on page 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electronic and Other Electric Equipment (Continued)
Electronic Retailing Systems
International, Inc.,
0.0%, 2-1-2004 (B) .................. $ 1,750 $ 1,172,500
Rayovac Corporation,
10.25%, 11-1-2006 ................... 1,000 1,090,000
Telex Communications, Inc.,
10.5%, 5-1-2007 (A) ................. 1,000 1,025,000
Viasystems, Inc.,
9.75%, 6-1-2007 (A) ................. 2,000 2,080,000
Total ............................... 9,622,500
Engineering and Management Services _ 0.50%
United International Holdings, Inc.,
0.0%, 11-15-99 ...................... 2,500 2,037,500
Fabricated Metal Products _ 3.86%
American Safety Razor Company,
9.875%, 8-1-2005 .................... 2,000 2,152,500
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ..................... 5,000 5,200,000
Neenah Corporation,
11.125%, 5-1-2007 (A) ............... 3,000 3,247,500
Nortek, Inc.,
9.875%, 3-1-2004 .................... 3,000 3,067,500
Safety Components International, Inc.,
10.125%, 7-15-2007 (A) .............. 1,000 1,020,000
U.S. Can Corporation,
10.125%, 10-15-2006 ................. 1,000 1,061,250
Total ............................... 15,748,750
Food and Kindred Products _ 1.38%
B & G Foods, Inc.,
9.625%, 8-1-2007 (A) ................ 2,000 2,010,000
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-2006 .................... 1,500 1,583,250
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (B) ................. 1,000 1,013,750
Southern Foods Group, L.P.,
9.875%, 9-1-2007 (A) ................ 1,000 1,037,500
Total ............................... 5,644,500
Food Stores _ 1.99%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 .................... 1,500 1,560,000
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food Stores (Continued)
Pueblo Xtra International, Inc.,
9.5%, 8-1-2003 ...................... $ 2,750 $ 2,715,625
Ralphs Grocery Company,
11.0%, 6-15-2005 .................... 3,500 3,850,000
Total ............................... 8,125,625
Furniture and Fixtures _ 0.99%
Lear Seating Corporation,
8.25%, 2-1-2002 ..................... 4,000 4,055,000
General Building Contractors - 0.40%
NVR L.P.,
11.0%, 4-15-2003 .................... 1,500 1,642,500
Health Services _ 4.03%
Genesis ElderCare Acquisition Corp.,
9.0%, 8-1-2007 (A) .................. 2,175 2,164,125
Magellan Health Services, Inc.,
11.25%, 4-15-2004 ................... 2,000 2,232,500
Multicare Companies, Inc. (The),
12.5%, 7-1-2002 ..................... 415 445,088
Quorum Health Group, Inc.,
8.75%, 11-1-2005 .................... 3,500 3,648,750
Regency Health Services, Inc.,
9.875%, 10-15-2002 .................. 2,000 2,190,000
Tenet Healthcare Corporation:
8.0%, 1-15-2005 ..................... 1,500 1,530,000
10.125%, 3-1-2005 ................... 2,000 2,190,000
8.625%, 1-15-2007 ................... 2,000 2,070,000
Total ............................... 16,470,463
Holding and Other Investment Offices _ 1.47%
Grupo Industrial Durango, S.A. de C.V.,
12.625%, 8-1-2003 ................... 2,000 2,277,500
LTC Properties, Inc., Convertible:
8.5%, 1-1-2000 ...................... 2,000 2,525,000
8.5%, 1-1-2001 ...................... 1,000 1,221,250
Total ............................... 6,023,750
Hotels and Other Lodging Places - 3.96%
Boyd Gaming Corporation,
9.25%, 10-1-2003 .................... 1,000 1,045,000
CapStar Hotel Company,
8.75%, 8-15-2007 (A) ................ 1,000 1,011,250
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Hotels and Other Lodging Places (Continued)
Casino America, Inc.,
12.5%, 8-1-2003 ..................... $ 3,500 $ 3,745,000
HMC Acquisition Properties, Inc.,
9.0%, 12-15-2007 .................... 1,500 1,545,000
Prime Hospitality Corp.:
9.25%, 1-15-2006 .................... 2,000 2,100,000
9.75%, 4-1-2007 ..................... 1,000 1,057,500
Showboat, Inc.,
9.25%, 5-1-2008 ..................... 4,000 4,150,000
Station Casinos, Inc.,
10.125%, 3-15-2006 .................. 1,500 1,526,250
Total ............................... 16,180,000
Industrial Machinery and Equipment _ 2.86%
American Standard Inc.:
0.0%, 6-1-2005 (B) .................. 4,750 4,726,250
9.25%, 12-1-2016 .................... 1,500 1,567,500
Bell & Howell Company,
10.75%, 10-1-2002 ................... 1,750 1,820,000
Falcon Building Products, Inc.,
0.0%, 6-15-2007 (A)(B) .............. 4,000 2,530,000
Walbro Corporation,
9.875%, 7-15-2005 ................... 1,000 1,030,000
Total ............................... 11,673,750
Instruments and Related Products _ 1.62%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................. 1,500 1,605,000
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ..................... 3,500 3,815,000
Powertel, Inc.,
0.0%, 2-1-2006 (B)................... 1,750 1,207,500
Total ............................... 6,627,500
Lumber and Wood Products - 0.65%
Triangle Pacific Corp.,
10.5%, 8-1-2003 ..................... 2,500 2,662,500
Miscellaneous Manufacturing Industries _ 1.55%
Hedstrom Corporation,
10.0%, 6-1-2007 (A) ................. 1,000 1,022,500
Herff Jones, Inc.,
11.0%, 8-15-2005 .................... 2,000 2,180,000
Pen-Tab Industries, Inc.,
10.875%, 2-1-2007 ................... 1,000 1,013,750
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Miscellaneous Manufacturing Industries (Continued)
Riddell Sports, Inc.,
10.5%, 7-15-2007 .................... $ 1,000 $ 1,050,000
Syratech Corporation,
11.0%, 4-15-2007 .................... 1,000 1,083,750
Total ............................... 6,350,000
Miscellaneous Retail _ 1.33%
Eye Care Centers of America, Inc.,
12.0%, 10-1-2003 .................... 1,500 1,640,625
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................. 2,500 2,756,250
TravelCenters of America, Inc.,
10.25%, 4-1-2007 .................... 1,000 1,050,000
Total ............................... 5,446,875
Motion Pictures - 1.04%
All American Communications, Inc.,
10.875%, 10-15-2001 ................. 1,000 1,082,500
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 (A) ............... 1,000 1,062,500
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................. 2,000 2,120,000
Total ............................... 4,265,000
Nondepository Institutions _ 1.24%
Delta Financial Corporation,
9.5%, 8-1-2004 ...................... 1,500 1,503,750
GPA Delaware Inc.,
8.75%, 12-15-98 ..................... 3,500 3,574,375
Total ............................... 5,078,125
Oil and Gas Extraction _ 2.35%
Coho Energy, Inc.,
8.875%, 10-15-2007................... 2,950 2,938,937
Falcon Drilling, Inc.,
9.75%, 1-15-2001 .................... 2,800 2,947,000
Flores & Rucks, Inc.,
9.75%, 10-1-2006 .................... 1,000 1,067,500
Kelley Oil & Gas Corporation,
10.375%, 10-15-2006 ................. 1,500 1,556,250
Pride Petroleum Services, Inc.,
9.375%, 5-1-2007 .................... 1,000 1,070,000
Total ............................... 9,579,687
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Paper and Allied Products _ 4.38%
Container Corporation of America,
10.75%, 5-1-2002 .................... $ 2,000 $ 2,210,000
Fonda Group, Inc. (The),
9.5%, 3-1-2007 ...................... 2,000 1,920,000
Fort Howard Corporation:
11.0%, 1-2-2002 ..................... 3,927 4,202,397
9.0%, 2-1-2006 ...................... 1,000 1,082,500
Four M Corporation,
12.0%, 6-1-2006 ..................... 1,000 1,072,500
Huntsman Packaging Corporation,
9.125%, 10-1-2007 (A) ............... 5,175 5,278,500
Mail-Well Corporation,
10.5%, 2-15-2004 .................... 1,000 1,077,500
Radnor Holdings Corporation,
10.0%, 12-1-2003 .................... 1,000 1,033,750
Total ............................... 17,877,147
Personal Services - 0.27%
Prime Succession Acquisition Corp.,
10.75%, 8-15-2004 ................... 1,000 1,112,500
Primary Metal Industries _ 1.97%
Commonwealth Aluminum Corporation,
10.75%, 10-1-2006 ................... 2,000 2,170,000
Essex Group, Inc.,
10.0%, 5-1-2003 ..................... 2,000 2,110,000
Weirton Steel Corporation:
11.375%, 7-1-2004 ................... 2,500 2,712,500
10.75%, 6-1-2005 .................... 1,000 1,065,000
Total ............................... 8,057,500
Printing and Publishing _ 2.52%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................. 3,000 3,285,000
K-III Communications Corporation,
8.5%, 2-1-2006 ...................... 1,000 1,020,000
Viacom International Inc.,
8.0%, 7-7-2006 ...................... 6,000 5,985,000
Total ............................... 10,290,000
Railroad Transportation - 0.42%
TFM, S.A. de C.V.:
10.25%, 6-15-2007 (A) ............... 1,000 1,062,500
0.0%, 6-15-2009 (A)(B) .............. 1,000 666,250
Total ............................... 1,728,750
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Rubber and Miscellaneous Plastics Products _ 1.21%
Burke Industries, Inc.,
10.0%, 8-15-2007 (A) ................ $ 1,000 $ 1,025,000
LDM Technologies, Inc.,
10.75%, 1-15-2007 ................... 2,000 2,155,000
RBX Corporation,
11.25%, 10-15-2005 .................. 2,000 1,760,000
Total ............................... 4,940,000
Textile Mill Products _ 2.40%
Avondale Mills, Inc.,
10.25%, 5-1-2006 .................... 1,000 1,067,500
Collins & Aikman Products Co.,
11.5%, 4-15-2006 .................... 4,500 5,141,250
Delta Mills, Inc.,
9.625%, 9-1-2007 (A) ................ 2,500 2,518,750
Glenoit Corporation,
11.0%, 4-15-2007 (A)................. 1,000 1,075,000
Total ............................... 9,802,500
Transportation Equipment _ 1.41%
Advanced Accessory Systems, LLC.,
9.75%, 10-1-2007 (A) ................ 2,000 2,002,500
Aetna Industries, Inc.,
11.875%, 10-1-2006 .................. 2,000 2,195,000
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ................... 1,500 1,556,250
Total ............................... 5,753,750
Trucking and Warehousing - 0.78%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................. 1,000 1,080,000
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... 2,000 2,085,000
Total ............................... 3,165,000
Wholesale Trade - Durable Goods _ 1.43%
Alvey Systems, Inc.,
11.375%, 1-31-2003 .................. 1,000 1,050,000
Exide Corporation,
10.0%, 4-15-2005 .................... 4,500 4,770,000
Total ............................... 5,820,000
Wholesale Trade - Nondurable Goods - 2.32%
Core-Mark International, Inc.,
11.375%, 9-15-2003 .................. 1,500 1,575,000
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Wholesale Trade - Nondurable Goods (Continued)
Corporate Express, Inc.,
9.125%, 3-15-2004 ................... $ 2,000 $ 2,050,000
Fleming Companies, Inc.,
10.5%, 12-1-2004 (A) ................ 1,000 1,035,000
LaRoche Industries Inc.,
9.5%, 9-15-2007 (A) ................. 2,000 2,020,000
United Stationers Supply Co.,
12.75%, 5-1-2005 .................... 2,500 2,803,125
Total ............................... 9,483,125
TOTAL CORPORATE DEBT SECURITIES _ 89.23% $364,540,788
(Cost: $343,900,822)
TOTAL SHORT-TERM SECURITIES _ 3.76% $ 15,380,844
(Cost: $15,380,844)
TOTAL INVESTMENT SECURITIES - 100.49% $410,549,317
(Cost: $386,744,355)
LIABILITIES, NET OF CASH AND OTHER ASSETS- (0.49%) (1,991,888)
NET ASSETS - 100.00% $408,557,429
See Notes to Schedule of Investments on pages 19 and 20.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) As of September 30, 1997, the following restricted securities were owned:
Shares/
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
Adelphia Communications
Corporation
13% Preferred 7/1/97 5,000$ 500,000 $ 555,000
Consolidated Hydro, Inc.,
Warrants 6/15/93 5,400 127,817 5
Globalstar Telecommunications
Limited, Warrants 2/13/97 1,000 59,000 120,000
IXC Communications, Inc.,
12.5% Preferred 8/15/97 1,000 1,000,000 1,160,000
IntelCom Group Inc.,
Warrants 8/3/95 7,425 28,881 126,225
Iridium LLC, Warrants 7/11/97 1,500 84,894 225,000
7/15/97 1,500 85,242 225,000
Microcell Telecommunications
Inc., Conditional Warrants 6/13/96 20,000 0 200
Microcell Telecommunications
Inc., Warrants 6/13/96 20,000 244,988 450,000
Adelphia Communications Corporation:
9.25%, 10-1-2002 9/22/97 $ 2,450 2,450,000 2,468,375
10.5%, 7-15-2004 7/1/97 1,500 1,500,000 1,590,000
Advanced Accessory Systems, LLC.,
9.75%, 10-1-2007 9/25/97 2,000 1,992,460 2,002,500
Allied Waste North America, Inc.,
0.0%, 6-1-2007 5/1/97 2,000 1,148,720 1,355,000
5/23/97 1,000 605,000 677,500
B & G Foods, Inc.,
9.625%, 8-1-2007 8/11/97 1,000 1,000,000 1,005,000
8/18/97 1,000 998,750 1,005,000
Burke Industries, Inc.,
10.0%, 8-15-2007 8/14/97 1,000 1,000,000 1,025,000
CapStar Hotel Company,
8.75%, 8-15-2007 8/14/97 1,000 998,660 1,011,250
Communications Instruments, Inc.,
10.0%, 9-15-2004 9/12/97 1,000 1,000,000 1,020,000
DII Group, Inc. (The),
8.5%, 9-15-2007 9/16/97 1,000 1,000,000 1,005,000
Delta Mills, Inc.,
9.625%, 9-1-20078/20/97 to
8/21/97 2,500 2,511,875 2,518,750
Falcon Building Products, Inc.,
0.0%, 6-15-2007 6/5/97 to
9/17/97 4,000 2,453,390 2,530,000
Federal Data Corporation,
10.125%, 8-1-2005 7/18/97 1,000 1,000,000 1,030,000
Fleming Companies, Inc.,
10.5%, 12-1-2004 7/18/97 1,000 994,190 1,035,000
Genesis ElderCare Acquisition Corp.,
9.0%, 8-1-2007 8/4/97 1,000 994,450 995,000
9/10/97 1,175 1,160,313 1,169,125
Glenoit Corporation,
11.0%, 4-15-2007 3/26/97 1,000 998,090 1,075,000
Hedstrom Corporation,
10.0%, 6-1-2007 6/9/97 1,000 1,000,000 1,022,500
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 7/31/97 500 513,750 531,250
7/31/97 500 500,000 531,250
Huntsman Packaging Corporation,
9.125%, 10-1-2007 9/19/97 5,175 5,222,500 5,278,500
Iridium LLC,
13.0%, 7-15-2005 7/11/97 1,500 1,378,798 1,571,250
7/15/97 1,500 1,384,443 1,571,250
LaRoche Industries Inc.,
9.5%, 9-15-2007 9/18/97 2,000 1,991,040 2,020,000
MetroNet Communications
Corp., Units,
12.0%, 8-15-2007 7/18/97 1,000 1,000,000 1,105,000
Neenah Corporation,
11.125%, 5-1-2007 4/23/97 1,000 1,000,000 1,082,500
6/26/97 2,000 2,115,000 2,165,000
Nextel Communications, Inc.,
0.0%, 9-15-2007 9/10/97 1,500 893,355 937,500
SC International Services, Inc.,
9.25%, 9-1-2007 8/21/97 1,000 998,680 1,017,500
Safelite Glass Corp.,
9.875%, 12-15-200612/13/96 1,000 1,000,000 1,065,000
1/6/97 500 514,375 532,500
Safety Components International, Inc.,
10.125%, 7-15-20077/21/97 1,000 1,000,000 1,020,000
Salem Communications Corporation,
9.5%, 10-1-2007 9/17/97 1,000 1,000,000 1,017,500
Sinclair Broadcasting Group,
9.0%, 7-15-2007 6/25/97 2,000 1,948,600 2,000,000
Southern Foods Group, L.P.,
9.875%, 9-1-2007 8/27/97 1,000 1,000,000 1,037,500
Sovereign Specialty Chemicals, Inc.,
9.5%, 8-1-2007 7/31/97 1,000 1,000,000 1,020,000
TFM, S.A. de C.V.:
10.25%, 6-15-2007 6/11/97 1,000 1,000,000 1,062,500
0.0%, 6-15-2009 6/11/97 1,000 564,306 666,250
Telex Communications, Inc.,
10.5%, 5-1-2007 4/29/97 1,000 1,000,000 1,025,000
Viasystems, Inc.,
9.75% 6-1-2007 6/2/97 2,000 2,000,000 2,080,000
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 8/14/97 1,000 1,000,000 1,010,000
WinStar Communications, Inc.,
0.0%, 10-15-2005 3/13/97 1,000 1,000,000 1,043,750
----------------------
$57,961,567$60,792,430
======================
The total market value of restricted securities represents 14.88% of the
total net assets at September 30, 1997.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1997
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) Each Unit consists of $1,000 principal amount of 12.0% senior notes due
2007 and 1 warrant to purchase 3.429 shares of non-voting Class B common
stock.
(D) Each Unit consists of $1,000 principal amount of 11.75% senior notes and 1
warrant to purchase 1.74513 shares of common stock.
(E) Each Unit consists of $1,000 principal amount of 13.5% senior discount
notes due 2006 and a warrant to purchase 2.274 shares 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, 1997
Assets
Investment securities -- at value (Notes 1 and 3) $410,549,317
Cash ............................................. 2,427
Receivables:
Interest and dividends .......................... 7,721,902
Fund shares sold ................................ 304,237
Prepaid insurance premium ........................ 17,140
------------
Total assets .................................. 418,595,023
------------
Liabilities
Payable for investment securities purchased ...... 8,573,158
Payable to Fund shareholders ..................... 872,363
Dividends payable ................................ 344,843
Accrued service fee (Note 2) ..................... 109,442
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 68,830
Accrued management fee (Note 2) .................. 6,112
Accrued accounting services fee (Note 2) ......... 5,000
Other ............................................ 57,846
------------
Total liabilities ............................. 10,037,594
------------
Total net assets ............................. $408,557,429
============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 92,331,846
Additional paid-in capital ...................... 333,720,660
Accumulated undistributed gain (loss):
Accumulated undistributed net realized
loss on investment transactions ............... (41,300,039)
Net unrealized appreciation in value of
investments ................................... 23,804,962
------------
Net assets applicable to outstanding
units of capital ............................. $408,557,429
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $4.42
Class Y .......................................... $4.42
Capital shares outstanding
Class A .......................................... 91,970,179
Class Y .......................................... 361,667
Capital shares authorized .......................... 400,000,000
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1997
Investment Income
Income (Note 1B):
Interest and amortization ....................... $35,453,898
Dividends ....................................... 707,766
-----------
Total income .................................. 36,161,664
-----------
Expenses (Note 2):
Investment management fee ....................... 2,103,768
Transfer agency and dividend disbursing - Class A 621,191
Service fee - Class A ........................... 549,496
Accounting services fee ......................... 60,000
Audit fees ...................................... 20,745
Custodian fees .................................. 19,622
Legal fees ...................................... 12,661
Shareholder servicing - Class Y.................. 3,549
Other ........................................... 144,845
-----------
Total expenses ................................ 3,535,877
-----------
Net investment income ........................ 32,625,787
-----------
Realized and Unrealized Gain on
Investments (Notes 1 and 3)
Realized net gain on investments ................. 8,525,099
Unrealized appreciation in value of investments
during the period ............................... 17,456,412
-----------
Net gain on investments ......................... 25,981,511
-----------
Net increase in net assets resulting
from operations .............................. $58,607,298
===========
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,
-------------------------
1997 1996
------------ ------------
Increase in Net Assets
Operations:
Net investment income ............... $32,625,787 $ 31,556,885
Realized net gain (loss) on
investments ...................... 8,525,099 (308,086)
Unrealized appreciation ............. 17,456,412 9,597,709
------------ ------------
Net increase in net assets
resulting from operations ........ 58,607,298 40,846,508
------------ ------------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ............................. (32,497,154) (31,472,032)
Class Y ............................. (128,633) (82,378)
------------ ------------
(32,625,787) (31,554,410)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A (8,682,161 and 6,019,156
shares, respectively) ............ 36,917,247 24,540,706
Class Y (14,256 and 399,081
shares, respectively) ............ 59,902 1,655,574
Proceeds from reinvestment of
dividends
Class A (6,869,010 and 6,888,364
shares, respectively) ............ 29,166,989 28,126,443
Class Y (29,866 and 19,867
shares, respectively) ............ 126,857 81,059
Payments for shares redeemed
Class A (12,527,249 and 15,121,588
shares, respectively) ............ (53,076,799) (61,675,274)
Class Y (81,123 and 20,280
shares, respectively) ............ (337,296) (83,233)
------------ ------------
Net increase (decrease) in net assets
resulting from capital
share transactions ............... 12,856,900 (7,354,725)
------------ ------------
Total increase ................... 38,838,411 1,937,373
Net Assets
Beginning of period .................. 369,719,018 367,781,645
------------ ------------
End of period ........................$408,557,429 $369,719,018
============ ============
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on pages 24 - 25.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended
September 30,
------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Net asset value,
beginning of
period ............ $4.14 $4.03 $3.96 $4.21 $4.06
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.36 0.35 0.35 0.35 0.36
Net realized and
unrealized gain
(loss) on
investments ..... 0.28 0.11 0.07 (0.25) 0.15
----- ----- ----- ----- -----
Total from investment
operations ....... 0.64 0.46 0.42 0.10 0.51
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ............ (0.36) (0.35) (0.35) (0.35) (0.36)
----- ----- ----- ----- -----
Net asset value,
end of period .... $4.42 $4.14 $4.03 $3.96 $4.21
===== ===== ===== ===== =====
Total return* ...... 16.20% 11.90% 11.25% 2.31% 13.07%
Net assets, end of
period (000
omitted) ......... $406,957$368,069$367,782$362,643$380,819
Ratio of expenses to
average net assets 0.93% 0.95% 0.89% 0.88% 0.80%
Ratio of net investment
income to average
net assets ....... 8.54% 8.60% 8.93% 8.41% 8.64%
Portfolio turnover
rate ............. 64.38% 55.64% 26.82% 47.05% 69.24%
*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.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
fiscal period
year from 2/27/96*
ended through
9/30/97 9/30/96
-------- --------
Net asset value,
beginning of period $4.14 $4.15
----- -----
Income from investment
operations:
Net investment
income .......... 0.37 0.21
Net realized and
unrealized gain (loss)
on investments... 0.28 (0.01)
----- -----
Total from investment
operations ........ 0.65 0.20
----- -----
Less dividends declared
from net investment
income ............ (0.37) (0.21)
----- -----
Net asset value,
end of period ..... $4.42 $4.14
===== =====
Total return ....... 16.38% 5.00%
Net assets, end of
period (000
omitted) ......... $1,600 $1,650
Ratio of expenses
to average net
assets ............ 0.77% 0.77%**
Ratio of net
investment income
to average net
assets ............ 8.69% 8.83%**
Portfolio
turnover rate ..... 64.38% 55.64%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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. Its investment objective is to provide a high level of current income,
by investing primarily in a diversified portfolio of high-yield, high-risk
fixed-income securities, with a secondary objective of capital growth when
consistent with the primary objective. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using Nasdaq (National Association of Securities Dealers Automated
Quotations system) 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 Subchapter M of the
Internal Revenue Code. In addition, the Fund intends to pay distributions
as required to avoid imposition of excise tax. Accordingly, provision has
not been made for Federal income taxes. See Note 4 -- Federal Income Tax
Matters.
D. Dividends and distributions -- 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 as of the close of the preceding business day. Net
investment income dividends and capital gains distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sales and post-October
losses, foreign currency transactions, net operating losses and expiring
capital loss carryforwards.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the annual rate of .15% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $18.0 billion of
combined net assets at September 30, 1997) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month,
plus $0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. With respect to Class Y shares, the
Fund pays WARSCO a monthly fee at an annual rate of .15% of the average daily
net assets of the class for the preceding month. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$1,267,590, out of which W&R paid sales commissions of $730,061 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's average annual net assets. The fee is to be paid to
reimburse W&R for amounts it expends in connection with the distribution of the
Class A shares and/or provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $14,634, which are included in other
expenses.
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 $244,402,249 while proceeds from maturities and
sales aggregated $231,215,505. Purchases of short-term securities aggregated
$348,655,485 while proceeds from maturities and sales aggregated $346,711,388.
No U.S. Government securities were bought or sold during the period ended
September 30, 1997.
For Federal income tax purposes, cost of investments owned at September 30,
1997 was $386,284,471, resulting in net unrealized appreciation of $24,264,846,
of which $28,764,066 related to appreciated securities and $4,499,220 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
fo $8,525,099 during its fiscal year ended September 30, 1997, which was
entirely offset by utilization of capital loss carryforwards. Remaining capital
loss carryforwards aggregated $41,484,470 at September 30, 1997, and are
available to offset future realized capital gain net income for Federal income
tax purposes through the following fiscal years: $25,081,412 through September
30, 1999; $8,229,670 through September 30, 2000; $390,078 through September 30,
2003 and $7,783,310 is available through September 30, 2004.
NOTE 5 -- Commencement of Multiclass Operations
On January 12, 1996, the Fund was authorized to offer investors a choice of
two classes of shares, Class A and Class Y, each of which has equal rights as to
assets and voting privileges. Class Y shares are not subject to a sales charge
on purchases; they are not subject to a Rule 12b-1 Distribution and Service Plan
and have a separate transfer agency and dividend disbursement services fee
structure. A comprehensive discussion of the terms under which shares of either
class are offered is contained in the Prospectus and the Statement of Additional
Information for the Fund. The Fund commenced multiclass operations on February
27, 1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United High Income Fund II, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of United High Income Fund II, Inc. (the
"Fund") as of September 30, 1997, the related statements of operations and
changes in net assets for the year then ended, and the financial highlights for
the year then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audit. The financial statements and the financial highlights of
the Fund for each of the periods in the four-year period ended September 30,
1996 were audited by other auditors whose report, dated November 8, 1996,
expressed an unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United High Income
Fund II, Inc. as of September 30, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the year then ended
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 7, 1997
<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.
The table below shows the taxability of dividends paid during the fiscal year
ended September 30, 1997:
PERCENTAGE OF AMOUNTS PAID REPORTABLE AS:
-----------------------------------------------
For Individuals For Corporations
----------------- -----------------------------
Record Ordinary Long-Term Non- Long-Term
Date IncomeCapital GainsQualifyingQualifyingCapital Gains
- --------- ---------------------------------------------------
Class A
October through
December 1996 100.00% ---% 1.6060% 98.3940% ---%
January through
September 1997 100.00% ---% 2.3497% 97.6503% ---%
Class Y
October through
December 1996 100.00% ---% 1.6060% 98.3940% ---%
January through
September 1997 100.00% ---% 2.3497% 97.6503% ---%
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>
Shareholder Meeting Results
A special meeting of shareholders of United High Income Fund II, Inc. was held
on July 24, 1997. The matters voted upon by the shareholders and the resulting
votes for each matter are presented below.
Item 1.To elect the Board of Directors;
Broker
For WithheldNon-Votes*
Henry L. Bellmon 46,913,402 719,297 0
Dodds I. Buchanan 46,976,048 656,651 0
James M. Concannon 46,986,134 646,565 0
John A. Dillingham 46,968,180 664,519 0
Linda Graves 46,928,950 703,749 0
John F. Hayes 46,923,619 709,080 0
Glendon E. Johnson 46,956,989 675,710 0
William T. Morgan 46,977,989 654,710 0
Ronald K. Richey 46,959,812 672,887 0
William L. Rogers 46,952,531 680,168 0
Frank J. Ross, Jr. 46,982,499 650,200 0
Eleanor B. Schwartz 46,965,961 666,738 0
Keith A. Tucker 46,937,282 695,417 0
Frederick Vogel III 46,986,869 645,830 0
Paul S. Wise 46,924,006 708,693 0
Item 2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year;
Broker
For Against AbstainNon-Votes*
45,203,624 182,427 2,246,648 0
Item 3.To approve or disapprove changes to the following fundamental investment
policies and restrictions:
3.1 Elimination of Fundamental Restrictions Regarding Restricted
Securities
Broker
For Against AbstainNon-Votes*
43,774,006 778,989 3,073,116 6,588
3.2 Modification of Fundamental Restriction Regarding Diversification
of Assets
Broker
For Against AbstainNon-Votes*
43,759,613 793,382 3,073,116 6,588
3.3 Modification and/or Elimination of Fundamental Restrictions
Regarding Options, Commodities, Forward Contracts and/or Futures
Contracts
Broker
For Against AbstainNon-Votes*
43,749,923 800,114 3,076,074 6,588
3.4 Elimination of Fundamental Restrictions Regarding Mortgaging or
Pledging Securities
Broker
For Against AbstainNon-Votes*
43,759,716 793,279 3,073,116 6,588
3.5 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
Broker
For Against AbstainNon-Votes*
43,749,744 803,251 3,073,116 6,588
3.6 Modification of Fundamental Restriction Regarding Short Sales of
Securities
Broker
For Against AbstainNon-Votes*
43,749,956 803,039 3,073,116 6,588
3.7 Elimination of Fundamental Restriction Regarding Investment in
Warrants and Rights
Broker
For Against AbstainNon-Votes*
43,768,804 784,191 3,073,116 6,588
3.8 Elimination of Fundamental Restriction Regarding Arbitrage
Transactions
Broker
For Against AbstainNon-Votes*
43,759,094 793,901 3,073,116 6,588
3.9 Elimination of Fundamental Restriction Regarding Investments in
Issuers Whose Securities are Owned by Certain Persons
Broker
For Against AbstainNon-Votes*
43,762,507 790,488 3,073,116 6,588
3.10 Modification of Fundamental Policy Regarding Loans
Broker
For Against AbstainNon-Votes*
43,772,813 780,182 3,073,116 6,588
Item 4.To amend the terms of the service plan adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940.
Broker
For Against AbstainNon-Votes*
42,029,389 1,278,339 3,976,050 0
*Broker non-votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on
a particular matter.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., 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
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
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1015A(9-97)
printed on recycled paper
