United
High Income
Fund II, Inc.
SEMIANNUAL
REPORT
---------------------------------------
For the six months ended March 31, 1997
<PAGE>
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.
<PAGE>
PRESIDENT'S LETTER
MARCH 31, 1997
Dear Shareholder:
As President of your Fund, I would like to thank you for your continued
confidence in our products and services. Our goal to provide the best service
possible to our shareholders has not changed since we opened our doors nearly 60
years ago. Waddell & Reed's team of professionals, including the Fund's
manager, our customer service representatives and your personal account
representative continue to strive to meet your financial needs.
Waddell & Reed plays a special role in the investment industry. We take
pride in being one of the few financial services firms committed to locally
based account representatives who provide the personal service you need. When
you're ready to evaluate your financial plan to keep up with life's changes, or
to find an answer to a financial question that you may have, your representative
is ready to assist you--when you need it. He or she is available to help you
plan for your retirement, fund a child's education or make plans for other long-
term financial goals.
All of us are committed to helping you meet the financial goals that are
important to you. This is accomplished by our offering investment products to
meet a variety of personal financial objectives, along with the personal service
to make the investment process more convenient and accessible.
We want to continue to meet your financial needs for many years to come.
Should you have any questions about your account or other financial issues that
are important to you, contact your personal account representative or your local
Waddell & Reed office. They're ready to help you make the most of your
financial future.
Respectfully,
Keith A. Tucker
President
<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 -- Class A Shares
PER SHARE DATA
For the Six Months Ended March 31, 1997
- ---------------------------------------
DIVIDENDS PAID $0.18
=====
NET ASSET VALUE ON
3/31/97 $4.14
9/30/96 4.14
-----
CHANGE PER SHARE $0.00
=====
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ---------- ----------
1-year period ended 3-31-97 4.19% 10.54%
5-year period ended 3-31-97 8.52% 9.81%
10-year period ended 3-31-97 7.74% 8.38%
*Performance data quoted represents past performance and is based on deduction
of 5.75% sales load on the initial purchase in each of the three periods.
**Performance data quoted in this column represents past performance without
taking into account the sales load deducted on an initial purchase.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1997, United High Income Fund II, Inc. had net assets totaling
$373,375,251 invested in a diversified portfolio of:
86.34% Corporate Debt Securities
6.69% Cash and Cash Equivalents
6.69% Common and Preferred Stocks and Warrants
0.28% Other Government Security
As a shareholder of United High Income Fund II, Inc., for every $100 you had
invested on March 31, 1997, your Fund owned:
$32.91 Manufacturing Bonds
18.35 Services Bonds
17.40 Transportation, Communication, Electric
and Sanitary Services Bonds
10.93 Wholesale and Retail Trade Bonds
6.69 Cash and Cash Equivalents
6.69 Common and Preferred Stocks and Warrants
2.33 Mining Bonds
1.92 Finance, Insurance and Real Estate Bonds
1.48 Miscellaneous Investing Institutions Bonds
0.59 Agriculture, Forestry and Fisheries Bonds
0.43 Contract Construction Bonds
0.28 Other Government Security
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Chemicals and Allied Products - 0.15%
Carson, Inc.* ........................ 49,000 $ 563,500
Communication - 1.40%
Intermedia Communications
of Florida, Inc., Preferred (A)*..... 25,000 2,393,750
Jacor Communications, Inc.* .......... 25,000 695,300
Microcell Telecommunications Inc.,
Conditional Warrants (A)* ........... 20,000 12,500
Microcell Telecommunications Inc.,
Warrants (A)*........................ 20,000 250,000
Sinclair Capital, Preferred (A)* ...... 15,000 1,470,000
Young Broadcasting Inc., Class A* .... 17,000 408,000
Total ............................... 5,229,550
Depository Institutions - 0.39%
California Federal Bank, F.S.B.,
Preferred, Series B ................. 5,000 550,000
California Federal Preferred Capital
Corporation, Preferred .............. 37,500 909,375
Total ............................... 1,459,375
Electric, Gas and Sanitary Services - 0.39%
Consolidated Hydro, Inc.,
Preferred (A)* ..................... 3,000 190,950
Consolidated Hydro, Inc.,
Warrants (A)* ....................... 5,400 5
El Paso Electric Company, Preferred .. 11,151 1,232,185
IntelCom Group Inc., Warrants (A)* ... 7,425 31,556
Total ............................... 1,454,696
General Building Contractors - 1.74%
Walter Industries, Inc.* ............. 482,265 6,480,195
Health Services - 0.38%
Beverly Enterprises, Inc.* ........... 100,000 1,425,000
Holding and Other Investment Offices - 0.27%
National Health Investors, Inc. ...... 27,150 1,007,944
Hotels and Other Lodging Places - 0.08%
Trump Hotels & Casino Resorts, Inc.* . 31,250 281,250
Industrial Machinery and Equipment - 0.11%
Bell & Howell Company* ............... 18,750 391,406
Lumber and Wood Products - 0.93%
Triangle Pacific Corp.* .............. 127,442 3,488,725
Motion Pictures - 0.05%
Film Roman, Inc.* .................... 100,000 203,100
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
Printing and Publishing - 0.79%
K-III Communications Corporation,
Preferred ........................... 10,000 995,000
Knight-Ridder, Inc. .................. 25,000 $ 996,875
Tribune Company ...................... 24,000 972,000
Total ............................... 2,963,875
Rubber and Miscellaneous Plastics Products - 0.01%
Plastic Specialties and Technologies,
Inc.* .............................. 20,000 20,000
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 6.69% $ 24,968,616
(Cost: $28,592,652)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.59%
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. $ 2,000 2,205,000
Amusement and Recreation Services - 4.27%
American Skiing Company,
12.0%, 7-15-2006 .................... 2,500 2,550,000
California Hotel Finance Corporation,
11.0%, 12-1-2002 .................... 2,250 2,317,500
Harrah's Operating Company, Inc.,
10.875%, 4-15-2002 .................. 2,000 2,105,000
Premier Parks, Inc.,
12.0%, 8-15-2003 .................... 1,000 1,115,000
Rio Hotel & Casino, Inc.,
10.625%, 7-15-2005 .................. 2,000 2,100,000
Showboat Marina Casino Partnership,
13.5%, 3-15-2003 .................... 1,500 1,687,500
Trump Atlantic City Associates,
11.25%, 5-1-2006 .................... 2,000 1,820,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 .................... 2,000 2,260,000
Total ............................... 15,955,000
Apparel and Other Textile Products - 1.35%
Consoltex Group Inc.,
11.0%, 10-1-2003 .................... 2,000 2,040,000
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................. 3,000 3,000,000
Total ............................... 5,040,000
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Auto Repair, Services and Parking - 0.40%
Safelite Glass Corp.,
9.875%, 12-15-2006 (A)............... $ 1,500 $ 1,500,000
Business Services - 3.40%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ................... 1,500 1,575,000
Alvey Systems, Inc.,
11.375%, 1-31-2003 .................. 1,000 1,040,000
Heritage Media Corporation,
8.75%, 2-15-2006 .................... 1,000 1,040,000
Katz Media Group, Inc.,
10.5%, 1-15-2007 (A)................. 2,000 2,060,000
Lamar Advertising Company,
9.625%, 12-1-2006 ................... 2,000 2,015,000
Protect One, Convertible,
6.75%, 9-15-2003 .................... 2,000 1,880,000
Scotsman Group, Inc.,
9.5%, 12-15-2000 .................... 1,250 1,256,250
Shared Technologies Fairchild
Communications Corp.,
0.0%, 3-1-2006 (B) .................. 1,000 822,500
Universal Outdoor, Inc.,
9.75%, 10-15-2006 ................... 1,000 990,000
Total ............................... 12,678,750
Chemicals and Allied Products - 3.46%
Dade International Inc.,
11.125%, 5-1-2006 ................... 1,000 1,135,000
Freedom Chemical Company,
10.625%, 10-15-2006 ................. 1,500 1,560,000
Packard BioScience Company,
9.375%, 3-1-2007 (A)................. 1,000 965,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 1,000 1,007,500
UCC Investors Holding, Inc.:
10.5%, 5-1-2002 ..................... 5,500 5,995,000
0.0%, 5-1-2005 (B) .................. 2,500 2,250,000
Total ............................... 12,912,500
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication - 15.51%
Adelphia Communications Corporation,
10.25%, 7-15-2000 ................... $ 1,250 $ 1,212,500
Allbritton Communications Company,
9.75%, 11-30-2007 ................... 2,000 1,860,000
American Radio Systems Corporation,
9.0%, 2-1-2006 ...................... 1,000 965,000
Argyle Television Operations, Inc.,
9.75%, 11-1-2005 .................... 3,000 3,120,000
Brooks Fiber Properties, Inc.:
0.0%, 3-1-2006 (B) .................. 4,500 2,790,000
0.0%, 11-1-2006 (B) ................. 500 297,500
Cablevision Systems Corporation,
10.75%, 4-1-2004 .................... 1,500 1,541,250
CenCall Communications Corp.,
0.0%, 1-15-2004 (B).................. 2,500 1,725,000
COMCAST CELLULAR CORPORATION,
0.0%, 3-5-2000 ...................... 2,200 1,619,750
Comcast Corporation,
9.5%, 1-15-2008 ..................... 1,750 1,754,375
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (B) ................ 4,000 2,600,000
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (B) ................ 1,000 640,000
Globalstar, L.P., Units,
11.375%, 2-15-2004 (A)(C)............ 1,000 970,000
IntelCom Group Inc.,
0.0%, 9-15-2005 (B) ................. 2,250 1,507,500
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (B) ................. 2,250 1,428,750
Jacor Communications, Inc.,
10.125%, 6-15-2006 .................. 1,000 1,015,000
MFS Communications Company, Inc.:
0.0%, 1-15-2004 (B) ................. 2,475 2,227,500
0.0%, 1-15-2006 (B) ................. 2,500 1,887,500
Marcus Cable Operating Company, L. P.,
0.0%, 8-1-2004 (B) .................. 3,500 2,782,500
Metrocall, Inc.,
10.375%, 10-1-2007 .................. 1,000 800,000
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (B) .................. 5,000 2,450,000
Multicanal S.A.,
9.25%, 2-1-2002 (A).................. 1,000 997,500
RSL Communications, Ltd., Units,
12.25%, 11-15-2006 (A)(D) ........... 1,000 1,002,500
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 .................. 1,500 1,500,000
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Rogers Cantel Inc.,
9.375%, 6-1-2008 .................... $ 1,500 $ 1,515,000
Rogers Communications Inc.,
9.125%, 1-15-2006 ................... 3,000 2,895,000
SFX Broadcasting, Inc.,
10.75%, 5-15-2006 ................... 1,500 1,567,500
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (B) ................. 3,500 2,310,000
Sullivan Broadcasting Company, Inc.,
10.25%, 12-15-2005 .................. 500 502,500
TV Azteca, S.A. de C.V.:
10.125%, 2-15-2004 (A)............... 1,250 1,228,125
10.5%, 2-15-2007 (A)................. 1,250 1,228,125
Teleport Communications Group Inc.:
9.875%, 7-1-2006 .................... 1,000 1,035,000
0.0%, 7-1-2007 (B) .................. 3,250 2,177,500
USA Mobile Communications, Inc. II,
9.5%, 2-1-2004 ...................... 1,000 860,000
Vanguard Cellular Systems, Inc.,
9.375%, 4-15-2006 ................... 1,000 985,000
Videotron Plc,
0.0%, 8-15-2005 (B) ................. 1,750 1,382,500
WinStar Communications, Inc.,
0.0%, 10-15-2005 (A)(B).............. 1,000 996,250
Wireless One, Inc., Units,
0.0%, 8-1-2006 (B)(E)................ 2,000 540,000
Total ............................... 57,916,625
Depository Institutions - 0.97%
First Nationwide Holdings Inc.:
9.125%, 1-15-2003 ................... 2,000 2,000,000
12.5%, 4-15-2003 .................... 1,500 1,635,000
Total ............................... 3,635,000
Eating and Drinking Places - 0.68%
AmeriKing, Inc.,
10.75%, 12-1-2006 ................... 1,500 1,545,000
Foodmaker, Inc.,
9.25%, 3-1-99 ....................... 1,000 1,010,000
Total ............................... 2,555,000
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electric, Gas and Sanitary Services - 1.61%
Allied Waste North America, Inc.,
10.25%, 12-1-2006 (A)................ $ 1,750 $ 1,785,000
El Paso Electric Company:
8.9%, 2-1-2006 ...................... 2,000 2,084,900
9.4%, 5-1-2011 ...................... 2,000 2,143,960
Total ............................... 6,013,860
Electronic and Other Electric Equipment - 1.94%
Advanced Micro Devices, Inc.,
11.0%, 8-1-2003 ..................... 1,000 1,080,000
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 ..................... 2,000 2,200,000
Electronic Retailing Systems
International, Inc., Units,
0.0%, 2-1-2004 (A)(B)(F)............. 1,750 1,196,562
Harmon Industries, Inc.,
12.0%, 8-1-2002 ..................... 1,635 1,749,450
Rayovac Corporation,
10.25%, 11-1-2006 ................... 1,000 1,032,500
Total ............................... 7,258,512
Engineering and Management Services - 0.75%
DynCorp,
9.5%, 3-1-2007 (A)................... 1,000 980,000
United International Holdings, Inc.,
0.0%, 11-15-99 ...................... 2,500 1,825,000
Total ............................... 2,805,000
Fabricated Metal Products - 3.22%
American Safety Razor Company,
9.875%, 8-1-2005 .................... 2,000 2,060,000
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ..................... 5,000 4,975,000
Nortek, Inc.:
9.875%, 3-1-2004 .................... 3,000 2,955,000
9.25%, 3-15-2007(A) ................. 1,000 985,000
U.S. Can Corporation,
10.125%, 10-15-2006 ................. 1,000 1,040,000
Total ............................... 12,015,000
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food and Kindred Products - 0.65%
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-2006 .................... $ 1,500 $ 1,473,750
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (B) ................. 1,000 940,000
Total ............................... 2,413,750
Food Stores - 3.34%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 .................... 1,500 1,466,250
Bruno's, Inc.,
10.5%, 8-1-2005 ..................... 2,000 2,030,000
Dominick's Finer Foods, Inc.,
10.875%, 5-1-2005 ................... 1,000 1,075,000
Jitney-Jungle Stores of America, Inc.,
12.0%, 3-1-2006 ..................... 2,500 2,637,500
Ralphs Grocery Company,
11.0%, 6-15-2005 .................... 3,500 3,605,000
Smith's Food & Drug Centers, Inc.,
11.25%, 5-15-2007 ................... 1,500 1,642,500
Total ............................... 12,456,250
Furniture and Fixtures - 1.03%
Lear Seating Corporation,
8.25%, 2-1-2002 ..................... 4,000 3,860,000
General Building Contractors - 0.43%
NVR L.P.,
11.0%, 4-15-2003 .................... 1,500 1,593,750
Health Services - 4.14%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-2002 ..................... 2,000 2,080,000
Multicare Companies, Inc. (The),
12.5%, 7-1-2002 ..................... 415 454,425
Quorum Health Group, Inc.:
11.875%, 12-15-2002 ................. 4,000 4,360,000
8.75%, 11-1-2005 .................... 2,000 2,020,000
Regency Health Services, Inc.,
9.875%, 10-15-2002 .................. 1,000 1,010,000
Tenet Healthcare Corporation:
8.0%, 1-15-2005 ..................... 1,500 1,458,750
10.125%, 3-1-2005 ................... 2,000 2,140,000
8.625%, 1-15-2007 ................... 2,000 1,950,000
Total ............................... 15,473,175
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Holding and Other Investment Offices - 1.48%
Grupo Industrial Durango, S.A. de C.V.,
12.625%, 8-1-2003 ................... $ 2,000 $ 2,170,000
LTC Properties, Inc., Convertible:
8.5%, 1-1-2000 ...................... 2,000 2,250,000
8.5%, 1-1-2001 ...................... 1,000 1,105,000
Total ............................... 5,525,000
Hotels and Other Lodging Places - 4.15%
Boyd Gaming Corporation,
9.25%, 10-1-2003 .................... 1,250 1,150,000
Casino America, Inc.,
12.5%, 8-1-2003 ..................... 3,500 3,360,000
HMC Acquisition Properties, Inc.,
9.0%, 12-15-2007 .................... 1,500 1,492,500
Prime Hospitality Corp.:
9.25%, 1-15-2006 .................... 2,000 2,035,000
9.75%, 4-1-2007 (A).................. 1,000 1,002,500
Showboat, Inc.,
9.25%, 5-1-2008 ..................... 4,000 3,960,000
Station Casinos, Inc.,
10.125%, 3-15-2006 .................. 1,500 1,440,000
Wyndham Hotel Corporation,
10.5%, 5-15-2006 .................... 1,000 1,065,000
Total ............................... 15,505,000
Industrial Machinery and Equipment - 2.65%
American Standard Inc.:
0.0%, 6-1-2005 (B) .................. 4,750 4,512,500
9.25%, 12-1-2016 .................... 1,500 1,537,500
Bell & Howell Company,
10.75%, 10-1-2002 ................... 1,750 1,820,000
Clark Material Handling Company,
10.75%, 11-15-2006 .................. 1,000 1,045,000
Walbro Corporation,
9.875%, 7-15-2005 ................... 1,000 990,000
Total ............................... 9,905,000
Instruments and Related Products - 1.52%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................. 1,000 1,010,000
InterCel, Inc., Units,
0.0%, 2-1-2006 (B)(G)................ 18 1,080,625
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ..................... 3,500 3,570,000
Total ............................... 5,660,625
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Lumber and Wood Products - 0.72%
Triangle Pacific Corp.,
10.5%, 8-1-2003 ..................... $ 2,500 $ 2,668,750
Miscellaneous Manufacturing Industries - 0.85%
Herff Jones, Inc.,
11.0%, 8-15-2005 .................... 2,000 2,150,000
Pen-Tab Industries, Inc.,
10.875%, 2-1-2007 (A)................ 1,000 1,015,000
Total ............................... 3,165,000
Miscellaneous Retail - 1.53%
Eye Care Centers of America, Inc.,
12.0%, 10-1-2003 .................... 1,500 1,631,250
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................. 2,500 2,575,000
TravelCenters of America, Inc.,
10.25%, 4-1-2007 (A)................. 1,500 1,496,250
Total ............................... 5,702,500
Motion Pictures - 0.95%
Cobb Theatres, L.L.C.,
10.625%, 3-1-2003 ................... 1,500 1,560,000
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................. 2,000 2,000,000
Total ............................... 3,560,000
Nondepository Institutions - 0.95%
GPA Delaware Inc.,
8.75%, 12-15-98 ..................... 3,500 3,552,500
Oil and Gas Extraction - 2.33%
Falcon Drilling, Inc.,
9.75%, 1-15-2001 .................... 1,500 1,552,500
Flores & Rucks, Inc.,
9.75%, 10-1-2006 .................... 1,000 1,020,000
Kelley Oil & Gas Corporation,
10.375%, 10-15-2006 ................. 1,500 1,545,000
Lomak Petroleum, Inc.,
8.75%, 1-15-2007 .................... 1,000 970,000
Noble Drilling Corporation,
9.25%, 10-1-2003 .................... 2,500 2,625,000
Perez Companc S.A.,
9.0%, 1-30-2004 (A).................. 1,000 991,250
Total ............................... 8,703,750
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Paper and Allied Products - 4.14%
Asia Pulp & Paper Company Ltd,
11.75%, 10-1-2005 ................... $ 2,000 $ 2,130,000
Container Corporation of America,
10.75%, 5-1-2002 .................... 2,000 2,160,000
Fonda Group, Inc. (The),
9.5%, 3-1-2007 (A)................... 2,000 1,915,000
Fort Howard Corporation:
9.25%, 3-15-2001 .................... 2,000 2,070,000
11.0%, 1-2-2002 ..................... 3,940 4,097,588
Four M Corporation,
12.0%, 6-1-2006 ..................... 1,000 1,020,000
Mail-Well Corporation,
10.5%, 2-15-2004 .................... 1,000 1,045,000
Radnor Holdings Corporation,
10.0%, 12-1-2003 (A)................. 1,000 1,022,500
Total ............................... 15,460,088
Personal Services - 0.29%
Prime Succession Acquisition Corp.,
10.75%, 8-15-2004 ................... 1,000 1,077,500
Primary Metal Industries - 1.11%
Commonwealth Aluminum Corporation,
10.75%, 10-1-2006 ................... 2,000 2,060,000
Essex Group, Inc.,
10.0%, 5-1-2003 ..................... 2,000 2,080,000
Total ............................... 4,140,000
Printing and Publishing - 4.14%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................. 3,000 3,240,000
Big Flower Press, Inc.,
10.75%, 8-1-2003 .................... 1,667 1,744,099
Jordan Industries, Inc.,
10.375%, 8-1-2003 ................... 4,000 3,940,000
K-III Communications Corporation,
8.5%, 2-1-2006 ...................... 1,000 970,000
Viacom International Inc.,
8.0%, 7-7-2006 ...................... 6,000 5,580,000
Total ............................... 15,474,099
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Rubber and Miscellaneous Plastics Products - 0.98%
LDM Technologies, Inc.,
10.75%, 1-15-2007 (A)................ $ 2,000 $ 1,990,000
RBX Corporation,
11.25%, 10-15-2005 .................. 2,000 1,660,000
Total ............................... 3,650,000
Stone, Clay and Glass Products - 1.82%
Owens-Illinois, Inc.:
10.0%, 8-1-2002 ..................... 2,000 2,085,000
9.75%, 8-15-2004 .................... 4,500 4,725,000
Total ............................... 6,810,000
Textile Mill Products - 1.88%
Avondale Mills, Inc.,
10.25%, 5-1-2006 .................... 1,000 1,042,500
Collins & Aikman Products Co.,
11.5%, 4-15-2006 .................... 4,500 4,972,500
Glenoit Corporation,
11.0%, 4-15-2007 (A)................. 1,000 996,250
Total ............................... 7,011,250
Transportation Equipment - 1.45%
Aetna Industries, Inc.,
11.875%, 10-1-2006 .................. 1,000 1,060,000
Greenwich Air Services, Inc.,
10.5%, 6-1-2006 ..................... 2,500 2,875,000
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ................... 1,500 1,485,000
Total ............................... 5,420,000
Trucking and Warehousing - 0.28%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................. 1,000 1,025,000
Wholesale Trade - Durable Goods - 3.68%
E&S Holdings Corporation,
10.375%, 10-1-2006 .................. 1,250 1,275,000
Exide Corporation:
0.0%, 12-15-2004 (B)................. 3,389 3,168,715
10.0%, 4-15-2005 .................... 3,000 3,000,000
General Medical Corporation:
10.875%, 8-15-2003 .................. 3,000 3,341,250
12.125%, 8-15-2005 .................. 2,682 2,936,482
Total ............................... 13,721,447
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Wholesale Trade - Nondurable Goods - 1.70%
Core-Mark International, Inc.,
11.375%, 9-15-2003 .................. $ 1,000 $ 1,027,500
Corporate Express, Inc.,
9.125%, 3-15-2004 ................... 2,000 1,967,500
LaRoche Industries Inc.,
13.0%, 8-15-2004 .................... 500 540,000
United Stationers Supply Co.,
12.75%, 5-1-2005 .................... 2,500 2,825,000
Total ............................... 6,360,000
TOTAL CORPORATE DEBT SECURITIES - 86.34% $322,384,681
(Cost: $315,295,288)
OTHER GOVERNMENT SECURITY - 0.28%
Argentina
The Republic of Argentina,
11.375%, 1-30-2017 .................. 1,000 $ 1,047,500
(Cost: $993,820)
TOTAL SHORT-TERM SECURITIES - 5.53% $ 20,649,143
(Cost: $20,649,143)
TOTAL INVESTMENT SECURITIES - 98.84% $369,049,940
(Cost: $365,530,903)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.16% 4,325,311
NET ASSETS - 100.00% $373,375,251
See Notes to Schedule of Investments on pages 18 and 19.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1997
Notes to Schedule of Investments
* No income dividends were paid during the preceding 12 months.
(A) As of March 31, 1997, the following restricted securities were owned:
Shares/
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
Consolidated Hydro, Inc.,
Preferred 6/15/93 3,000$1,412,143 $ 190,950
Consolidated Hydro, Inc.,
Warrants 6/15/93 5,400 127,817 5
IntelCom Group Inc.,
Warrants 8/3/95 7,425 28,881 31,556
Intermedia Communications of
Florida, Inc.,Preferred3/4/9725,000 2,500,000 2,393,750
Microcell Telecommunications
Inc., Conditional Warrants 6/13/96 20,000 0 12,500
Microcell Telecommunications
Inc., Warrants 6/13/96 20,000 244,988 250,000
Sinclair Capital,
Preferred 3/5/97 15,000 1,500,000 1,470,000
Allied Waste North America, Inc.,
10.25%, 12-1-2006 11/25/96 $ 1,250 1,250,000 1,275,000
12/11/96 500 520,625 510,000
DynCorp,
9.5%, 3-1-2007 3/11/97 1,000 994,840 980,000
Electronic Retailing Systems
International, Inc., Units,
0.0%, 2-1-2004 1/21/97 1,750 1,187,953 1,196,562
Fonda Group, Inc. (The),
9.5%, 3-1-2007 2/24/97 2,000 2,000,000 1,915,000
Glenoit Corporation,
11.0%, 4-15-2007 3/26/97 1,000 998,090 996,250
Globalstar, L.P., Units,
11.375%, 2-15-20042/13/97 1,000 1,000,000 970,000
Katz Media Group, Inc.,
10.5%, 1-15-2007 12/13/96 2,000 2,000,000 2,060,000
LDM Technologies, Inc.,
10.75%, 1-15-2007 1/16/97 2,000 2,000,000 1,990,000
Multicanal S.A.,
9.25%, 2-1-2002 1/27/97 1,000 998,020 997,500
Nortek, Inc.,
9.25%, 3-15-2007 3/12/97 1,000 994,220 985,000
Packard BioScience Company,
9.375%, 3-1-2007 2/21/97 1,000 1,000,000 965,000
Pen-Tab Industries, Inc.,
10.875%, 2-1-2007 1/30/97 1,000 1,000,000 1,015,000
Perez Companc S.A.,
9.0%, 1-30-2004 1/23/97 1,000 1,000,000 991,250
Prime Hospitality Corp.,
9.75%, 4-1-2007 3/21/97 1,000 1,000,000 1,002,500
RSL Communications, Ltd., Units,
12.25%, 11-15-20069/30/96 1,000 1,000,000 1,002,500
Radnor Holdings Corporation,
10.0%, 12-1-2003 12/2/96 1,000 1,000,000 1,022,500
Safelite Glass Corp.,
9.875%, 12-15-200612/13/96 1,000 1,000,000 1,000,000
1/6/97 500 514,375 500,000
TV Azteca, S.A. de C.V.:
10.125%, 2-15-20041/31/97 1,250 1,248,375 1,228,125
10.5%, 2-15-2007 1/31/97 1,250 1,250,000 1,228,125
TravelCenters of America, Inc.,
10.25%, 4-1-2007 3/24/97 1,500 1,500,000 1,496,250
WinStar Communications, Inc.,
0.0%, 10-15-2005 3/13/97 1,000 1,000,000 996,250
----------------------
$32,270,327$30,671,573
======================
The total market value of restricted securities represents approximately
8.21% of the total net assets at March 31, 1997.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 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 consist of $1,000 principal amount of 11.375% senior notes due
2004 and a warrant to purchase 2.0645 shares of common stock.
(D) Each Unit consists of $1,000 principal amount of 12.25% senior notes due
2006 and one warrant to purchase 1.815 shares of Class A 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.
(F) Each Unit consists of $1,000 principal amount of 13.25% senior discount
notes due 2004 and a warrant to purchase 17.23 shares of common stock.
(G) Each Unit consists of 10 $1,000 principal amount of 12.0% senior discount
notes due 2/1/2006 and 32 warrants. Each warrant entitles the holder 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
MARCH 31, 1997
Assets
Investment securities -- at value (Notes 1 and 3) $369,049,940
Cash ............................................. 69,061
Receivables:
Interest and dividends .......................... 7,423,280
Fund shares sold ................................ 319,666
Prepaid insurance premium ........................ 12,827
------------
Total assets .................................. 376,874,774
------------
Liabilities
Payable for Fund shares redeemed ................. 1,987,791
Payable for investment securities purchased ...... 998,090
Dividends payable ................................ 332,730
Accrued service fee (Note 2) ..................... 111,025
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 55,698
Accrued management fee (Note 2) .................. 5,661
Accrued accounting services fee (Note 2) ......... 5,000
Other ............................................ 3,528
------------
Total liabilities ............................. 3,499,523
------------
Total net assets ............................. $373,375,251
============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 90,163,155
Additional paid-in capital ...................... 326,466,069
Accumulated undistributed gain (loss):
Accumulated undistributed net realized
loss on investment transactions ............... (46,773,010)
Net unrealized appreciation in value of
investments ................................... 3,519,037
------------
Net assets applicable to outstanding
units of capital ............................. $373,375,251
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $4.14
Class Y .......................................... $4.14
Capital shares outstanding
Class A .......................................... 89,817,110
Class Y .......................................... 346,045
Capital shares authorized .......................... 400,000,000
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended MARCH 31, 1997
Investment Income
Income (Note 1B):
Interest and amortization ....................... $17,503,506
Dividends ....................................... 258,855
-----------
Total income .................................. 17,762,361
-----------
Expenses (Note 2):
Investment management fee ....................... 1,034,682
Transfer agency and dividend disbursing - Class A 305,670
Service fee - Class A ........................... 291,530
Accounting services fee ......................... 30,000
Audit fees ...................................... 12,266
Custodian fees .................................. 9,434
Legal fees ...................................... 5,809
Shareholder servicing - Class Y.................. 1,085
Other ........................................... 72,528
-----------
Total expenses ................................ 1,763,004
-----------
Net investment income ........................ 15,999,357
-----------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3 )
Realized net gain on investments ................. 3,052,128
Unrealized depreciation in value of investments
during the period ............................... (2,829,513)
-----------
Net gain on investments ......................... 222,615
-----------
Net increase in net assets resulting
from operations .............................. $16,221,972
===========
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
six months fiscal year
ended ended
March 31, September 30,
1997 1996
Increase in Net Assets ------------ ------------
Operations:
Net investment income ...............$ 15,999,357 $ 31,556,885
Realized net gain (loss) on
investments ...................... 3,052,128 (308,086)
Unrealized appreciation (depreciation) (2,829,513) 9,597,709
------------ ------------
Net increase in net assets
resulting from operations ........ 16,221,972 40,846,508
------------ ------------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ............................. (15,936,765) (31,472,032)
Class Y ............................. (62,592) (82,378)
------------ ------------
(15,999,357) (31,554,410)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A (3,798,911 and 6,019,156
shares, respectively) ............ 15,965,546 24,540,706
Class Y (7,622 and 399,081
shares, respectively) ............ 31,708 1,655,574
Proceeds from reinvestment of
dividends
Class A (3,399,917 and 6,888,364
shares, respectively) ............ 14,253,008 28,126,443
Class Y (14,539 and 19,867
shares, respectively) ............ 60,953 81,059
Payments for shares redeemed
Class A (6,327,975 and 15,121,588
shares, respectively) ............ (26,567,922) (61,675,274)
Class Y (74,784 and 20,280
shares, respectively) ............ (309,675) (83,233)
------------ ------------
Net increase (decrease) in net assets
resulting from capital
share transactions ............... 3,433,618 (7,354,725)
------------ ------------
Total increase ................... 3,656,233 1,937,373
Net Assets
Beginning of period .................. 369,719,018 367,781,645
------------ ------------
End of period ........................$373,375,251 $369,719,018
============ ============
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on pages - .
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
six For the fiscal year ended
months September 30,
ended ------------------------------------
3/31/97 1996 1995 1994 1993 1992
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ............ $4.14 $4.03 $3.96 $4.21 $4.06 $3.75
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.18 0.35 0.35 0.35 0.36 0.39
Net realized and
unrealized gain
(loss) on
investments ..... 0.00 0.11 0.07 (0.25) 0.15 0.31
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.18 0.46 0.42 0.10 0.51 0.70
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income ............ (0.18) (0.35) (0.35) (0.35) (0.36) (0.39)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $4.14 $4.14 $4.03 $3.96 $4.21 $4.06
===== ===== ===== ===== ===== =====
Total return* ...... 4.32% 11.90% 11.25% 2.31% 13.07% 19.31%
Net assets, end of
period (000
omitted) .........$371,942$368,069$367,782$362,643$380,819$345,376
Ratio of expenses to
average net assets 0.94%** 0.95% 0.89% 0.88% 0.80% 0.82%
Ratio of net investment
income to average
net assets ....... 8.54%** 8.60% 8.93% 8.41% 8.64% 9.79%
Portfolio turnover
rate ............. 31.66% 55.64% 26.82% 47.05% 69.24% 80.28%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
**Annualized.
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
six period
months from 2/27/96*
ended through
3/31/97 9/30/96
-------- --------
Net asset value,
beginning of period $4.14 $4.15
----- -----
Income from investment
operations:
Net investment
income .......... 0.18 0.21
Net realized and
unrealized gain (loss)
on investments... 0.00 (0.01)
----- -----
Total from investment
operations ........ 0.18 0.20
----- -----
Less dividends declared
from net investment
income ............ (0.18) (0.21)
----- -----
Net asset value,
end of period ..... $4.14 $4.14
===== =====
Total return ....... 4.40% 5.00%
Net assets, end of
period (000
omitted) ......... $1,433 $1,650
Ratio of expenses
to average net
assets ............ 0.77%** 0.77%**
Ratio of net
investment income
to average net
assets ............ 8.72%** 8.83%**
Portfolio
turnover rate ..... 31.66% 55.64%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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
Quotation 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 $15.0 billion of
combined net assets at March 31, 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
$522,869, out of which W&R paid sales commissions of $300,459 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a 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
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 $7,846, 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 $110,975,506 while proceeds from maturities and
sales aggregated $115,812,179. Purchases of short-term securities aggregated
$168,478,532 while proceeds from maturities and sales aggregated $160,700,277.
No U.S. Government securities were bought or sold during the period ended March
31, 1997.
For Federal income tax purposes, cost of investments owned at March 31,
1997 was $365,071,019, resulting in net unrealized appreciation of $3,978,921,
of which $12,050,420 related to appreciated securities and $8,071,499 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital losses of
$7,783,310 during its fiscal year ended September 30, 1996, which included
losses of $8,672,751 deferred from the year ended September 30, 1995 (see
discussion below). Capital loss carryforwards aggregated $50,009,569 at
September 30, 1996, and are available to offset future realized capital gain net
income for Federal income tax purposes through September 30, 1997; $49,637,018
of this amount is available through September 30, 1998; $48,332,059 is available
through September 30, 1999; $16,403,059 is available through September 30, 2000;
$8,173,389 is available through September 30, 2003; and $7,783,310 is available
through September 30, 2004.
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 capital losses of $8,672,751, which
have been deferred to the fiscal year ended September 30, 1996.
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 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.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United High Income Fund 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 March 31, 1997, the related statements of
operations and changes in net assets for the six-month period then ended,
and the financial highlights for the six-month period then ended. These
financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on
these financial statements and the financial highlights based on our
audit. The financial statements and the financial highlights of the Fund
for each of the periods presented in the five-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 March 31, 1997 by correspondence with
the custodian and broker. 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 the
United High Income Fund II, Inc. as of March 31, 1997, the results of
its operations, the changes in its net assets, and the financial
highlights for the six-month period then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 9, 1997
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
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
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
NUR1015SA(3-97)
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