United
High Income
Fund II, Inc.
SEMIANNUAL
REPORT
---------------------------------------
For the six months ended March 31, 1998
<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, 1998
Dear Shareholder:
As Waddell & Reed celebrates its 60th anniversary in the financial services
industry, I would like to thank you for your continued confidence in our
products and services. Since we opened our doors in 1937, our goal has been and
continues to be to provide the best service possible to our shareholders. This
commitment is reflected in every area of our organization: starting with your
financial advisor and continuing with our investment management and customer
service people of our affiliated companies.
Your confidence in the success of the products and services offered by Waddell &
Reed and its affiliates is reflected in the growth the Funds have experienced
over our 60 years. Total mutual fund assets under management reached the $1
billion mark in 1961, and over the $5 billion mark in 1985. As of March 31,
1998, mutual fund assets under management totaled more than $22.9 billion.
We look forward to helping you meet the financial goals that are important to
you, now and for many years to come. Should you have any questions about your
account or other financial issues that are important to you, contact your
financial advisor 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.
FOUNDED: 1986
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Six Months Ended March 31, 1998
- ---------------------------------------
DIVIDENDS PAID $0.18
=====
NET ASSET VALUE ON
3/31/98 $4.52
9/30/97 4.42
-----
CHANGE PER SHARE $0.10
=====
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 3-31-98 11.87% 18.70%
5-year period ended 3-31-98 9.54% 10.85%
10-year period ended 3-31-98 9.51% 10.16%
*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, 1998, United High Income Fund II, Inc. had net assets totaling
$432,499,272 invested in a diversified portfolio of:
88.12% Corporate Debt Securities
8.62% Common and Preferred Stocks and Warrants
3.26% Cash and Cash Equivalents
As a shareholder of United High Income Fund II, Inc., for every $100 you had
invested on March 31, 1998, your Fund owned:
$34.45 Manufacturing Bonds
23.69 Transportation, Communication, Electric
and Sanitary Services Bonds
14.60 Services Bonds
8.64 Wholesale and Retail Trade Bonds
8.62 Common and Preferred Stocks and Warrants
3.26 Cash and Cash Equivalents
2.65 Mining Bonds
4.09 Miscellaneous
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Agricultural Production - Livestock - 0.17%
Pilgrim's Pride Corporation* ......... 50,000 $ 728,100
Communication - 2.50%
Adelphia Communications Corporation,
13.0% Preferred ..................... 5,000 595,000
IXC Communications, Inc.,
12.5% Preferred (A) ................. 1,061 1,294,420
Intermedia Communications
of Florida, Inc., 13.5% Preferred.... 2,879 3,526,670
Iridium LLC, Warrants (A)* ........... 3,000 735,000
Jacor Communications, Inc.* .......... 25,000 1,479,675
MetroNet Communications Corp.,
Warrants (A)* ....................... 1,000 44,700
Microcell Telecommunications Inc.,
Warrants (A)* ....................... 20,000 372,600
Primus Telecommunications Group,
Incorporated, Warrants* ............. 2,000 70,000
Teleport Communications Group Inc.* .. 31,200 1,832,002
Young Broadcasting Inc., Class A* .... 17,000 850,000
Total ............................... 10,800,067
Depository Institutions - 0.37%
California Federal Bank, F.S.B.,
10.625% Preferred ................... 5,000 559,375
California Federal Preferred Capital
Corporation, 9.125% Preferred ....... 37,500 1,040,625
Total ............................... 1,600,000
Electric, Gas and Sanitary Services - 0.38%
Consolidated Hydro, Inc.,
Class B Warrants* ................... 7,578 15,156
Consolidated Hydro, Inc.,
Class C Warrants* ................... 4,919 7,379
El Paso Electric Company,
11.4% Preferred ..................... 12,475 1,386,284
IntelCom Group Inc., Warrants (A)* ... 7,425 232,031
Total ............................... 1,640,850
Electronic and Other Electric Equipment - 0.03%
Electronic Retailing Systems
International, Inc., Warrants* ...... 1,750 43,750
Powertel, Inc., Warrants* ............ 5,600 65,800
Total ............................... 109,550
Furniture and Fixtures - 0.44%
Lear Corporation* .................... 34,000 1,916,750
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
General Building Contractors - 2.38%
Walter Industries, Inc.* ............. 482,265 $10,308,414
Holding and Other Investment Offices - 0.25%
National Health Investors, Inc. ...... 27,150 1,082,606
Instruments and Related Products - 0.47%
Maxxim Medical, Inc.* ................ 70,000 2,008,090
Lumber and Wood Products - 1.11%
Triangle Pacific Corp.* .............. 127,442 4,795,005
Motion Pictures - 0.04%
Film Roman, Inc.* .................... 100,000 156,200
Paper and Allied Products - 0.21%
SF Holdings Group, Inc., Units (A)(B)* 100 918,750
Printing and Publishing - 0.24%
PRIMEDIA Inc., 10.0% Preferred ....... 10,000 1,055,000
Rubber and Miscellaneous Plastics Products - 0.03%
PureTec Corporation* .................. 40,000 139,360
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 8.62% $37,258,742
(Cost: $29,523,563)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.97%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 (A) ................ $ 2,000 1,990,000
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. 2,000 2,200,000
Total ............................... 4,190,000
Amusement and Recreation Services - 2.09%
American Skiing Company,
12.0%, 7-15-2006 .................... 2,500 2,812,500
Premier Parks Inc.:
12.0%, 8-15-2003 .................... 1,000 1,113,750
9.25%, 4-1-2006 ..................... 1,000 1,025,000
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Amusement and Recreation Services (Continued)
Showboat Marina Casino Partnership,
13.5%, 3-15-2003 .................... $ 1,500 $ 1,770,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 .................... 2,000 2,295,000
Total ............................... 9,016,250
Apparel and Accessory Stores - 0.24%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 ................... 1,000 1,030,000
Apparel and Other Textile Products - 1.10%
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 .................... 2,000 2,120,000
Pillowtex Corporation,
9.0%, 12-15-2007 (A) ................ 1,500 1,563,750
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................. 1,000 1,057,500
Total ............................... 4,741,250
Auto Repair, Services and Parking - 0.96%
APCOA, Inc.,
9.25%, 3-15-2008 (A) ................ 1,000 1,012,500
Diamond Triumph Auto Glass, Inc.,
9.25%, 4-1-2008 (A) ................. 1,000 1,016,250
Safelite Glass Corp.,
9.875%, 12-15-2006 (A)............... 2,000 2,135,000
Total ............................... 4,163,750
Automotive Dealers & Service Stations - 0.47%
Chief Auto Parts Inc.,
10.5%, 5-15-2005 .................... 2,000 2,030,000
Building Materials & Garden Supplies - 0.25%
Central Tractor Farm & Country, Inc.,
10.625%, 4-1-2007 ................... 1,000 1,068,750
Business Services - 3.81%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ................... 1,500 1,661,250
Chancellor Media Corporation,
10.5%, 1-15-2007 .................... 2,000 2,240,000
Coinmach Corporation,
11.75%, 11-15-2005 .................. 2,000 2,240,000
DecisionOne Corporation,
9.75%, 8-1-2007 ..................... 2,000 1,975,000
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Business Services (Continued)
Federal Data Corporation,
10.125%, 8-1-2005 ................... $ 1,000 $ 1,035,000
Lamar Advertising Company,
9.625%, 12-1-2006 ................... 2,000 2,180,000
Protect One,
6.75%, 9-15-2003 (Convertible)....... 2,000 2,530,000
UNICCO Service Company,
9.875%, 10-15-2007 .................. 1,450 1,482,625
Universal Outdoor, Inc.,
9.75%, 10-15-2006 ................... 1,000 1,137,500
Total ............................... 16,481,375
Chemicals and Allied Products - 3.32%
Carson, Inc.,
10.375%, 11-1-2007 .................. 1,500 1,545,000
Chattem, Inc.,
8.875%, 4-1-2008 (A) ................ 1,000 1,015,000
Dade International Inc.,
11.125%, 5-1-2006 ................... 1,000 1,117,500
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 2,000 2,080,000
UCC Investors Holding, Inc.:
10.5%, 5-1-2002 ..................... 5,500 6,105,000
0.0%, 5-1-2005 (C) .................. 2,500 2,475,000
Total ............................... 14,337,500
Coal Mining - 0.24%
AEI Holding Company, Inc.,
10.0%, 11-15-2007 (A) ............... 1,000 1,055,000
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication - 20.08%
Adelphia Communications Corporation:
10.25%, 7-15-2000 ................... $ 1,250 $ 1,296,875
12.5%, 5-15-2002 .................... 260 273,000
9.25%, 10-1-2002 .................... 2,450 2,548,000
10.5%, 7-15-2004 .................... 1,500 1,646,250
9.875%, 3-1-2007 .................... 2,500 2,718,750
Allbritton Communications Company,
9.75%, 11-30-2007 ................... 2,000 2,105,000
Allegiance Telecom, Inc., Units,
0.0%, 2-15-2008 (A)(C)(D) ........... 2,000 1,160,000
American Radio Systems Corporation,
9.0%, 2-1-2006 ...................... 1,000 1,070,000
CenCall Communications Corp.,
0.0%, 1-15-2004 (C).................. 2,500 2,425,000
Comcast Corporation,
9.5%, 1-15-2008 ..................... 1,750 1,857,362
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (C) ................ 4,000 3,320,000
Concentric Network Corporation, Units,
12.75%, 12-15-2007 (A)(E) ........... 1,000 1,150,000
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (C) ................ 2,000 1,590,000
Diamond Holdings plc,
9.125%, 2-1-2008 (A) ................ 1,500 1,548,750
GST Telecommunications,
0.0%, 11-15-2007 (C) ................ 2,500 3,031,250
Hyperion Telecommunications, Inc.,
0.0%, 4-15-2003 (C) ................. 4,000 3,070,000
ICG Holdings, Inc.,
0.0%, 9-15-2005 (C) ................. 2,250 1,918,125
ITC ^ DeltaCom, Inc.,
8.875%, 3-1-2008 (A) ................ 1,000 1,035,000
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (C) ................. 2,250 1,839,375
Iridium LLC:
11.25%, 7-15-2005 (A) ............... 1,000 1,060,000
13.0%, 7-15-2005 .................... 4,000 4,480,000
Jacor Communications, Inc.,
10.125%, 6-15-2006 .................. 1,000 1,095,000
LIN Holdings Corp.,
0.0%, 3-1-2008 (A)(C) ............... 1,500 945,000
LIN Television Corporation,
8.375%, 3-1-2008 (A) ................ 2,250 2,266,875
Marcus Cable Co.,
0.0%, 12-15-2005 (C) ................ 2,000 1,815,000
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Marcus Cable Operating Company, L. P.,
0.0%, 8-1-2004 (C) .................. $ 3,500 $ 3,325,000
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (C) .................. 5,900 4,380,750
Micron Custom Manufacturing Services, Inc.,
9.75%, 3-1-2008 (A) ................. 1,000 1,010,000
Nextel Communications, Inc.:
0.0%, 8-15-2004 (C) ................. 2,500 2,406,250
0.0%, 9-15-2007 (C) ................. 1,500 1,005,000
0.0%, 2-15-2008 (A)(C) .............. 2,500 1,596,875
NEXTLINK Communications, Inc.,
9.625%, 10-1-2007 ................... 2,000 2,120,000
Primus Telecommunications Group, Incorporated,
11.75%, 8-1-2004 (F) ................ 2,000 2,240,000
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 .................. 1,500 1,661,250
Rogers Communications Inc.,
9.125%, 1-15-2006 ................... 3,000 3,067,500
SFX Broadcasting, Inc.,
10.75%, 5-15-2006 ................... 1,500 1,657,500
Salem Communications Corporation,
9.5%, 10-1-2007 (A) ................. 1,000 1,045,000
Satelites Mexicanos, S.A. de C.V.,
10.125%, 11-1-2004 (A) .............. 1,000 1,030,000
Sinclair Broadcasting Group,
9.0%, 7-15-2007 ..................... 2,000 2,085,000
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (C) ................. 3,600 2,988,000
Sullivan Broadcasting Company, Inc.,
10.25%, 12-15-2005 .................. 500 541,250
Teleport Communications Group Inc.:
9.875%, 7-1-2006 .................... 1,000 1,142,500
0.0%, 7-1-2007 (C) .................. 1,250 1,078,125
Vanguard Cellular Systems, Inc.,
9.375%, 4-15-2006 ................... 1,000 1,055,000
WinStar Communications, Inc.:
0.0%, 10-15-2005 (A)(C)(Convertible) 1,500 2,130,000
10.0%, 3-15-2008 (A) ................ 2,000 2,030,000
Total ............................... 86,859,612
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Depository Institutions - 0.89%
First Nationwide Holdings Inc.:
9.125%, 1-15-2003 ................... $ 2,000 $ 2,125,000
12.5%, 4-15-2003 .................... 1,500 1,717,500
Total ............................... 3,842,500
Eating and Drinking Places - 0.78%
AmeriKing, Inc.,
10.75%, 12-1-2006 ................... 1,500 1,599,375
Foodmaker, Inc.,
9.25%, 3-1-99 ....................... 715 723,938
SC International Services, Inc.,
9.25%, 9-1-2007 ..................... 1,000 1,048,750
Total ............................... 3,372,063
Electric, Gas and Sanitary Services - 2.24%
Allied Waste North America, Inc.:
10.25%, 12-1-2006 ................... 2,725 3,024,750
0.0%, 6-1-2007(C) ................... 3,000 2,205,000
El Paso Electric Company:
8.9%, 2-1-2006 ...................... 2,000 2,217,580
9.4%, 5-1-2011 ...................... 2,000 2,253,780
Total ............................... 9,701,110
Electronic and Other Electric Equipment - 4.74%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 ..................... 2,000 2,235,000
Communications Instruments, Inc.,
10.0%, 9-15-2004 .................... 1,000 1,042,500
DII Group, Inc. (The),
8.5%, 9-15-2007 ..................... 1,000 1,012,500
Echostar Communications Corporation:
0.0%, 3-15-2004 (C) ................. 3,000 2,737,500
0.0%, 6-1-2004 (C) .................. 2,000 1,920,000
Electronic Retailing Systems
International, Inc.,
0.0%, 2-1-2004 (C) .................. 1,750 1,015,000
Elgar Holdings, Inc.,
9.875%, 2-1-2008 (A) ................ 1,250 1,275,000
Intercel, Inc.,
0.0%, 2-1-2006 (C) .................. 1,750 1,367,188
Omnipoint Corporation,
11.625%, 8-15-2006 .................. 3,500 3,850,000
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electronic and Other Electric Equipment (Continued)
Phase Metrics, Inc.,
10.75%, 2-1-2005 (A) ................ $ 1,000 $ 1,013,750
Telex Communications, Inc.,
10.5%, 5-1-2007 ..................... 1,000 945,000
Viasystems, Inc.,
9.75%, 6-1-2007 ..................... 2,000 2,090,000
Total ............................... 20,503,438
Engineering and Management Services - 0.36%
United International Holdings, Inc.,
0.0%, 2-15-2008 (A)(C) .............. 2,500 1,562,500
Fabricated Metal Products - 2.84%
American Safety Razor Company,
9.875%, 8-1-2005 .................... 2,000 2,170,000
Neenah Corporation,
11.125%, 5-1-2007 ................... 3,000 3,330,000
Nortek, Inc.,
9.875%, 3-1-2004 .................... 3,000 3,120,000
Safety Components International, Inc.,
10.125%, 7-15-2007 .................. 2,500 2,615,625
U.S. Can Corporation,
10.125%, 10-15-2006 ................. 1,000 1,065,000
Total ............................... 12,300,625
Food and Kindred Products - 1.31%
B & G Foods, Inc.,
9.625%, 8-1-2007 .................... 2,000 2,055,000
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-2006 .................... 1,500 1,563,750
Eagle Family Foods, Inc.,
8.75%, 1-15-2008 (A) ................ 1,000 1,000,000
Southern Foods Group, L.P.,
9.875%, 9-1-2007 (A) ................ 1,000 1,061,250
Total ............................... 5,680,000
Food Stores - 0.98%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 .................... 1,500 1,552,500
Pueblo Xtra International, Inc.,
9.5%, 8-1-2003 ...................... 2,750 2,681,250
Total ............................... 4,233,750
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
General Building Contractors - 0.37%
NVR L.P.,
11.0%, 4-15-2003 .................... $ 1,500 $ 1,616,250
Health Services - 2.58%
Genesis ElderCare Acquisition Corp.,
9.0%, 8-1-2007 (A) .................. 2,175 2,229,375
Paragon Health Network, Inc.,
9.5%, 11-1-2007 ..................... 2,000 2,045,000
Prime Medical Services, Inc.,
8.75%, 4-1-2008 (A) ................. 500 503,750
Quorum Health Group, Inc.,
8.75%, 11-1-2005 .................... 2,000 2,110,000
Tenet Healthcare Corporation:
10.125%, 3-1-2005 ................... 2,000 2,190,000
8.625%, 1-15-2007 ................... 2,000 2,075,000
Total ............................... 11,153,125
Holding and Other Investment Offices - 1.41%
Grupo Industrial Durango, S.A. de C.V.,
12.625%, 8-1-2003 ................... 2,000 2,272,500
LTC Properties, Inc.:
8.5%, 1-1-2000 (Convertible) ........ 2,000 2,567,500
8.5%, 1-1-2001 (Convertible) ........ 1,000 1,241,250
Total ............................... 6,081,250
Hotels and Other Lodging Places - 2.84%
Boyd Gaming Corporation,
9.25%, 10-1-2003 .................... 1,000 1,067,500
CapStar Hotel Company,
8.75%, 8-15-2007 .................... 1,000 1,040,000
HMC Acquisition Properties, Inc.,
9.0%, 12-15-2007 .................... 1,500 1,578,750
Prime Hospitality Corp.:
9.25%, 1-15-2006 .................... 2,000 2,130,000
9.75%, 4-1-2007 ..................... 1,000 1,080,000
Showboat, Inc.,
9.25%, 5-1-2008 ..................... 4,000 4,270,000
Station Casinos, Inc.,
10.125%, 3-15-2006 .................. 1,000 1,112,500
Total ............................... 12,278,750
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Industrial Machinery and Equipment - 4.64%
American Standard Inc.:
0.0%, 6-1-2005 (C) .................. $ 4,750 $ 4,892,500
9.25%, 12-1-2016 .................... 1,276 1,320,660
Anchor Lamina Inc. and
Anchor Lamina America, Inc.,
9.875%, 2-1-2008 (A) ................ 1,000 1,017,500
Columbus McKinnon Corporation,
8.5%, 4-1-2008 (A) .................. 1,000 1,007,500
Falcon Building Products, Inc.,
0.0%, 6-15-2007 (C) ................. 4,000 2,760,000
Morris Material Handling, Inc.,
9.5%, 4-1-2008 (A) .................. 2,000 2,020,000
National Equipment Services, Inc.,
10.0%, 11-30-2004 (A) ............... 1,000 1,060,000
Paragon Corporate Holdings, Inc.,
9.625%, 4-1-2008 (A) ................ 2,000 1,995,000
Terex Corporation,
8.875%, 4-1-2008 (A) ................ 3,000 3,015,000
Walbro Corporation,
9.875%, 7-15-2005 ................... 1,000 980,000
Total ............................... 20,068,160
Instruments and Related Products - 1.50%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................. 1,500 1,627,500
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ..................... 3,500 3,867,500
Universal Hospital Services, Inc.,
10.25%, 3-1-2008 (A) ................ 1,000 1,010,000
Total ............................... 6,505,000
Miscellaneous Manufacturing Industries - 0.75%
Hedstrom Corporation,
10.0%, 6-1-2007 ..................... 1,000 1,027,500
Herff Jones, Inc.,
11.0%, 8-15-2005 .................... 2,000 2,215,000
Total ............................... 3,242,500
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Miscellaneous Retail - 1.49%
Big 5 Corp.,
10.875%, 11-15-2007 ................. $ 1,400 $ 1,438,500
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................. 3,500 3,920,000
TravelCenters of America, Inc.,
10.25%, 4-1-2007 .................... 1,000 1,066,250
Total ............................... 6,424,750
Motion Pictures - 1.71%
AMC Entertainment, Inc.,
9.5%, 3-15-2009 ..................... 2,000 2,110,000
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 (A) ............... 2,865 3,122,850
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................. 2,000 2,165,000
Total ............................... 7,397,850
Nondepository Institutions - 0.11%
Delta Financial Corporation,
9.5%, 8-1-2004 ...................... 500 493,750
Oil and Gas Extraction - 2.41%
Coho Energy, Inc.,
8.875%, 10-15-2007................... 2,950 2,773,000
Cross Timbers Oil,
8.75%, 11-1-2009 .................... 1,000 1,025,000
Falcon Drilling, Inc.,
9.75%, 1-15-2001 .................... 2,800 2,912,000
Flores & Rucks, Inc.,
9.75%, 10-1-2006 .................... 1,000 1,100,000
Kelley Oil & Gas Corporation,
10.375%, 10-15-2006 ................. 1,500 1,563,750
Pride Petroleum Services, Inc.,
9.375%, 5-1-2007 .................... 1,000 1,065,000
Total ............................... 10,438,750
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Paper and Allied Products - 4.50%
Container Corporation of America,
10.75%, 5-1-2002 .................... $ 2,000 $ 2,185,000
Fonda Group, Inc. (The),
9.5%, 3-1-2007 ...................... 2,000 1,960,000
Fort Howard Corporation,
11.0%, 1-2-2002 ..................... 3,792 3,924,489
Four M Corporation,
12.0%, 6-1-2006 ..................... 1,000 1,063,750
Huntsman Packaging Corporation,
9.125%, 10-1-2007 (A) ............... 5,175 5,284,969
Mail-Well Corporation,
10.5%, 2-15-2004 .................... 1,000 1,075,000
Outsourcing Services Group, Inc.,
10.875%, 3-1-2006 (A) ............... 1,500 1,526,250
Radnor Holdings Corporation,
10.0%, 12-1-2003 .................... 1,000 1,055,000
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (A)(C) .............. 2,500 1,400,000
Total ............................... 19,474,458
Personal Services - 0.25%
Prime Succession Acquisition Corp.,
10.75%, 8-15-2004 ................... 1,000 1,100,000
Primary Metal Industries - 1.83%
Commonwealth Aluminum Corporation,
10.75%, 10-1-2006 ................... 2,000 2,120,000
Weirton Steel Corporation:
11.375%, 7-1-2004 ................... 2,500 2,700,000
10.75%, 6-1-2005 .................... 1,000 1,063,750
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 (A)................ 2,000 2,030,000
Total ............................... 7,913,750
Printing and Publishing - 1.97%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................. 3,000 3,255,000
K-III Communications Corporation,
8.5%, 2-1-2006 ...................... 1,000 1,025,000
Perry-Judd's Incorporated,
10.625%, 12-15-2007 (A) ............. 2,000 2,105,000
TransWestern Publishing Company LLC,
9.625%, 11-15-2007 (A) .............. 2,000 2,115,000
Total ............................... 8,500,000
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Railroad Transportation - 0.39%
TFM, S.A. de C.V.:
10.25%, 6-15-2007 ................... $ 1,000 $ 1,042,500
0.0%, 6-15-2009 (C) ................. 1,000 645,000
Total ............................... 1,687,500
Real Estate - 0.34%
Delco Remy International, Inc.,
8.625%, 12-15-2007 .................. 1,400 1,456,000
Rubber and Miscellaneous Plastics Products - 1.69%
Burke Industries, Inc.,
10.0%, 8-15-2007 .................... 1,000 1,066,250
Furon Company,
8.125%, 3-1-2008 (A) ................ 1,000 1,008,750
Graham Packaging Company and
GPC Capital Corp. I,
8.75%, 1-15-2008 (A) ................ 3,000 3,045,000
LDM Technologies, Inc.,
10.75%, 1-15-2007 ................... 2,000 2,170,000
Total ............................... 7,290,000
Stone, Clay and Glass Products - 0.64%
SIMCALA, Inc.,
9.625%, 4-15-2006 (A) ............... 2,750 2,784,375
Textile Mill Products - 2.92%
Avondale Mills, Inc.,
10.25%, 5-1-2006 .................... 1,000 1,095,000
Collins & Aikman Products Co.,
11.5%, 4-15-2006 .................... 4,500 5,062,500
Delta Mills, Inc.,
9.625%, 9-1-2007 (A) ................ 2,500 2,606,250
Galey & Lord, Inc.,
9.125%, 3-1-2008 (A) ................ 2,750 2,791,250
Glenoit Corporation,
11.0%, 4-15-2007 (A)................. 1,000 1,092,500
Total ............................... 12,647,500
Transportation Equipment - 0.70%
Aetna Industries, Inc.,
11.875%, 10-1-2006 .................. 1,500 1,440,000
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ................... 1,500 1,582,500
Total ............................... 3,022,500
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Transportation Services - 0.24%
Holt Group, Inc. (The),
9.75%, 1-15-2006 (A) ................ $ 1,000 $ 1,015,000
Trucking and Warehousing - 0.74%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................. 1,000 1,105,000
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... 2,000 2,107,500
Total ............................... 3,212,500
Wholesale Trade - Durable Goods - 1.28%
Alvey Systems, Inc.,
11.375%, 1-31-2003 .................. 1,000 1,075,000
Aviation Sales Company,
8.125%, 2-15-2008 (A) ............... 750 738,750
Exide Corporation,
10.0%, 4-15-2005 .................... 1,010 1,057,975
Sealy Mattress Company:
0.0%, 12-15-2007 (A)(C) ............. 2,000 1,320,000
9.875%, 12-15-2007 (A) .............. 1,250 1,325,000
Total ............................... 5,516,725
Wholesale Trade - Nondurable Goods - 3.15%
Color Spot Nurseries Inc.,
10.5%, 12-15-2007 ................... 1,250 1,251,562
Core-Mark International, Inc.,
11.375%, 9-15-2003 .................. 1,500 1,616,250
Corporate Express, Inc.,
9.125%, 3-15-2004 ................... 2,000 2,060,000
Fleming Companies, Inc.,
10.5%, 12-1-2004 .................... 1,000 1,072,500
Gaylord Container Corporation,
9.375%, 6-15-2007 (A) ............... 2,000 2,005,000
LaRoche Industries Inc.,
9.5%, 9-15-2007 (A) ................. 1,000 990,000
NBC Acquisition Corp.,
0.0%, 2-15-2009 (A)(C) .............. 3,000 1,837,500
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 (A) ................ 1,750 1,750,000
Richmont Marketing Specialists Inc.,
10.125%, 12-15-2007 (A) ............. 1,000 1,042,500
Total ............................... 13,625,312
See Notes to Schedule of Investments on pages 20-23.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1998
TOTAL CORPORATE DEBT SECURITIES - 88.12% $381,115,228
(Cost: $359,424,495)
TOTAL SHORT-TERM SECURITIES - 2.83% $12,250,385
(Cost: $12,250,385)
TOTAL INVESTMENT SECURITIES - 99.57% $430,624,355
(Cost: $401,198,443)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.43% 1,874,917
NET ASSETS - 100.00% $432,499,272
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) As of March 31, 1998, the following restricted securities were owned:
Principal
Shares/ Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
IXC Communications, Inc.,
12.5% Preferred 8/15/97 to
1/28/98 1,061$1,069,821 $1,294,420
IntelCom Group Inc.,
Warrants 8/3/95 7,425 28,881 232,031
Iridium LLC, Warrants 7/11/97 1,500 84,894 367,500
7/15/97 1,500 85,242 367,500
MetroNet Communications Corp.,
Warrants 7/18/97 1,000 10,000 44,700
Microcell Telecommunications
Inc., Warrants 6/13/96 20,000 244,988 372,600
SF Holdings Group, Inc.,
Units 3/11/98 100 900,000 918,750
AEI Holding Company, Inc.,
10.0%, 11-15-2007 11/6/97 $1,000 1,000,000 1,055,000
APCOA, Inc.,
9.25%, 3-15-2008 3/25/98 1,000 1,000,000 1,012,500
Allegiance Telecom, Inc., Units,
0.0%, 2-15-2008 1/29/98 2,000 1,125,740 1,160,000
Anchor Lamina Inc. and Anchor Lamina America, Inc.,
9.875%, 2-1-2008 1/30/98 1,000 1,000,000 1,017,500
Aviation Sales Company,
8.125%, 2-15-2008 2/11/98 750 745,462 738,750
Chattem, Inc.,
8.875%, 4-1-2008 3/20/98 1,000 1,000,000 1,015,000
Columbus McKinnon Corporation,
8.5%, 4-1-2008 3/26/98 1,000 997,340 1,007,500
Concentric Network Corporation, Units,
12.75%, 12-15-200712/15/97 1,000 1,000,000 1,150,000
Delta Mills, Inc.,
9.625%, 9-1-20078/20/97 to
8/21/97 2,500 2,511,875 2,606,250
Diamond Holdings plc,
9.125%, 2-1-2008 1/30/98 1,500 1,500,000 1,548,750
Diamond Triumph Auto Glass, Inc.,
9.25%, 4-1-2008 3/25/98 1,000 1,000,000 1,016,250
Eagle Family Foods, Inc.,
8.75%, 1-15-2008 2/10/98 1,000 1,008,750 1,000,000
Elgar Holdings, Inc.,
9.875%, 2-1-2008 1/30/98 1,250 1,250,000 1,275,000
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 2/23/98 2,000 2,000,000 1,990,000
Furon Company,
8.125%, 3-1-2008 2/26/98 1,000 1,000,000 1,008,750
Galey & Lord, Inc.,
9.125%, 3-1-20082/19/98 to
2/27/98 2,750 2,746,875 2,791,250
Gaylord Container Corporation,
9.375%, 6-15-2007 2/13/98 1,500 1,500,000 1,503,750
2/18/98 500 495,625 501,250
Genesis ElderCare Acquisition Corp.,
9.0%, 8-1-2007 8/4/97 1,000 994,450 1,025,000
9/10/97 1,175 1,160,313 1,204,375
Glenoit Corporation,
11.0%, 4-15-2007 3/26/97 1,000 998,090 1,092,500
Graham Packaging Company and GPC Capital Corp. I,
8.75%, 1-15-2008 1/23/98 1,000 1,000,000 1,015,000
1/26/98 2,000 2,032,500 2,030,000
Hollywood Theaters, Inc.,
10.625%, 8-1-20077/31/97 to
1/16/98 2,865 3,014,200 3,122,850
Holt Group, Inc. (The),
9.75%, 1-15-2006 1/14/98 1,000 1,000,000 1,015,000
Huntsman Packaging Corporation,
9.125%, 10-1-2007 9/19/97 5,175 5,222,500 5,284,969
ITC ^ DeltaCom, Inc.,
8.875%, 3-1-2008 2/26/98 1,000 999,000 1,035,000
Iridium LLC,
11.25%, 7-15-2005 10/9/97 1,000 1,000,000 1,060,000
LIN Holdings Corp.,
0.0%, 3-1-2008 2/18/98 1,500 921,375 945,000
LIN Television Corporation,
8.375%, 3-1-2008 2/18/98 2,250 2,244,735 2,266,875
LaRoche Industries Inc.,
9.5%, 9-15-2007 9/18/97 1,000 995,520 990,000
Micron Custom Manufacturing Services, Inc.,
9.75%, 3-1-2008 2/19/98 1,000 1,000,000 1,010,000
Morris Material Handling, Inc.,
9.5%, 4-1-2008 3/23/98 2,000 2,000,000 2,020,000
NBC Acquisition Corp.,
0.0%, 2-15-2009 2/10/98 3,000 1,776,210 1,837,500
National Equipment Services, Inc.,
10.0%, 11-30-2004 1/14/98 1,000 1,023,750 1,060,000
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 2/19/98 1,750 1,750,000 1,750,000
Nextel Communications, Inc.,
0.0%, 2-15-2008 2/10/98 2,500 1,543,750 1,596,875
Outsourcing Services Group, Inc.,
10.875%, 3-1-2006 2/26/98 1,500 1,500,000 1,526,250
Paragon Corporate Holdings, Inc.,
9.625%, 4-1-2008 3/27/98 2,000 2,000,000 1,995,000
Perry-Judd's Incorporated,
10.625%, 12-15-200712/10/97 1,000 1,000,000 1,052,500
2/9/98 1,000 1,057,500 1,052,500
Phase Metrics, Inc.,
10.75%, 2-1-2005 1/23/98 1,000 1,000,000 1,013,750
Pillowtex Corporation,
9.0%, 12-15-2007 12/16/97 1,500 1,524,375 1,563,750
Prime Medical Services, Inc.,
8.75%, 4-1-2008 3/24/98 500 497,500 503,750
Richmont Marketing Specialists Inc.,
10.125%, 12-15-200712/16/97 1,000 1,000,000 1,042,500
SF Holdings Group, Inc.,
0.0%, 3-15-2008 3/5/98 1,500 807,690 840,000
3/6/98 1,000 552,500 560,000
SIMCALA, Inc.,
9.625%, 4-15-2006 3/24/98 2,750 2,750,000 2,784,375
Safelite Glass Corp.,
9.875%, 12-15-200612/13/96 to
3/25/98 2,000 2,045,625 2,135,000
Satelites Mexicanos, S.A. de C.V.,
10.125%, 11-1-2004 3/5/98 1,000 1,021,250 1,030,000
Sealy Mattress Company:
0.0%, 12-15-2007 2/13/98 1,000 660,000 660,000
2/17/98 1,000 655,000 660,000
9.875%, 12-15-200712/11/97 1,250 1,250,000 1,325,000
Southern Foods Group, L.P.,
9.875%, 9-1-2007 8/27/97 1,000 1,000,000 1,061,250
Terex Corporation,
8.875%, 4-1-2008 3/24/98 2,000 2,004,510 2,010,000
3/27/98 1,000 1,006,250 1,005,000
TransWestern Publishing Company LLC,
9.625%, 11-15-200711/6/97 2,000 2,000,000 2,115,000
United International Holdings, Inc.,
0.0%, 2-15-2008 1/30/98 2,500 1,476,725 1,562,500
Universal Hospital Services, Inc.,
10.25%, 3-1-2008 2/23/98 1,000 1,000,000 1,010,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 3/31/98 2,000 2,037,500 2,030,000
WinStar Communications, Inc.:
0.0%, 10-15-2005 (Convertible)
10/14/97 1,500 1,402,500 2,130,000
10.0%, 3-15-2008 3/17/98 2,000 2,000,000 2,030,000
----------------------
$89,230,811$93,054,070
======================
The total market value of restricted securities represents 21.52% of the
total net assets at March 31, 1998.
(B) Each Unit of SF Holdings Group consists of one share of 13.75 exchangeable
preferred stock due 2009 and 37 shares of class C common stock, par value
$0.001 per share.
(C) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(D) Each Unit of Allegiance Telecom consists of one 11.75% senior discount note
due 2008 and one warrant to purchase 0.0034224719 shares of common stock,
par value $0.01 per share.
(E) Each Unit of Concentric Network consists of $1,000 principal amount of
12.75% senior notes due 2007 and one warrant to purchase 6.34 shares of
common stock, par value $0.001 per share.
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, 1998
Assets
Investment securities -- at value (Notes 1 and 3) $430,624,355
Cash ............................................. 1,009,532
Receivables:
Interest and dividends .......................... 7,377,954
Investment securities sold ...................... 2,055,000
Fund shares sold ................................ 841,805
Prepaid insurance premium ........................ 14,278
------------
Total assets .................................. 441,922,924
------------
Liabilities
Payable for investment securities purchased ...... 7,052,500
Payable to Fund shareholders ..................... 1,763,383
Dividends payable ................................ 381,616
Accrued service fee (Note 2) ..................... 94,156
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 47,490
Accrued management fee (Note 2) .................. 6,429
Accrued accounting services fee (Note 2) ......... 5,000
Other ............................................ 73,078
------------
Total liabilities ............................. 9,423,652
------------
Total net assets ............................. $432,499,272
============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 95,628,700
Additional paid-in capital ...................... 345,113,198
Accumulated undistributed gain (loss):
Accumulated undistributed net realized
loss on investment transactions ............... (37,668,538)
Net unrealized appreciation in value of
investments ................................... 29,425,912
------------
Net assets applicable to outstanding
units of capital ............................. $432,499,272
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $4.52
Class Y .......................................... $4.52
Capital shares outstanding
Class A .......................................... 95,217,068
Class Y .......................................... 411,632
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, 1998
Investment Income
Income (Note 1B):
Interest and amortization ....................... $18,680,080
Dividends ....................................... 562,431
-----------
Total income .................................. 19,242,511
-----------
Expenses (Note 2):
Investment management fee ....................... 1,136,407
Service fee - Class A ........................... 372,578
Transfer agency and dividend disbursing - Class A 299,259
Accounting services fee ......................... 30,000
Audit fees ...................................... 10,760
Custodian fees .................................. 6,950
Legal fees ...................................... 4,195
Shareholder servicing - Class Y.................. 943
Other ........................................... 94,402
-----------
Total expenses ................................ 1,955,494
-----------
Net investment income ........................ 17,287,017
-----------
Realized and Unrealized Gain on
Investments (Notes 1 and 3)
Realized net gain on investments ................. 3,631,501
Unrealized appreciation in value of investments
during the period ............................... 5,620,950
-----------
Net gain on investments ......................... 9,252,451
-----------
Net increase in net assets resulting
from operations .............................. $26,539,468
===========
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
six months fiscal year
ended ended
March 31, September 30,
1998 1997
Increase in Net Assets ------------ ------------
Operations:
Net investment income ...............$ 17,287,017 $32,625,787
Realized net gain on
investments ...................... 3,631,501 8,525,099
Unrealized appreciation ............. 5,620,950 17,456,412
------------ ------------
Net increase in net assets
resulting from operations ........ 26,539,468 58,607,298
------------ ------------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ............................. (17,217,516) (32,497,154)
Class Y ............................. (69,501) (128,633)
------------ ------------
(17,287,017) (32,625,787)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A (6,035,208 and 8,682,161
shares, respectively) ............ 26,910,536 36,917,247
Class Y (44,982 and 14,256
shares, respectively) ............ 201,940 59,902
Proceeds from reinvestment of
dividends
Class A (3,488,796 and 6,869,010
shares, respectively) ............ 15,551,392 29,166,989
Class Y (15,479 and 29,866
shares, respectively) ............ 69,000 126,857
Payments for shares redeemed
Class A (6,277,115 and 12,527,249
shares, respectively) ............ (27,996,399) (53,076,799)
Class Y (10,496 and 81,123
shares, respectively) ............ (47,077) (337,296)
------------ ------------
Net increase in net assets
resulting from capital
share transactions ............. 14,689,392 12,856,900
------------ ------------
Total increase ................. 23,941,843 38,838,411
Net Assets
Beginning of period .................. 408,557,429 369,719,018
------------ ------------
End of period ........................$432,499,272 $408,557,429
============ ============
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on pages 27-28.
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 ------------------------------------
3/31/98 1997 1996 1995 1994 1993
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ............ $4.42 $4.14 $4.03 $3.96 $4.21 $4.06
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.18 0.36 0.35 0.35 0.35 0.36
Net realized and
unrealized gain
(loss) on
investments ..... 0.10 0.28 0.11 0.07 (0.25) 0.15
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.28 0.64 0.46 0.42 0.10 0.51
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income ............ (0.18)(0.36) (0.35) (0.35) (0.35) (0.36)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $4.52 $4.42 $4.14 $4.03 $3.96 $4.21
===== ===== ===== ===== ===== =====
Total return* ...... 6.56% 16.20% 11.90% 11.25% 2.31% 13.07%
Net assets, end of
period (000
omitted) .........$430,637$406,957$368,069$367,782$362,643$380,819
Ratio of expenses to
average net assets 0.94%** 0.93% 0.95% 0.89% 0.88% 0.80%
Ratio of net investment
income to average
net assets ....... 8.30%** 8.54% 8.60% 8.93% 8.41% 8.64%
Portfolio turnover
rate ............. 31.35% 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.
**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 For the
six fiscal period
months year from 2/27/96*
ended ended through
3/31/98 9/30/97 9/30/96
-------- -------- --------
Net asset value,
beginning of period $4.42 $4.14 $4.15
----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.19 0.37 0.21
Net realized and
unrealized gain (loss)
on investments... 0.10 0.28 (0.01)
----- ----- -----
Total from investment
operations ........ 0.29 0.65 0.20
----- ----- -----
Less dividends declared
from net investment
income ............ (0.19) (0.37) (0.21)
----- ----- -----
Net asset value,
end of period ..... $4.52 $4.42 $4.14
===== ===== =====
Total return ....... 6.62% 16.38% 5.00%
Net assets, end of
period (000
omitted) ......... $1,862 $1,600 $1,650
Ratio of expenses
to average net
assets ............ 0.83%** 0.77% 0.77%**
Ratio of net
investment income
to average net
assets ............ 8.40%** 8.69% 8.83%**
Portfolio
turnover rate ..... 31.35% 64.38% 55.64%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 the Nasdaq Stock Market, which provides information on bid and
asked prices quoted by major dealers in such stocks. Restricted securities
and securities for which market quotations are not readily available are
valued at fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Board of
Directors. Short-term debt securities are valued at amortized cost, which
approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums 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 $19.8 billion of
combined net assets at March 31, 1998) 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
$861,499, out of which W&R paid sales commissions of $494,349 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 Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts.
The Fund paid Directors' fees of $7,542, which are included in other
expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and Waddell & Reed Financial, Inc., a holding company, and a direct subsidiary
of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $135,700,231 while proceeds from
maturities and sales aggregated $125,093,972 . Purchases of short-term
securities aggregated $128,559,796 while proceeds from maturities and
sales aggregated $132,015,595 . No U.S. Government securities were
bought or sold during the period ended March 31, 1998.
For Federal income tax purposes, cost of investments owned at March 31,
1998 was $400,738,559, resulting in net unrealized appreciation of $29,885,796,
of which $31,529,085 related to appreciated securities and $1,643,289 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $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 expire as
follows: $25,081,412 at September 30, 1999; $8,229,670 at September 30, 2000;
$390,078 at September 30, 2003 and $7,783,310 is available at September 30,
2004.
NOTE 5 -- Multiclass Operations
On January 12, 1996, the Fund was authorized to offer investors 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 March 31, 1998, and the related statements of operations for the six-month
period then ended and changes in net assets for the six-month period then ended
and the year ended September 30, 1997, and the financial highlights for the six-
month period then ended and for each of the years in the five-year period ended
September 30, 1997. The financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on the financial statements and the financial highlights based on our
audits.
We conducted our audits 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, 1998 by correspondence with the custodian and brokers or other alternative
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United High Income
Fund II, Inc. as of March 31, 1998, the results of its operations, the changes
in its net assets and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 8, 1998
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
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
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
The 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(3-98)
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