United
High Income
Fund II, Inc.
SEMIANNUAL
REPORT
---------------------------------------
For the six months ended March 31, 1999
<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, 1999
Dear Shareholder:
As president of your Fund, I would like to thank you for your continued
confidence as an investor. From every area of Waddell & Reed, including your
personal financial advisor, our goal has been to provide the best service
possible to our shareholders.
While it is impossible to predict the future direction of the markets, there are
some basic principles that we stand by that can help investors achieve their
objectives:
. Develop a financial plan that helps you pinpoint your financial objectives,
and identify specific strategies for turning your dreams into reality. There
is no better way to plan for your future.
. Invest on a regular basis. It can be one of the best ways to invest long
term and provide a hedge against market volatility.
. Adopt a long-term view to take advantage of compounding. The key to
successful investing is time, not timing. The power of compounding is
awesome and, on a long-term basis, can overwhelm any nuances of timing.
. Review your financial plan regularly. Financial planning is an ongoing
process that requires periodic review.
Waddell & Reed is positioned to assist you as you work toward your financial
goals. We will continue to offer quality investment products and personal
service to make the financial planning and investment process convenient and
accessible to you. Our locally based financial advisors are ready to assist you
with your total financial plan to help you plan for your retirement, to help you
meet your education funding goals or to achieve other financial objectives.
We look forward to assisting you in the future. If you have any questions about
your account, wish to review your financial plan or have other financial issues
that are important to you, contact your financial advisor or your local Waddell
& Reed office.
Respectfully,
Robert L. Hechler
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 as its primary
Securities objective, with a
Maximum 20% Common Stock secondary objective of capital growth
when consistent with its
primary objective.
STRATEGY: Invests primarily in a diversified
portfolio of high-yield, high-risk,
fixed-income securities of U.S. and
foreign issuers.
FOUNDED: 1986
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Six Months Ended March 31, 1999
- ---------------------------------------
DIVIDENDS PAID $0.18
=====
NET ASSET VALUE ON
3/31/99 $4.13
9/30/98 4.12
-----
CHANGE PER SHARE $0.01
=====
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 3-31-99 -6.25% -0.53%
5-year period ended 3-31-99 7.58% 8.86%
10-year period ended 3-31-99 8.40% 9.04%
*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, 1999, United High Income Fund II, Inc. had net assets totaling
$407,301,056 invested in a diversified portfolio of:
85.30% Corporate Debt Securities
7.73% Cash and Cash Equivalents
5.80% Common and Preferred Stocks and Warrants
1.17% Other Government Security
As a shareholder of United High Income Fund II, Inc., for every $100 you had
invested on March 31, 1999, your Fund owned:
$33.45 Transportation, Communication, Electric
and Sanitary Services Bonds
30.69 Manufacturing Bonds
12.89 Services Bonds
7.73 Cash and Cash Equivalents
6.89 Wholesale and Retail Trade Bonds
5.80 Common and Preferred Stocks and Warrants
1.38 Miscellaneous Bonds
1.17 Other Government Security
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Cable and Other Pay Television Services - 0.14%
Adelphia Communications Corporation,
13.0% Preferred ..................... 5,000 $ 575,000
Communication _ 3.00%
Allegiance Telecom, Inc., Warrants (A)* 2,500 105,000
IXC Communications, Inc.,
12.5% Preferred ..................... 1,199 1,318,900
Infinity Broadcasting Corporation,
Class A* ............................ 80,500 2,072,875
Intermedia Communications Inc.,
13.5% Preferred...................... 3,285 3,531,652
Iridium LLC, Warrants (A)* ........... 3,000 60,000
Jacor Communications, Inc., Class A* . 25,000 1,899,219
MetroNet Communications Corp.,
Warrants (A)* ....................... 1,000 65,000
Microcell Telecommunications Inc.,
Warrants (A)* ....................... 20,000 348,880
OnePoint Communications Corp.,
Warrants (A)* ....................... 2,000 2,000
Pathnet, Inc., Warrants (A)* ......... 1,000 10,000
Primus Telecommunications Group,
Incorporated, Warrants* ............. 2,000 30,000
Sprint Corporation - PCS Group* ...... 60,000 2,658,750
VersaTel Telecom International N.V.,
Warrants (A)* ....................... 1,500 105,000
Total ............................... 12,207,276
Depository Institutions _ 0.24%
California Federal Preferred Capital
Corporation, 9.125% Preferred ....... 37,500 993,750
Electric, Gas and Sanitary Services _ 0.02%
Consolidated Hydro, Inc.,
Class B Warrants* ................... 7,578 478
Consolidated Hydro, Inc.,
Class C Warrants* ................... 4,919 615
IntelCom Group Inc., Warrants (A)* ... 7,425 76,106
Total ............................... 77,199
Electronic and Other Electric Equipment - 0.01%
Powertel, Inc., Warrants* ............ 5,600 25,900
Food and Kindred Products - 0.52%
Keebler Foods Company* ............... 57,500 2,098,750
General Building Contractors _ 0.16%
Walter Industries, Inc.* ............. 59,740 672,075
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
General Merchandise Stores - 0.80%
Fred Meyer, Inc.* .................... 55,000 $ 3,238,125
Instruments and Related Products - 0.32%
Maxxim Medical, Inc.* ................ 70,000 1,321,250
Paper and Allied Products - 0.11%
SF Holdings Group, Inc., Class C (A)* . 8,700 17,400
SF Holdings Group, Inc., 13.75%
Preferred (A) ....................... 114 414,022
Total ............................... 431,422
Printing and Publishing _ 0.25%
PRIMEDIA Inc., 10.0% Preferred ....... 10,000 1,030,000
Wholesale Trade -- Nondurable Goods - 0.23%
U.S. Foodservice* .................... 20,000 930,000
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS _ 5.80% $ 23,600,747
(Cost: $20,444,785)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.83%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 .................... $ 2,000 1,985,000
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. 1,301 1,414,838
Total ............................... 3,399,838
Amusement and Recreation Services _ 2.52%
American Skiing Company,
12.0%, 7-15-2006 .................... 2,500 2,262,500
Hollywood Park, Inc.,
9.25%, 2-15-2007 (A) ................ 1,750 1,798,125
Mohegan Tribal Gaming Authority,
8.75%, 1-1-2009 (A) ................. 1,000 1,043,750
Premier Parks Inc.:
12.0%, 8-15-2003 .................... 1,000 1,078,750
9.25%, 4-1-2006 ..................... 2,000 2,070,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 .................... 2,000 2,002,500
Total ............................... 10,255,625
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Apparel and Accessory Stores - 0.25%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 ................... $ 1,000 $ 1,035,000
Apparel and Other Textile Products _ 0.51%
Consoltex Group Inc.,
11.0%, 10-1-2003 .................... 2,000 2,062,500
Auto Repair, Services and Parking _ 0.57%
Safelite Glass Corp.,
9.875%, 12-15-2006 .................. 2,500 2,334,375
Building Materials and Garden Supplies - 0.69%
Central Tractor Farm & Country, Inc.,
10.625%, 4-1-2007 ................... 1,000 1,037,500
ISG Resources, Inc.,
10.0%, 4-15-2008 .................... 1,750 1,776,250
Total ............................... 2,813,750
Business Services _ 3.04%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ................... 1,500 1,638,750
Coinmach Corporation,
11.75%, 11-15-2005 .................. 3,000 3,307,500
Federal Data Corporation,
10.125%, 8-1-2005 ................... 1,000 988,750
Lamar Advertising Company:
9.625%, 12-1-2006 ................... 2,000 2,160,000
8.625%, 9-15-2007 ................... 1,250 1,315,625
Protect One,
6.75%, 9-15-2003 (Convertible)....... 2,000 1,950,000
Rental Service Corporation,
9.0%, 5-15-2008 ..................... 1,000 1,000,000
Total ............................... 12,360,625
Cable and Other Pay Television Services - 7.22%
Adelphia Communications Corporation:
10.25%, 7-15-2000 ................... 1,250 1,290,625
9.25%, 10-1-2002 .................... 2,450 2,554,125
10.5%, 7-15-2004 .................... 1,500 1,650,000
9.875%, 3-1-2007 .................... 2,500 2,750,000
Bresnan Communications Group LLC and
Bresnan Capital Corporation:
8.0%, 2-1-2009 (A) .................. 400 404,000
0.0%, 2-1-2009 (A)(B) ............... 400 272,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Cable and Other Pay Television Services (Continued)
CSC Holdings, Inc.,
8.125%, 8-15-2009 ................... $ 2,000 $ 2,149,160
Charter Communications Holdings, LLC and
Charter Communications Holdings
Capital Corporation:
8.625%, 4-1-2009 (A) ................ 6,000 6,172,500
0.0%, 4-1-2011 (A)(B) ............... 1,000 646,250
Comcast Corporation,
9.5%, 1-15-2008 ..................... 1,750 1,844,430
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (B) ................ 4,000 3,495,000
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (B) ................ 2,000 1,740,000
Diamond Holdings plc,
9.125%, 2-1-2008 .................... 1,500 1,552,500
Renaissance Media Group LLC,
0.0%, 4-15-2008 (B) ................. 1,750 1,222,813
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 .................. 1,500 1,681,875
Total ............................... 29,425,278
Chemicals and Allied Products _ 3.72%
Aqua-Chem, Inc.,
11.25%, 7-1-2008 .................... 1,500 1,320,000
Dade International Inc.,
11.125%, 5-1-2006 ................... 1,000 1,117,500
Marsulex Inc.,
9.625%, 7-1-2008 .................... 1,500 1,530,000
Moll Industries, Inc.,
10.5%, 7-1-2008 ..................... 2,000 1,740,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 2,000 1,400,000
UCC Investors Holding, Inc.,
10.5%, 5-1-2002 ..................... 5,500 6,001,875
United Industries Corporation,
9.875%, 4-1-2009 (A) ................ 2,000 2,055,000
Total ............................... 15,164,375
Communication _ 21.55%
Allbritton Communications Company,
9.75%, 11-30-2007 ................... 2,000 2,122,500
Allegiance Telecom, Inc.,
0.0%, 2-15-2008 (B) ................. 2,500 1,556,250
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
American Radio Systems Corporation,
9.0%, 2-1-2006 ...................... $ 1,000 $ 1,085,000
CenCall Communications Corp.,
10.125% 1-15-2004 ................... 2,500 2,575,000
Chancellor Media Corporation,
10.5%, 1-15-2007 .................... 2,000 2,210,000
Chancellor Media Corporation of Los Angeles,
8.0%, 11-1-2008 (A) ................. 2,000 2,082,500
Concentric Network Corporation,
12.75%, 12-15-2007 .................. 1,000 1,142,500
GST Telecommunications,
0.0%, 11-15-2007 (B) ................ 2,500 2,406,250
Hyperion Telecommunications, Inc.:
0.0%, 4-15-2003 (B) ................. 4,000 3,300,000
12.0%, 11-1-2007 (A) ................ 1,750 1,828,750
ICG Holdings, Inc.,
0.0%, 9-15-2005 (B) ................. 2,250 1,991,250
ICG Services, Inc.,
0.0%, 5-1-2008 (B) .................. 2,500 1,493,750
ITC /\ DeltaCom, Inc.:
8.875%, 3-1-2008 .................... 1,000 1,005,000
9.75%, 11-15-2008 ................... 1,500 1,578,750
IXC Communications, Inc.,
9.0%, 4-15-2008 ..................... 1,500 1,560,000
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (B) ................. 2,250 1,935,000
Iridium LLC and Iridium Capital Corporation:
13.0%, 7-15-2005 .................... 4,000 1,680,000
11.25%, 7-15-2005 ................... 1,000 380,000
10.875%, 7-15-2005 .................. 2,000 760,000
JCAC, Inc.,
10.125%, 6-15-2006 .................. 1,000 1,113,750
LIN Holdings Corp.,
0.0%, 3-1-2008 (B) .................. 3,500 2,467,500
Level 3 Communications, Inc.:
9.125%, 5-1-2008 .................... 2,000 2,005,000
0.0%, 12-1-2008 (A)(B) .............. 5,000 3,131,250
MetroNet Communications Corp.,
0.0%, 6-15-2008 (B) ................. 2,500 1,931,250
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (B) .................. 5,900 4,808,500
Nextel Communications, Inc.:
9.75%, 8-15-2004 ................... 4,275 4,424,625
0.0%, 9-15-2007 (B) ................. 1,500 1,095,000
0.0%, 2-15-2008 (B) ................. 2,500 1,750,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Nextel Partners, Inc.,
0.0%, 2-1-2009 (A)(B) ............... $ 5,500 $ 3,190,000
NEXTLINK Communications, Inc.,
9.625%, 10-1-2007 ................... 2,000 2,030,000
OnePoint Communications Corp.,
14.5% 6-1-2008 (A)................... 2,000 1,050,000
Pathnet, Inc.,
12.25%, 4-15-2008 ................... 1,000 540,000
Primus Telecommunications Group, Incorporated,
11.75%, 8-1-2004 .................... 2,000 2,075,000
RSL Communications, Ltd.,
10.5%, 11-15-2008 ................... 6,250 6,593,750
Rogers Communications Inc.,
9.125%, 1-15-2006 ................... 3,000 3,165,000
SFX Broadcasting, Inc.,
10.75%, 5-15-2006 ................... 986 1,105,552
Salem Communications Corporation,
9.5%, 10-1-2007 ..................... 1,000 1,060,000
Sinclair Broadcast Group, Inc.,
9.0%, 7-15-2007 ..................... 2,000 2,050,000
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (B) ................. 4,600 4,200,536
Time Warner Telecom LLC and Time Warner
Telecom Inc.,
9.75%, 7-15-2008 .................... 1,000 1,070,000
VersaTel Telecom International N.V.,
13.25%, 5-15-2008 ................... 1,500 1,563,750
Viatel, Inc.,
11.5%, 3-15-2009 (A) ................ 1,250 1,300,000
WinStar Communications, Inc.,
10.0%, 3-15-2008 .................... 2,000 1,340,000
Total ............................... 87,752,963
Eating and Drinking Places - 1.85%
Domino's Pizza, Inc.,
10.375% 1-15-2009 (A) ............... 2,000 2,060,000
Foodmaker, Inc.,
8.375%, 4-15-2008 ................... 3,000 2,992,500
Fresh Foods, Inc.,
10.75%, 6-1-2006 .................... 1,500 1,503,750
NE Restaurant Company, Inc.,
10.75%, 7-15-2008 ................... 1,000 967,500
Total ............................... 7,523,750
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electric, Gas and Sanitary Services _ 2.64%
Allied Waste North America, Inc.,
7.875%, 1-1-2009 .................... $ 5,000 $ 4,900,000
Browning Ferris Industries Inc.,
6.375%, 1-15-2008 ................... 1,500 1,305,870
El Paso Electric Company:
8.9%, 2-1-2006 ...................... 2,000 2,234,340
9.4%, 5-1-2011 ...................... 2,000 2,300,640
Total ............................... 10,740,850
Electronic and Other Electric Equipment _ 3.55%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 ..................... 2,000 2,130,000
Communications Instruments, Inc.,
10.0%, 9-15-2004 .................... 1,000 966,250
EchoStar DBS Corporation,
9.375%, 2-1-2009 (A) ................ 6,500 6,727,500
Elgar Holdings, Inc.,
9.875%, 2-1-2008 .................... 1,250 975,000
Intercel, Inc.,
0.0%, 2-1-2006 (B) .................. 1,750 1,404,375
WESCO Distribution, Inc.,
9.125%, 6-1-2008 .................... 1,500 1,554,375
WESCO International, Inc.,
0.0%, 6-1-2008 (B) .................. 1,000 692,500
Total ............................... 14,450,000
Engineering and Management Services _ 0.42%
United International Holdings, Inc.,
0.0%, 2-15-2008 (B) ................. 2,500 1,700,000
Fabricated Metal Products _ 2.35%
AXIA Incorporated,
10.75%, 7-15-2008 ................... 1,000 998,750
American Safety Razor Company,
9.875%, 8-1-2005 .................... 2,000 2,105,000
Neenah Corporation,
11.125%, 5-1-2007 ................... 3,000 3,150,000
Safety Components International, Inc.,
10.125%, 7-15-2007 .................. 2,250 2,247,187
U.S. Can Corporation,
10.125%, 10-15-2006 ................. 1,000 1,053,750
Total ............................... 9,554,687
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food and Kindred Products _ 0.74%
B & G Foods, Inc.,
9.625%, 8-1-2007 .................... $ 2,000 $ 1,970,000
Southern Foods Group, L.P. and SFG Capital
Corporation,
9.875%, 9-1-2007 .................... 1,000 1,051,250
Total ............................... 3,021,250
Food Stores _ 1.02%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 .................... 1,500 1,503,750
Pueblo Xtra International, Inc.,
9.5%, 8-1-2003 ...................... 2,750 2,629,688
Total ............................... 4,133,438
Health Services _ 0.49%
Tenet Healthcare Corporation,
8.625%, 1-15-2007 ................... 2,000 2,010,000
Holding and Other Investment Offices _ 0.20%
LTC Properties, Inc.,
8.5%, 1-1-2001 (Convertible) ........ 1,000 798,750
Hotels and Other Lodging Places - 4.34%
CapStar Hotel Company,
8.75%, 8-15-2007 .................... 1,000 951,250
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-2009 (A) .................. 1,000 1,012,500
HMH Properties, Inc.,
7.875%, 8-1-2008 .................... 5,000 4,800,000
MGM Grand, Inc.,
6.875%, 2-6-2008 .................... 2,000 1,878,080
Prime Hospitality Corp.:
9.25%, 1-15-2006 .................... 2,000 2,075,000
9.75%, 4-1-2007 ..................... 1,000 1,033,750
Station Casinos, Inc.:
10.125%, 3-15-2006 .................. 1,000 1,060,000
8.875%, 12-1-2008 (A) ............... 4,750 4,868,750
Total ............................... 17,679,330
Industrial Machinery and Equipment _ 3.60%
American Standard Inc.,
9.25%, 12-1-2016 .................... 1,050 1,072,312
Anchor Lamina Inc. and
Anchor Lamina America, Inc.,
9.875%, 2-1-2008 .................... 1,000 937,500
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Industrial Machinery and Equipment (Continued)
Falcon Building Products, Inc.,
0.0%, 6-15-2007 (B) ................. $ 3,000 $ 1,773,750
National Equipment Services, Inc.,
10.0%, 11-30-2004 ................... 3,750 3,759,375
Paragon Corporate Holdings, Inc.,
9.625%, 4-1-2008 .................... 2,000 1,610,000
Terex Corporation,
8.875%, 4-1-2008 .................... 3,000 2,943,750
Tokheim Corporation,
11.375%, 8-1-2008 (A) ............... 1,500 1,593,750
Walbro Corporation,
9.875%, 7-15-2005 ................... 1,000 983,750
Total ............................... 14,674,187
Instruments and Related Products _ 1.66%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................. 2,000 2,062,500
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ..................... 3,500 3,753,750
Universal Hospital Services, Inc.,
10.25%, 3-1-2008 .................... 1,000 925,000
Total ............................... 6,741,250
Miscellaneous Manufacturing Industries - 0.40%
AAi.Fostergrant, Inc.,
10.75%, 7-15-2006 ................... 1,000 790,000
Hedstrom Corporation,
10.0%, 6-1-2007 ..................... 1,000 850,000
Total ............................... 1,640,000
Miscellaneous Retail _ 1.81%
Eye Care Centers of America, Inc.,
9.125%, 5-1-2008 .................... 1,000 870,000
Finlay Fine Jewelry Corporation,
8.375%, 5-1-2008 .................... 1,000 972,500
MTS, INCORPORATED,
9.375%, 5-1-2005 .................... 750 723,750
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................. 3,500 3,753,750
TravelCenters of America, Inc.,
10.25%, 4-1-2007 .................... 1,000 1,045,000
Total ............................... 7,365,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Motion Pictures - 1.21%
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 ................... $ 2,865 $ 1,847,925
Regal Cinemas, Inc.,
9.5%, 6-1-2008 ...................... 3,000 3,063,750
Total ............................... 4,911,675
Paper and Allied Products _ 2.46%
Container Corporation of America,
10.75%, 5-1-2002 .................... 2,000 2,132,500
Fonda Group, Inc. (The),
9.5%, 3-1-2007 ...................... 2,000 1,675,000
Mail-Well I Corporation,
8.75%, 12-15-2008 (A) ............... 2,000 2,070,000
Outsourcing Services Group, Inc.,
10.875%, 3-1-2006 ................... 1,500 1,485,000
Radnor Holdings Corporation,
10.0%, 12-1-2003 .................... 1,000 1,032,500
Republic Group Incorporated,
9.5%, 7-15-2008 ..................... 1,000 1,013,750
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (B) ................. 2,500 618,750
Total ............................... 10,027,500
Petroleum and Coal Products - 0.49%
Building Materials Corporation of America,
8.0%, 12-1-2008 (A) ................. 2,000 1,995,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Primary Metal Industries _ 1.21%
Commonwealth Aluminum Corporation,
10.75%, 10-1-2006 ................... $ 2,000 $ 2,007,500
Weirton Steel Corporation,
11.375%, 7-1-2004 ................... 1,000 960,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 ................... 2,000 1,970,000
Total ............................... 4,937,500
Printing and Publishing _ 3.68%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................. 3,000 3,240,000
Big Flower Press Holdings, Inc.,
8.625%, 12-1-2008 (A) ............... 2,250 2,272,500
K-III Communications Corporation,
8.5%, 2-1-2006 ...................... 1,000 1,022,500
Perry-Judd's Incorporated,
10.625%, 12-15-2007 ................. 4,000 4,100,000
TransWestern Publishing Company LLC,
9.625%, 11-15-2007 .................. 2,000 2,100,000
World Color Press, Inc.,
8.375%, 11-15-2008 (A) .............. 2,250 2,266,875
Total ............................... 15,001,875
Railroad Transportation - 0.14%
TFM, S.A. de C.V.,
0.0%, 6-15-2009 (B) ................. 1,000 585,000
Real Estate - 0.35%
Delco Remy International, Inc.,
8.625%, 12-15-2007 .................. 1,400 1,428,000
Rubber and Miscellaneous Plastics Products _ 2.70%
Furon Company,
8.125%, 3-1-2008 .................... 1,000 982,500
Graham Packaging Company and
GPC Capital Corp. I,
8.75%, 1-15-2008 .................... 3,000 3,003,750
Heafner (J.H.) Company, Inc. (The):
10.0%, 5-15-2008 .................... 1,400 1,433,250
10.0%, 5-15-2008 (A) ................ 1,100 1,126,125
Home Products International, Inc.,
9.625%, 5-15-2008 ................... 2,500 2,412,500
LDM Technologies, Inc.,
10.75%, 1-15-2007 ................... 2,000 2,047,500
Total ............................... 11,005,625
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Social Services - 0.30%
La Petite Academy, Inc. and LPA
Holding Corp.,
10.0%, 5-15-2008 .................... $ 1,250 $ 1,231,250
Stone, Clay and Glass Products - 0.27%
SIMCALA, Inc.,
9.625%, 4-15-2006 ................... 1,500 1,110,000
Textile Mill Products _ 1.86%
Avondale Mills, Inc.,
10.25%, 5-1-2006 .................... 1,000 1,035,000
Collins & Aikman Products Co.,
11.5%, 4-15-2006 .................... 2,000 2,125,000
Galey & Lord, Inc.,
9.125%, 3-1-2008 .................... 2,750 2,145,000
Glenoit Corporation,
11.0%, 4-15-2007 .................... 1,000 926,250
Globe Manufacturing Corp.,
10.0%, 8-1-2008 ..................... 1,750 1,347,500
Total ............................... 7,578,750
Transportation by Air - 1.12%
Atlas Air, Inc.,
9.375%, 11-15-2006 (A) .............. 4,500 4,550,625
Transportation Equipment _ 1.49%
Federal-Mogul Corporation:
7.75%, 7-1-2006 ..................... 2,000 2,000,020
7.875%, 7-1-2010 .................... 2,500 2,497,150
Westinghouse Air Brake Company (The),
9.375%, 6-15-2005 ................... 1,500 1,554,375
Total ............................... 6,051,545
Trucking and Warehousing - 0.78%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................. 1,000 1,080,000
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... 2,000 2,100,000
Total ............................... 3,180,000
Wholesale Trade - Durable Goods _ 0.44%
Exide Corporation,
10.0%, 4-15-2005 .................... 510 504,900
Sealy Mattress Company,
0.0%, 12-15-2007 (B) ................ 2,000 1,300,000
Total ............................... 1,804,900
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Wholesale Trade - Nondurable Goods - 0.83%
Core-Mark International, Inc.,
11.375%, 9-15-2003 .................. $ 1,500 $ 1,522,500
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 .................... 2,000 1,865,000
Total ............................... 3,387,500
TOTAL CORPORATE DEBT SECURITIES _ 85.30% $347,423,566
(Cost: $351,831,133)
OTHER GOVERNMENT SECURITY - 1.17%
Mexico
United Mexican States,
9.75%, 4-6-2005 ..................... 4,750 4,767,812
(Cost: $4,748,290)
TOTAL SHORT-TERM SECURITIES _ 6.54% $ 26,642,082
(Cost: $26,642,082)
TOTAL INVESTMENT SECURITIES - 98.81% $402,434,207
(Cost: $403,666,290)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.19 4,866,849
NET ASSETS - 100.00% $407,301,056
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 1999
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At March 31, 1999, the value of these
securities amounted to $56,721,158 or 13.93% of net assets.
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
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, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value (Notes 1 and 3) $402,434
Cash ............................................ 158
Receivables:
Interest and dividends .......................... 7,700
Investment securities sold ...................... 5,090
Fund shares sold ................................ 351
Prepaid insurance premium ........................ 14
--------
Total assets .................................. 415,747
--------
Liabilities
Investment securities purchased .................. 6,248
Payable to Fund shareholders ..................... 1,683
Dividends payable ................................ 317
Accrued transfer agency and dividend
disbursing (Note 2).............................. 83
Accrued service fee (Note 2) ..................... 70
Accrued management fee (Note 2) .................. 6
Accrued distribution fee (Note 2) ................ 6
Accrued accounting services fee (Note 2) ......... 5
Other ............................................ 28
--------
Total liabilities ............................. 8,446
--------
Total net assets ............................. $407,301
========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 98,557
Additional paid-in capital ...................... 355,388
Accumulated undistributed loss:
Accumulated undistributed net realized
loss on investment transactions ............... (45,412)
Net unrealized depreciation in value of
investments ................................... (1,232)
--------
Net assets applicable to outstanding
units of capital ............................. $407,301
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $4.13
Class Y .......................................... $4.13
Capital shares outstanding
Class A .......................................... 97,840
Class Y .......................................... 717
Capital shares authorized .......................... 400,000
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended MARCH 31, 1999
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $19,274
Dividends ....................................... 606
-------
Total income .................................. 19,880
-------
Expenses (Note 2):
Investment management fee ....................... 1,106
Service fee - Class A ........................... 438
Transfer agency and dividend disbursing - Class A 350
Distribution fee - Class A ...................... 40
Accounting services fee ......................... 30
Audit fees ...................................... 11
Custodian fees .................................. 8
Legal fees ...................................... 5
Shareholder servicing - Class Y.................. 2
Other ........................................... 78
-------
Total expenses ................................ 2,068
-------
Net investment income ........................ 17,812
-------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net loss on investments ................. (8,932)
Unrealized appreciation in value of investments
during the period ............................... 9,720
-------
Net gain on investments ......................... 788
-------
Net increase in net assets resulting
from operations .............................. $18,600
=======
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the six For the fiscal
months ended year ended
March 31, September 30,
1999 1998
Increase (Decrease) in Net Assets --------------------------
Operations:
Net investment income ............... $ 17,812 $ 34,971
Realized net gain (loss) on
investments ...................... (8,932) 4,820
Unrealized appreciation
(depreciation) .................... 9,720 (34,757)
-------- --------
Net increase in net assets
resulting from operations ........ 18,600 5,034
-------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ............................. (17,691) (34,790)
Class Y ............................. (121) (181)
-------- --------
(17,812) (34,971)
-------- --------
Capital share transactions:
Proceeds from sale of shares:
Class A (6,282,289 and 17,927,324
shares, respectively) ............ 26,024 77,845
Class Y (639,961 and 279,221
shares, respectively) ............ 2,681 1,264
Proceeds from reinvestment of
dividends:
Class A (3,905,551 and 7,125,552
shares, respectively) ............ 16,170 31,452
Class Y (29,163 and 40,487
shares, respectively) ............ 121 178
Payments for shares redeemed:
Class A (13,209,069 and 16,161,757
shares, respectively) ............ (54,420) (70,753)
Class Y (574,661 and 58,442
shares, respectively) ............ (2,408) (261)
-------- --------
Net increase (decrease) in net assets
resulting from capital
share transactions ............. (11,832) 39,725
-------- --------
Total increase (decrease) ..... (11,044) 9,788
Net Assets
Beginning of period .................. 418,345 408,557
-------- --------
End of period ........................ $407,301 $418,345
======== ========
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on pages 22 - 23.
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 ------------------------------------
3/31/99 1998 1997 1996 1995 1994
-------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ............ $4.12 $4.42 $4.14 $4.03 $3.96 $4.21
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.18 0.37 0.36 0.35 0.35 0.35
Net realized and
unrealized gain
(loss) on
investments ..... 0.01 (0.30) 0.28 0.11 0.07 (0.25)
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.19 0.07 0.64 0.46 0.42 0.10
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income ............ (0.18) (0.37) (0.36) (0.35) (0.35) (0.35)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $4.13 $4.12 $4.42 $4.14 $4.03 $3.96
===== ===== ===== ===== ===== =====
Total return* ...... 4.71% 1.22% 16.20% 11.90% 11.25% 2.31%
Net assets, end of
period (in
millions) ........ $404 $416 $407 $368 $368 $363
Ratio of expenses to
average net assets 1.02%** 0.96% 0.93% 0.95% 0.89% 0.88%
Ratio of net investment
income to average
net assets ....... 8.73%** 8.26% 8.54% 8.60% 8.93% 8.41%
Portfolio turnover
rate ............. 25.57% 58.85% 64.38% 55.64% 26.82% 47.05%
*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 fiscal For the
six year ended period
months September 30, from 2/27/96*
ended ------------- through
3/31/99 1998 1997 9/30/96
-------- ------ ------ --------
Net asset value,
beginning of period $4.12 $4.42 $4.14 $4.15
----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.18 0.37 0.37 0.21
Net realized and
unrealized gain (loss)
on investments... 0.01 (0.30) 0.28 (0.01)
----- ----- ----- -----
Total from investment
operations ........ 0.19 0.07 0.65 0.20
----- ----- ----- -----
Less dividends declared
from net investment
income ............ (0.18) (0.37) (0.37) (0.21)
----- ----- ----- -----
Net asset value,
end of period ..... $4.13 $4.12 $4.42 $4.14
===== ===== ===== =====
Total return ....... 4.86% 1.38% 16.38% 5.00%
Net assets, end of
period (in
millions) ........ $3 $2 $2 $2
Ratio of expenses
to average net
assets ............ 0.76%** 0.79% 0.77% 0.77%**
Ratio of net
investment income
to average net
assets ............ 8.99%** 8.43% 8.69% 8.83%**
Portfolio
turnover rate ..... 25.57% 58.85% 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, 1999
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 carryovers.
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 $21.5 billion of
combined net assets at March 31, 1999) 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
$654,115, out of which W&R paid sales commissions of $380,046 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 $8,132, which are included in other
expenses.
W&R is a subsidiary of 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 $105,629,052 while proceeds from maturities and
sales aggregated $95,793,527. Purchases of short-term securities and U. S.
Government securities aggregated $697,447,953 while proceeds from maturities
and sales aggregated $721,847,146. No U.S. Government Securities were
bought or sold during the period ended March 31, 1999.
For Federal income tax purposes, cost of investments owned at March 31,
1999 was $403,666,290, resulting in net unrealized depreciation of $1,232,083,
of which $15,565,773 related to appreciated securities and $16,797,856 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $5,280,197 during its fiscal year ended September 30, 1998, which was
entirely offset by utilization of capital loss carryovers. Remaining capital
loss carryovers aggregated $36,204,273 at September 30, 1998, and are available
to offset future realized capital gain net income for Federal income tax
purposes but will expire if not utilized as follows: $19,801,215 at September
30, 1999; $8,229,670 at September 30, 2000; $390,078 at September 30, 2003 and
$7,783,310 at September 30, 2004.
NOTE 5 -- Multiclass Operations
On January 12, 1996, the Fund was authorized to offer 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.
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, 1999, and the related statement of
operations for the six-month period then ended, the statements of
changes in net assets for the six-month period then ended and the fiscal
year ended September 30, 1998, and the financial highlights for the six-
month period ended March 31, 1999 and for each of the five fiscal years
in the period ended September 30, 1998. 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 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 as of March 31, 1999, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of United High Income Fund II, Inc. as of March 31, 1999, the
results of its operations for the six-month period then ended, the
changes in its net assets for the six-month period then ended and the
fiscal year ended September 30, 1998, and the financial highlights for
the six-month period ended March 31, 1999 and for each of the five fiscal
years in the period ended September 30, 1998 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Helge K. Lee, Vice President and Secretary
Louise D. Rieke, Vice President
Lower sales charges are available by combining the net asset value ("NAV") of
existing Class A shares of the Fund with additional purchases of Class A shares
of any fund in the United Group, except that only the Class A shares of United
Cash Management, Inc. that were acquired by exchange of another United Group
fund's Class A shares on which a sales charge was paid, plus the shares paid as
dividends on those acquired shares, may be combined.
For shareholders who have chosen the Income-Earned option or the Cash option for
their distribution method: if the dividend distribution (for Income-Earned) or
the total distribution (for Cash) is less than ten dollars, the distribution
will be automatically paid in additional shares of the same class of the Fund.
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(3-99)
printed on recycled paper
