United
High Income
Fund II, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1999
<PAGE>
MANAGER'S LETTER
- -----------------------------------------------------------------
SEPTEMBER 30, 1999
Dear Shareholder:
This report relates to the operation of United High Income Fund II, Inc. for the
fiscal year ended September 30, 1999. The discussion, graphs and tables
contained in this report provide you with information regarding the Fund's
performance during that period.
As the Fund's fiscal year began, the high yield market was weak primarily due to
the Asian financial crisis. By December, the market regained its confidence as
the U.S. economy continued to show growth and investors were recommitting
capital to the market. This lasted through April or May and then gradually ran
out of steam due to fears that the Federal Reserve would raise rates and
increasing default rates. The market was also worried about the lack of funds
coming into the sector. Many mutual funds in the high yield sector raised cash
during the past fiscal year, contributing to a lack of liquidity.
Our strategy during much of the fiscal year was to raise cash in the Fund (from
approximately 3% to 7%) and to purge credits we thought might run into financial
difficulties. This year, the market punished just about any company that did
not meet the expected numbers. We were also very selective in buying new issues
during the year. While there were no particular management style changes during
the year, our defensive posture of raising cash and selling certain issues to
avoid credit problems differed substantially from trading practices followed
under more normal market conditions.
The strategies and techniques we applied resulted in the Fund's performance
during the fiscal year remaining below that of the Lipper High Current Yield
Bond Fund Universe Average and slightly below that of the Salomon Brothers High
Yield Composite Index, both charted on the following page. Those indexes
reflect the performance of the universe of funds with similar investment
objectives (the Lipper Average) and of securities that generally represent the
high yield bond market (the Salomon Brothers Index). The Fund's underperformance
relative to the indexes was largely due to exposure to two industries that had
financial difficulties during the year: nursing homes and satellite
telecommunications. Medicare reimbursement rates were cut and the impact on
nursing home operators was even greater than the government anticipated.
Satellite telecommunications companies have had difficulty getting customers to
sign up for their high-cost services.
We are expecting more of the same for the first six months or so of the next
fiscal year. To add to current conditions are the questions surrounding the Y2K
issue. If Y2K turns out to be a non-event, there may be a relief rally in the
January/February time frame. The focus of investors will then turn back to the
economy and the Federal Reserve. We expect that our strategy going into 2000
will be to maintain a larger cash balance and our current cautious approach to
the market.
Thank you for your continued confidence.
Respectfully,
Louise D. Rieke
Manager, United High Income Fund II, Inc.
<PAGE>
Comparison of Change in Value of $10,000 Investment in
United High Income Fund II, Inc., Class A Shares,
The Salomon Brothers High Yield Composite Index
and The Lipper High Current Yield Bond Fund Universe Average
United Salomon Lipper High
High BrothersCurrent Yield
Income High Yield Bond Fund
Fund II,Composite Universe
Inc. Index Average
------------------ ----------
09/30/89 9,425 10,000 10,000
09/30/90 8,668 8,879 8,861
09/30/91 10,719 12,109 11,044
09/30/92 12,789 14,935 13,410
09/30/93 14,460 17,251 15,445
09/30/94 14,795 17,497 15,763
09/30/95 16,459 20,472 17,622
09/30/96 18,419 22,709 19,911
09/30/97 21,404 26,379 23,071
09/30/98 21,665 27,156 22,700
09/30/99 22,241 28,038 23,797
==== United High Income Fund II, Inc., Class A Shares -- $22,241*
- - - Salomon Brothers High Yield Composite Index -- $28,038
---- Lipper High Current Yield Bond Fund Universe Average -- $23,797
*The value of the investment in the Fund is impacted by the sales load at the
time of the investment and by the ongoing expenses of the Fund.
Average Annual Total Return +
Class A++ Class Y
-----------------------------
Year Ended
9/30/99 -3.24% 2.95%
5 Years Ended
9/30/99 7.22% N/A
10 Years Ended
9/30/99 8.32% N/A
Life of Class
Y +++ N/A 7.01%
+Total return for the Class Y shares may be greater than that of the Class A
shares because the Fund's Class Y shares are not subject to a sales load or
12b-1 fees.
++Performance data quoted represents past performance and is based on deduction
of a 5.75% sales load on the initial purchase in each of the three periods.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
+++2/27/96 (the date on which Fund Class Y shares were first acquired by
shareholders) through 9/30/99.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United High Income Fund II, Inc.
PORTFOLIO STRATEGY:
Invests generally in High- OBJECTIVE: To seek high level of
Risk, High-Yield Fixed Income current income as its
Securities primary goal, with a
Maximum 20% Common Stock secondary goal of capital growth when
consistent with its primary goal.
STRATEGY: Invests primarily in a diversified
portfolio of high-yield, high-risk,
fixed-income securities. The Fund may
invest up to 20% of its total assets in
common stock in order to seek capital
growth.
FOUNDED: 1986
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 1999
- --------------------------------------------
DIVIDENDS PAID $0.35
=====
NET ASSET VALUE ON
9/30/99 $ 3.88
9/30/98 4.12
------
CHANGE PER SHARE $(0.24)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ---------- ----------
1-year period ended 9-30-99 -3.24% 2.66%
5-year period ended 9-30-99 7.22% 8.50%
10-year period ended 9-30-99 8.32% 8.97%
*Performance data quoted represents past performance and is based on deduction
of 5.75% sales load on the initial purchase in each of the three periods.
**Performance data quoted in this column represents past performance without
taking into account the sales load deducted on an initial purchase.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1999, United High Income Fund II, Inc. had net assets totaling
$373,698,815 invested in a diversified portfolio of:
87.26% Corporate Debt Securities
6.52% Cash and Cash Equivalents
5.21% Common and Preferred Stocks and Warrants
1.01% Other Government Security
As a shareholder of United High Income Fund II, Inc., for every $100 you had
invested on September 30, 1999, your Fund owned:
$41.00 Transportation, Communication, Electric
and Sanitary Services Bonds
23.45 Manufacturing Bonds
14.88 Services Bonds
6.84 Wholesale and Retail Trade Bonds
6.52 Cash and Cash Equivalents
5.21 Common and Preferred Stocks and Warrants
1.09 Miscellaneous Bonds
1.01 Other Government Security
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Business Services - 0.62%
Clear Channel Communications, Inc.* .. 28,932 $ 2,310,944
Cable and Other Pay Television Services - 0.60%
Adelphia Communications Corporation,
13.0% Preferred ..................... 5,000 565,000
Cox Communications, Inc., Class A* ... 40,000 1,670,000
Total ............................... 2,235,000
Communication - 1.46%
Allegiance Telecom, Inc., Warrants (A)* 2,500 200,000
Crown Castle International Corp.* .... 30,000 561,563
IXC Communications, Inc.,
12.5% Preferred* .................... 307 322,350
IntelCom Group Inc., Warrants (A)* ... 7,425 57,544
Intermedia Communications Inc.,
13.5% Preferred* .................... 3,511 3,203,560
Iridium LLC, Warrants (A)* ........... 3,000 3
MetroNet Communications Corp.,
Warrants (A)* ....................... 1,000 75,000
Microcell Telecommunications Inc.,
Warrants (A)* ....................... 20,000 555,540
OnePoint Communications Corp.,
Warrants (A)* ....................... 2,000 2,000
Powertel, Inc., Warrants* ............ 5,600 235,200
Primus Telecommunications Group,
Incorporated, Warrants* ............. 2,000 40,000
VersaTel Telecom International N.V.,
Warrants (A)* ....................... 1,500 187,500
Total ............................... 5,440,260
Electric, Gas and Sanitary Services - 0.00%
Consolidated Hydro, Inc.,
Class B Warrants* ................... 7,578 477
Consolidated Hydro, Inc.,
Class C Warrants* ................... 4,919 615
Total ............................... 1,092
Food and Kindred Products - 0.46%
Keebler Foods Company* ............... 57,500 1,717,812
Food Stores - 0.65%
Kroger Co. (The)* .................... 110,000 2,426,875
Nondepository Institutions - 0.24%
California Federal Preferred Capital
Corporation, 9.125% Preferred ....... 37,500 885,938
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
Paper and Allied Products - 0.09%
SF Holdings Group, Inc., Class C (A)* . 8,700 $ 87
SF Holdings Group, Inc., 13.75%
Preferred* .......................... 100 285,000
SF Holdings Group, Inc., 13.75%
Preferred (A)* ...................... 22 62,224
Total ............................... 347,311
Printing and Publishing - 0.27%
PRIMEDIA Inc., 10.0% Preferred ....... 10,000 1,015,000
Radio and Television Broadcasting Stations - 0.63%
Infinity Broadcasting Corporation,
Class A* ............................ 80,500 2,359,656
Wholesale Trade -- Nondurable Goods - 0.19%
U.S. Foodservice* .................... 40,000 720,000
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 5.21% $ 19,459,888
(Cost: $17,604,589)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.37%
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. $1,301 1,387,191
Total ...............................
Amusement and Recreation Services - 4.93%
Empress Entertainment, Inc.,
8.125%, 7-1-2006 .................... 1,500 1,485,000
Hollywood Park, Inc.,
9.25%, 2-15-2007 .................... 1,750 1,680,000
Isle of Capri Casinos, Inc.,
8.75%, 4-15-2009 .................... 2,000 1,830,000
MGM Grand, Inc.,
6.875%, 2-6-2008 .................... 2,000 1,809,320
Mohegan Tribal Gaming Authority,
8.75%, 1-1-2009 ..................... 1,000 980,000
Premier Parks Inc.:
9.25%, 4-1-2006 ..................... 2,000 1,880,000
9.75%, 6-15-2007 .................... 2,500 2,375,000
Station Casinos, Inc.:
10.125%, 3-15-2006 .................. 1,000 1,025,000
8.875%, 12-1-2008 ................... 4,750 4,619,375
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 .................... 750 742,500
Total ............................... 18,426,195
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Apparel and Accessory Stores - 0.27%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 ................... $1,000 $ 1,022,500
Apparel and Other Textile Products - 0.54%
Consoltex Group Inc.,
11.0%, 10-1-2003 .................... 2,000 2,020,000
Auto Repair, Services and Parking - 0.55%
Avis Rent A Car, Inc.,
11.0%, 5-1-2009 (A) ................. 2,000 2,050,000
Automotive Dealers and Service Stations - 0.26%
TravelCenters of America, Inc.,
10.25%, 4-1-2007 .................... 1,000 990,000
Building Materials and Garden Supplies - 0.27%
Central Tractor Farm & Country, Inc.,
10.625%, 4-1-2007 ................... 1,000 1,000,000
Business Services - 4.87%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ................... 1,750 1,802,500
Coinmach Corporation,
11.75%, 11-15-2005 .................. 3,000 3,232,500
Cybernet Internet Services International,
Inc., Units,
14.0%, 7-1-2009 (A)(B) .............. 1,000 995,000
Lamar Advertising Company:
9.625%, 12-1-2006 ................... 2,000 2,035,000
8.625%, 9-15-2007 ................... 1,250 1,212,500
National Equipment Services, Inc.,
10.0%, 11-30-2004 ................... 3,750 3,675,000
PSINet Inc.,
10.0%, 2-15-2005 .................... 4,000 3,825,000
Protect One,
6.75%, 9-15-2003 (Convertible)....... 2,000 1,440,000
Total ............................... 18,217,500
Cable and Other Pay Television Services - 7.04%
Adelphia Communications Corporation:
10.25%, 7-15-2000 ................... 1,250 1,265,625
9.25%, 10-1-2002 .................... 2,450 2,462,250
10.5%, 7-15-2004 .................... 1,500 1,548,750
9.875%, 3-1-2007 .................... 2,500 2,525,000
Bresnan Communications Group LLC and
Bresnan Capital Corporation:
0.0%, 2-1-2009 (C) .................. 250 163,750
8.0%, 2-1-2009 ...................... 1,000 986,250
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 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 $ 2,017,700
Classic Cable, Inc.,
9.375%, 8-1-2009 (A) ................ 1,750 1,684,375
Comcast Corporation,
9.5%, 1-15-2008 ..................... 1,750 1,818,233
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (C) ................ 4,000 3,620,000
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (C) ................ 2,000 1,795,000
Diamond Holdings plc,
9.125%, 2-1-2008 .................... 1,500 1,455,000
Renaissance Media Group LLC,
0.0%, 4-15-2008 (C) ................. 1,750 1,211,875
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 .................. 1,500 1,650,000
Telewest Communications plc,
0.0%, 4-15-2009 (A)(C) .............. 1,000 607,500
United International Holdings, Inc.,
0.0%, 2-15-2008 (C) ................. 2,500 1,512,500
Total ............................... 26,323,808
Chemicals and Allied Products - 2.75%
Chattem, Inc.,
8.875%, 4-1-2008 .................... 2,000 1,890,000
Dade International Inc.,
11.125%, 5-1-2006 ................... 1,000 1,037,500
Outsourcing Services Group, Inc.,
10.875%, 3-1-2006 ................... 1,500 1,410,000
UCC Investors Holding, Inc.,
10.5%, 5-1-2002 ..................... 5,500 5,926,250
Total ............................... 10,263,750
Communication - 21.57%
Alestra, S.A. de C.V.,
12.625%, 5-15-2009 (A) .............. 2,250 2,137,500
Allegiance Telecom, Inc.,
0.0%, 2-15-2008 (C) ................. 3,250 2,112,500
CenCall Communications Corp.,
10.125%, 1-15-2004 .................. 2,500 2,506,250
Charter Communications Holdings, LLC and
Charter Communications Holdings
Capital Corporation:
8.625%, 4-1-2009 (A) ................ 6,000 5,580,000
0.0%, 4-1-2011 (A)(C) ............... 1,000 590,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Concentric Network Corporation,
12.75%, 12-15-2007 .................. $ 1,000 $ 1,007,500
Crown Castle International Corp.:
0.0%, 5-15-2011 (C) ................. 5,000 2,875,000
9.0%, 5-15-2011 ..................... 1,000 937,500
EchoStar DBS Corporation,
9.375%, 2-1-2009 .................... 6,500 6,402,500
GST Telecommunications,
0.0%, 11-15-2007 (C) ................ 2,500 2,643,750
Hyperion Telecommunications, Inc.:
0.0%, 4-15-2003 (C) ................. 4,000 3,360,000
12.0%, 11-1-2007 .................... 1,750 1,758,750
ICG Holdings, Inc.,
0.0%, 9-15-2005 (C) ................. 2,250 1,957,500
ICG Services, Inc.,
0.0%, 5-1-2008 (C) .................. 2,500 1,387,500
ITC /\ DeltaCom, Inc.:
8.875%, 3-1-2008 .................... 1,000 950,000
9.75%, 11-15-2008 ................... 1,500 1,496,250
Intercel, Inc.,
0.0%, 2-1-2006 (C) .................. 1,750 1,518,125
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (C) ................. 1,250 1,012,500
MetroNet Communications Corp.,
0.0%, 6-15-2008 (C) ................. 2,500 1,928,550
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (C) .................. 5,900 4,926,500
Nextel Communications, Inc.:
9.75%, 8-15-2004 ................... 4,275 4,307,062
0.0%, 9-15-2007 (C) ................. 1,500 1,106,250
0.0%, 2-15-2008 (C) ................. 2,500 1,743,750
Nextel Partners, Inc.,
0.0%, 2-1-2009 (C) .................. 5,500 3,203,750
NEXTLINK Communications, Inc.,
10.75%, 6-1-2009 .................... 1,000 1,005,000
ONO Finance Plc, Units,
13.0%, 5-1-2009 (A)(D) .............. 2,500 2,615,625
OnePoint Communications Corp.,
14.5%, 6-1-2008 (A).................. 2,000 1,310,000
Primus Telecommunications Group, Incorporated,
11.75%, 8-1-2004 .................... 2,000 1,965,000
Rhythms NetConnections Inc.,
12.75%, 4-15-2009 (A) ............... 2,000 1,800,000
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (C) ................. 5,100 4,723,110
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Time Warner Telecom LLC and Time Warner
Telecom Inc.,
9.75%, 7-15-2008 .................... $ 1,750 $ 1,763,125
Tritel PCS, Inc.,
0.0%, 5-15-2009 (A)(C) ............. 2,000 1,120,000
Triton PCS, Inc.,
0.0%, 5-1-2008 (C) .................. 2,000 1,340,000
VersaTel Telecom B.V.,
11.875%, 7-15-2009 .................. 1,250 1,184,375
VersaTel Telecom International N.V.,
13.25%, 5-15-2008 ................... 1,500 1,485,000
Viatel Inc.,
11.5%, 3-15-2009 .................... 1,250 1,181,250
WinStar Communications, Inc.,
10.0%, 3-15-2008 .................... 2,000 1,660,000
Total ............................... 80,601,472
Eating and Drinking Places - 1.53%
Domino's, Inc.,
10.375%, 1-15-2009 .................. 2,000 1,900,000
Foodmaker, Inc.,
8.375%, 4-15-2008 ................... 3,000 2,895,000
NE Restaurant Company, Inc.,
10.75%, 7-15-2008 ................... 1,000 910,000
Total ............................... 5,705,000
Electric, Gas and Sanitary Services - 3.43%
Allied Waste North America, Inc.:
7.875%, 1-1-2009 .................... 4,000 3,525,000
10.0%, 8-1-2009 (A) ................. 4,000 3,730,000
Browning Ferris Industries Inc.,
6.375%, 1-15-2008 ................... 1,500 1,200,000
El Paso Electric Company:
8.9%, 2-1-2006 ...................... 2,000 2,153,880
9.4%, 5-1-2011 ...................... 2,000 2,199,120
Total ............................... 12,808,000
Electronic and Other Electric Equipment - 2.23%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 ..................... 2,000 1,720,000
Elgar Holdings, Inc.,
9.875%, 2-1-2008 .................... 1,250 900,000
Exide Corporation,
10.0%, 4-15-2005 .................... 510 507,450
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electronic and Other Electric Equipment (Continued)
Juno Lighting, Inc.,
11.875%, 7-1-2009 (A) ............... $ 1,500 $ 1,488,750
Level 3 Communications, Inc.:
9.125%, 5-1-2008 .................... 1,000 905,000
0.0%, 12-1-2008 (C) ................. 5,000 2,800,000
Total ............................... 8,321,200
Fabricated Metal Products - 1.52%
AXIA Incorporated,
10.75%, 7-15-2008 ................... 750 708,750
Falcon Building Products, Inc.,
0.0%, 6-15-2007 (C) ................. 3,000 2,130,000
Neenah Corporation,
11.125%, 5-1-2007 ................... 3,000 2,835,000
Total ............................... 5,673,750
Food and Kindred Products - 0.95%
B & G Foods, Inc.,
9.625%, 8-1-2007 .................... 2,000 1,855,000
Fresh Foods, Inc.,
10.75%, 6-1-2006 .................... 650 624,000
Southern Foods Group, L.P. and SFG Capital
Corporation,
9.875%, 9-1-2007 .................... 1,000 1,072,500
Total ............................... 3,551,500
Food Stores - 1.03%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 .................... 1,500 1,518,750
Pueblo Xtra International, Inc.,
9.5%, 8-1-2003 ...................... 2,750 2,337,500
Total ............................... 3,856,250
Furniture and Fixtures - 0.36%
Sealy Mattress Company,
0.0%, 12-15-2007 (C) ................ 2,000 1,335,000
Furniture and Home Furnishings Stores - 0.34%
MTS, INCORPORATED,
9.375%, 5-1-2005 .................... 750 555,000
Mattress Discounters, Inc., Units,
12.625%, 7-15-2007 (A)(E) ........... 750 725,625
Total ............................... 1,280,625
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Holding and Other Investment Offices - 0.19%
LTC Properties, Inc.,
8.5%, 1-1-2001 (Convertible) ........ $ 1,000 $ 697,500
Hotels and Other Lodging Places - 3.33%
CapStar Hotel Company,
8.75%, 8-15-2007 .................... 1,000 910,000
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-2009 ...................... 1,250 1,181,250
HMH Properties, Inc.,
7.875%, 8-1-2008 .................... 5,000 4,462,500
Lodgian Financing Corp.,
12.25%, 7-15-2009 (A) ............... 3,000 2,940,000
Prime Hospitality Corp.:
9.25%, 1-15-2006 .................... 2,000 2,012,500
9.75%, 4-1-2007 ..................... 1,000 960,000
Total ............................... 12,466,250
Industrial Machinery and Equipment - 1.28%
American Standard Inc.,
9.25%, 12-1-2016 .................... 1,050 1,055,250
Anchor Lamina Inc. and
Anchor Lamina America, Inc.,
9.875%, 2-1-2008 .................... 1,000 880,000
Terex Corporation,
8.875%, 4-1-2008 .................... 3,000 2,835,000
Total ............................... 4,770,250
Instruments and Related Products - 0.99%
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ..................... 3,500 3,710,000
Insurance Carriers - 0.27%
LifePoint Hospitals, Inc.,
10.75%, 5-15-2009 (A) ............... 1,000 997,500
Miscellaneous Manufacturing Industries - 0.23%
Hedstrom Corporation,
10.0%, 6-1-2007 ..................... 1,000 860,000
Miscellaneous Retail - 1.50%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 .................... 2,000 1,900,000
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................. 3,500 3,692,500
Total ............................... 5,592,500
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Motion Pictures - 1.20%
AMC Entertainment Inc.,
9.5%, 3-15-2009 ..................... $ 750 $ 626,250
Loews Cineplex Entertainment Corporation,
8.875%, 8-1-2008 .................... 2,000 1,810,000
Regal Cinemas, Inc.,
9.5%, 6-1-2008 ...................... 3,000 2,040,000
Total ............................... 4,476,250
Oil and Gas Extraction - 0.26%
Canadian Forest Oil Co. Ltd.,
8.75%, 9-15-2007 .................... 1,000 965,000
Paper and Allied Products - 1.83%
Container Corporation of America,
10.75%, 5-1-2002 .................... 2,000 2,065,000
Fonda Group, Inc. (The),
9.5%, 3-1-2007 ...................... 2,000 1,750,000
Mail-Well I Corporation,
8.75%, 12-15-2008 ................... 2,000 1,920,000
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (C) ................. 2,500 1,118,750
Total ............................... 6,853,750
Petroleum and Coal Products - 0.49%
Building Materials Corporation of America,
8.0%, 12-1-2008 ..................... 2,000 1,850,000
Primary Metal Industries - 1.75%
Commonwealth Aluminum Corporation,
10.75%, 10-1-2006 ................... 2,000 2,045,000
ISG Resources, Inc.,
10.0%, 4-15-2008 .................... 1,750 1,697,500
SIMCALA, Inc.,
9.625%, 4-15-2006 ................... 1,500 881,250
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 ................... 2,000 1,920,000
Total ............................... 6,543,750
Printing and Publishing - 2.67%
Big Flower Press Holdings, Inc.,
8.625%, 12-1-2008 ................... 2,250 2,160,000
K-III Communications Corporation,
8.5%, 2-1-2006 ...................... 1,000 970,000
Perry-Judd's Incorporated,
10.625%, 12-15-2007 ................. 4,000 3,650,000
TransWestern Publishing Company LLC and
TWP Capital Corp. II,
9.625%, 11-15-2007 .................. 1,000 975,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Printing and Publishing (Continued)
World Color Press, Inc.,
8.375%, 11-15-2008 .................. $ 2,250 $ 2,221,875
Total ............................... 9,976,875
Railroad Transportation - 0.15%
TFM, S.A. de C.V.,
0.0%, 6-15-2009 (C) ................. 1,000 550,000
Radio and Television Broadcasting Stations - 4.86%
Allbritton Communications Company,
9.75%, 11-30-2007 ................... 2,000 1,990,000
American Radio Systems Corporation,
9.0%, 2-1-2006 ...................... 1,000 1,045,000
Chancellor Media Corporation of Los Angeles:
10.5%, 1-15-2007 .................... 2,000 2,150,000
8.0%, 11-1-2008 ..................... 2,000 1,940,000
JCAC, Inc.,
10.125%, 6-15-2006 .................. 1,000 1,080,000
LIN Holdings Corp.,
0.0%, 3-1-2008 (C) .................. 3,500 2,371,250
SFX Broadcasting, Inc.,
10.75%, 5-15-2006 ................... 986 1,094,460
Salem Communications Corporation,
9.5%, 10-1-2007 ..................... 1,000 1,000,000
Sinclair Broadcast Group, Inc.,
9.0%, 7-15-2007 ..................... 1,500 1,417,500
Susquehanna Media Co.,
8.5%, 5-15-2009 (A) ................. 1,000 985,000
Rogers Communications Inc.,
9.125%, 1-15-2006 ................... 3,000 3,082,500
Total ............................... 18,155,710
Rubber and Miscellaneous Plastics Products - 2.71%
Furon Company,
8.125%, 3-1-2008 .................... 1,000 942,500
Globe Manufacturing Corp.,
10.0%, 8-1-2008 ..................... 1,250 812,500
Graham Packaging Company and
GPC Capital Corp. I,
8.75%, 1-15-2008 .................... 3,000 2,820,000
Home Products International, Inc.,
9.625%, 5-15-2008 ................... 2,500 2,225,000
LDM Technologies, Inc.,
10.75%, 1-15-2007 ................... 2,000 1,720,000
Moll Industries, Inc.,
10.5%, 7-1-2008 ..................... 2,000 1,600,000
Total ............................... 10,120,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textile Mill Products - 0.81%
Anvil Knitwear, Inc.,
10.875%, 3-15-2007 .................. $1,500 $ 960,000
Collins & Aikman Products Co.,
11.5%, 4-15-2006 .................... 1,500 1,417,500
Glenoit Corporation,
11.0%, 4-15-2007 .................... 1,000 662,500
Total ............................... 3,040,000
Transportation by Air - 2.69%
Atlas Air, Inc.,
9.375%, 11-15-2006 .................. 4,500 4,365,000
RSL Communications, Ltd.,
10.5%, 11-15-2008 ................... 6,250 5,687,500
Total ............................... 10,052,500
Transportation Equipment - 2.34%
Delco Remy International, Inc.,
8.625%, 12-15-2007 .................. 1,400 1,298,500
Federal-Mogul Corporation:
7.75%, 7-1-2006 ..................... 2,000 1,882,380
7.875%, 7-1-2010 .................... 2,500 2,277,825
Safety Components International, Inc.,
10.125%, 7-15-2007 .................. 2,250 1,822,500
Westinghouse Air Brake Company (The),
9.375%, 6-15-2005 ................... 1,500 1,485,000
Total ............................... 8,766,205
Transportation Services - 0.46%
Railworks Corporation,
11.5%, 4-15-2009 (A) ................ 1,750 1,715,000
Trucking and Warehousing - 0.80%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................. 1,000 1,035,000
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... 2,000 1,950,000
Total ............................... 2,985,000
Wholesale Trade - Durable Goods - 1.33%
AAi.Fostergrant, Inc.,
10.75%, 7-15-2006 ................... 500 205,000
Federal Data Corporation,
10.125%, 8-1-2005 ................... 1,000 915,000
Heafner (J.H.) Company, Inc. (The),
10.0%, 5-15-2008 .................... 2,500 2,425,000
WESCO Distribution, Inc.,
9.125%, 6-1-2008 .................... 1,500 1,413,750
Total ............................... 4,958,750
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Wholesale Trade - Nondurable Goods - 0.31%
Core-Mark International, Inc.,
11.375%, 9-15-2003 .................. $1,200 $ 1,153,500
TOTAL CORPORATE DEBT SECURITIES - 87.26% $326,090,031
(Cost: $341,789,497)
OTHER GOVERNMENT SECURITY - 1.01%
Mexico
United Mexican States,
9.75%, 4-6-2005 ..................... 3,750 $ 3,796,875
(Cost: $3,748,615)
TOTAL SHORT-TERM SECURITIES - 4.91% $ 18,340,000
(Cost: $18,340,000)
TOTAL INVESTMENT SECURITIES - 98.39% $367,686,794
(Cost: $381,482,701)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.61% 6,012,021
NET ASSETS - 100.00% $373,698,815
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 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 September 30, 1999, the value of
these securities amounted to $34,211,773 or 9.15% of net assets.
(B) Each unit of Cybernet Internet Services International, Inc. consists of
$1,000 principal amount of 14.0% senior notes due 2009 and one warrant to
purchase 30.2310693 shares of common stock.
(C) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(D) Each unit of ONO Finance Plc consists of $1,000 principal amount of 13.0%
Dollar Notes and one Dollar Equity Value Certificate evidencing the right
to receive the cash value of 0.002299657 of one ordinary share of
Cableuropa in dollars.
(E) Each unit of Mattress Discounters, Inc. consists of $1,000 principal amount
of 12.625% senior notes due 2007 and one warrant to purchase 4.85 shares of
Class A common stock and 0.539 shares of Class L common stock at an
exercise price of $0.01 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
SEPTEMBER 30, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value (Notes 1 and 3) $367,687
Cash ............................................ 3
Receivables:
Interest and dividends .......................... 7,767
Investment securities sold ...................... 476
Fund shares sold ................................ 395
Prepaid insurance premium ........................ 15
--------
Total assets .................................. 376,343
--------
Liabilities
Payable to Fund shareholders ...................... 1,387
Investment securities purchased ................... 825
Dividends payable ................................ 249
Accrued transfer agency and dividend
disbursing (Note 2).............................. 78
Accrued service fee (Note 2) ..................... 62
Accrued distribution fee (Note 2) ................ 15
Accrued management fee (Note 2) .................. 6
Accrued accounting services fee (Note 2) ......... 5
Other ............................................ 17
--------
Total liabilities ............................. 2,644
--------
Total net assets ............................. $373,699
========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $96,368
Additional paid-in capital ...................... 328,950
Accumulated undistributed loss:
Accumulated undistributed net realized
loss on investment transactions ............... (37,823)
Net unrealized depreciation in value of
investments ................................... (13,796)
--------
Net assets applicable to outstanding
units of capital ............................. $373,699
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $3.88
Class Y .......................................... $3.88
Capital shares outstanding
Class A .......................................... 95,678
Class Y .......................................... 690
Capital shares authorized .......................... 400,000
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1999
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $37,656
Dividends ....................................... 1,026
-------
Total income .................................. 38,682
-------
Expenses (Note 2):
Investment management fee ....................... 2,248
Service fee - Class A ........................... 897
Transfer agency and dividend disbursing - Class A 750
Distribution fee - Class A ...................... 89
Accounting services fee ......................... 60
Custodian fees .................................. 19
Audit fees ...................................... 18
Legal fees ...................................... 11
Shareholder servicing - Class Y.................. 4
Other ........................................... 146
-------
Total expenses ................................ 4,242
-------
Net investment income ........................ 34,440
-------
Realized and Unrealized Loss on
Investments (Notes 1 and 3)
Realized net loss on investments ................. (21,144)
Unrealized depreciation in value of investments
during the period ............................... (2,844)
-------
Net loss on investments ......................... (23,988)
-------
Net increase in net assets resulting
from operations .............................. $10,452
=======
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the fiscal year ended
September 30,
-------------------------
1999 1998
Increase (Decrease) in Net Assets ------------ ------------
Operations:
Net investment income ............... $34,440 $ 34,971
Realized net gain (loss) on
investments ...................... (21,144) 4,820
Unrealized depreciation ............. (2,844) (34,757)
-------- --------
Net increase in net assets
resulting from operations ........ 10,452 5,034
-------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ............................. (34,192) (34,790)
Class Y ............................. (248) (181)
-------- --------
(34,440) (34,971)
-------- --------
Capital share transactions:
Proceeds from sale of shares:
Class A (10,626,459 and 17,927,324
shares, respectively) ............ 43,551 77,845
Class Y (655,027 and 279,221
shares, respectively) ............ 2,741 1,264
Proceeds from reinvestment of
dividends:
Class A (7,682,689 and 7,125,552
shares, respectively) ............ 31,283 31,452
Class Y (60,446 and 40,487
shares, respectively) ............ 246 178
Payments for shares redeemed:
Class A (23,492,323 and 16,161,757
shares, respectively) ............ (95,780) (70,753)
Class Y (648,366 and 58,442
shares, respectively) ............ (2,699) (261)
-------- --------
Net increase (decrease) in net assets
resulting from capital
share transactions ............. (20,658) 39,725
-------- --------
Total increase (decrease) ..... (44,646) 9,788
Net Assets
Beginning of period .................. 418,345 408,557
-------- --------
End of period ........................ $373,699 $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 fiscal year ended
September 30,
------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ............ $4.12 $4.42 $4.14 $4.03 $3.96
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.35 0.37 0.36 0.35 0.35
Net realized and
unrealized gain
(loss) on
investments ..... (0.24) (0.30) 0.28 0.11 0.07
----- ----- ----- ----- -----
Total from investment
operations ....... 0.11 0.07 0.64 0.46 0.42
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ............ (0.35) (0.37) (0.36) (0.35) (0.35)
----- ----- ----- ----- -----
Net asset value,
end of period .... $3.88 $4.12 $4.42 $4.14 $4.03
===== ===== ===== ===== =====
Total return* ...... 2.66% 1.22% 16.20% 11.90% 11.25%
Net assets, end of
period (in
millions) ........ $371 $416 $407 $368 $368
Ratio of expenses to
average net assets 1.06% 0.96% 0.93% 0.95% 0.89%
Ratio of net investment
income to average
net assets ....... 8.60% 8.26% 8.54% 8.60% 8.93%
Portfolio turnover
rate ............. 46.17% 58.85% 64.38% 55.64% 26.82%
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the fiscal year period
ended September 30, from 2/27/96*
--------------------- through
1999 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 .......... 0.36 0.37 0.37 0.21
Net realized and
unrealized gain (loss)
on investments... (0.24) (0.30) 0.28 (0.01)
----- ----- ----- -----
Total from investment
operations ........ 0.12 0.07 0.65 0.20
----- ----- ----- -----
Less dividends declared
from net investment
income ............ (0.36) (0.37) (0.37) (0.21)
----- ----- ----- -----
Net asset value,
end of period ..... $3.88 $4.12 $4.42 $4.14
===== ===== ===== =====
Total return ....... 2.95% 1.38% 16.38% 5.00%
Net assets, end of
period (in
millions) ........ $3 $2 $2 $2
Ratio of expenses
to average net
assets ............ 0.77% 0.79% 0.77% 0.77%**
Ratio of net
investment income
to average net
assets ............ 8.89% 8.43% 8.69% 8.83%**
Portfolio
turnover rate ..... 46.17% 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
SEPTEMBER 30, 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,
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. At September 30, 1999, the Fund reclassified
$19,801,215 between additional paid-in-capital and accumulated
undistributed net realized losses. Reported net investment income, net
realized gains and net assets were not affected by this change.
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. As of
June 30, 1999, the fee is payable by the Fund at the annual rate of 0.625% of
net assets up to $500 million, 0.60% of net assets over $500 million and up to
$1 billion, 0.55% of net assets over $1 billion and up to $1.5 billion, and
0.50% of net assets over $1.5 billion. Prior to June 30, 1999, the fee
consisted 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 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
the fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month,
plus $0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. With respect to Class Y shares, the
Fund pays WARSCO a monthly fee at an annual rate of .15% of the average daily
net assets of the class for the preceding month. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$1,114,812, out of which W&R paid sales commissions of $644,716 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 $15,521 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 $175,517,588 while proceeds from
maturities and sales aggregated $170,723,810 Purchases of short-term securities
aggregated $2,446,300,707 while proceeds from maturities and sales aggregated
$2,479,499,146. No U.S. Government Securities were bought or sold during the
period ended September 30, 1999.
For Federal income tax purposes, cost of investments owned at September 30,
1999 was $381,482,701, resulting in net unrealized depreciation of $13,795,907,
of which $7,547,531 related to appreciated securities and $21,343,438 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital losses of
$1,199,357 during its fiscal year ended September 30, 1999, which included the
effect of certain losses deferred into the next fiscal year (see discussion
below). Capital loss carryovers aggregated $17,602,416 at September 30, 1999,
and are available to offset future realized capital gain net income for Federal
income tax purposes but will expire if not utilized as follows: $8,229,670 at
September 30, 2000; $390,079 at September 30, 2003; $7,783,310 at September 30,
2004; and $1,199,357 at September 30, 2007.
Internal Revenue Code regulations permits the Fund to defer into its next
fiscal year net capital losses or net long-term capital losses incurred between
each November 1 and the end of its fiscal year (_post-October losses_). From
November 1, 1998 through September 30, 1999, the Fund incurred net capital
losses of $19,944,947, which have been deferred to the fiscal year ending
September 30, 2000.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A, Class B,
Class C and Class Y, each of which have equal rights as to assets and voting
privileges. Only Class A and Class Y shares were issued during the fiscal year
ended September 30, 1999. Class Y shares are not subject to a sales charge on
purchases, are not subject to a Rule 12b-1 Distribution and Service Plan and are
subject to 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 their
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 September 30, 1999, and the related statement of operations for the fiscal
year then ended, the statements of changes in net assets for each of the two
fiscal years in the period then ended, and the financial highlights for each of
the five fiscal years in the period then ended. These financial statements and
the financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our 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
September 30, 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 September 30, 1999, the results of its
operations for the fiscal year then ended, the changes in its net assets for
each of the two fiscal years in the period then ended, and the financial
highlights for each of the five fiscal years in the period then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 5, 1999
<PAGE>
INCOME TAX INFORMATION
Dividends are declared and recorded by the Fund on each day the New York Stock
Exchange is open for business. Dividends are paid monthly.
The table below shows the taxability of dividends paid during the fiscal year
ended September 30, 1999:
PERCENTAGE OF AMOUNTS PAID REPORTABLE AS:
--------------------------------------------------------
For Individuals For Corporations
-------------------------------------------------------
RecordOrdinary Long-Term Non- Long-Term
Date IncomeCapital GainQualifyingQualifyingCapital Gain
------------------- ---------------------------------------
Class A and Class Y
October through
December 1998 100.00% ---% 2.9481% 97.0519% ---%
January through
September 1999 100.00% ---% 2.5789% 97.4211% ---%
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction as
provided by Section 243 of the Internal Revenue Code.
The tax status of dividends will be reported to you on Form 1099-DIV after the
close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the tax
treatment of dividends and distributions from the Fund.
<PAGE>
Shareholder Meeting Results
A special meeting of United High Income Fund II, Inc. was held on June 22, 1999.
The matters voted upon by the shareholders and the resulting votes for each
matter are presented below.
Item 1. To elect the Board of Directors:
Broker
For Withhold Non-Votes*
J. Concannon 47,369,573 1,637,395 0
J. Dillingham 47,358,363 1,648,605 0
D. Gardner 47,330,895 1,676,073 0
L. Graves 47,350,238 1,656,730 0
J. Harroz Jr. 47,320,224 1,686,744 0
J. Hayes 47,250,292 1,756,676 0
R. Hechler 47,313,632 1,693,336 0
H. Herrmann 47,312,288 1,694,680 0
G. Johnson 47,225,944 1,781,024 0
W. Morgan 47,262,125 1,744,843 0
R. Reimer 47,317,360 1,689,608 0
F. Ross 47,336,548 1,670,420 0
E. Schwartz 47,365,469 1,641,499 0
K. Tucker 47,295,759 1,711,209 0
F. Vogel 47,360,251 1,646,717 0
Item 2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year:
Broker
For Against Abstain Non-Votes*
46,310,086 244,509 2,452,373 0
Item 3. To approve or disapprove the amendment to the Fund's investment
management agreement with Waddell & Reed Investment Management Company:
Broker
For Against Abstain Non-Votes*
44,016,651 2,308,716 2,660,264 21,337
Item 4. To approve or disapprove the amendment of the Fund's policy
regarding securities lending:
Broker
For Against Abstain Non-Votes*
44,344,649 1,406,430 3,234,552 21,337
Item 5. To approve or disapprove the Fund's Articles of Incorporation to
change the par value of Fund shares to $0.001:
Broker
For Against Abstain Non-Votes*
43,864,025 1,310,258 3,832,685 0
*Broker Non-Votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on
a particular matter.
<PAGE>
DIRECTORS
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
This report is submitted for the general information of the shareholders of
United High Income Fund II, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United High Income Fund II, Inc. current prospectus.
To all 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 Accumulative Fund
United Asset Strategy Fund, Inc.
United Bond Fund
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Income Fund
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Science and Technology Fund
United Small Cap Fund, Inc.
United Vanguard Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1015A(9-99)
printed on recycled paper
