United
High Income
Fund II, Inc.
SEMIANNUAL REPORT
March 31, 2000
<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, 2000
Dear Shareholder:
We are delighted to share with you this report on your Fundis operations for
the six months ended March 31, 2000.
This six-month period provided some remarkable gains, especially in many of
the so-called "new economy" stocks. The exceptional performance of these
stocks was evident in the Nasdaq Composite Index, which is made up primarily
of technology-oriented companies; and in the Russell 2000, which includes many
small-cap growth companies. The Nasdaq Composite recorded a remarkable gain
of 67 percent over the six months ended March 31, 2000. The Russell 2000 rose
a very strong 27 percent over the period.
The performance of the two other major indices -- the Dow Jones Industrial
Average and the Standard & Pooris 500 -- did not match the Nasdaq or Russell,
reflecting a growing investor sentiment that the "old economy" companies that
they include could not provide the growth opportunity of their "new economy"
counterparts. Still, their performance, by historical standards, was very
strong. The S&P 500, the index most often used to track the performance of
the largest U.S. stocks, rose 18 percent for the six months ended March 31.
The Dow Jones Industrial Average, which includes 30 of the nationis largest
companies, rose 6 percent.
The across-the-board strength of the equity market and, especially, the
enormous gains in the Nasdaq over this period, left many investors wondering
if this upward trend was sustainable. The answer came just after the periodis
end, as a sharp sell-off erased all of the marketis gains of the first three
months of 2000. The sell-off was most pronounced, by far, in the Nasdaq
Composite. Nonetheless, at May 1, 2000, the Nasdaq remained up 41 percent
from its September 30, 1999 level.
For the six months ended March 31, bonds remained depressed, the result of
several forces weighing on all fixed-income markets. The Federal Reserve
began raising short-term interest rates at the end of June 1999, and has now
raised interest rates five times. Tax-loss selling and investor preference
for equities over fixed-income securities placed additional pressure on bonds.
Looking ahead, the market is still trying to find direction. Currently,
economic news suggests that the economy remains sufficiently strong to perhaps
prompt additional interest rate hikes by the Federal Reserve. Other factors
that may affect the market during the coming year include the presidential
election, the high trade deficit and the implications of that deficit for the
value of the U.S. dollar abroad.
Overall, investors have been rewarded well in recent years. Those who
continue a structured and consistent investment program remain well positioned
to take advantage of opportunities, including those presented by the marketis
occasional downdrafts. Just as we urge you not to become unduly concerned if
the market moves downward in the near term, we would urge that you not become
too exuberant when it moves higher in similarly short periods.
It is impossible to predict with certainty where markets will go next, but one
thing that remains certain is that a well-thought-out investment plan is
essential. Remember, a plan that is appropriate for you is appropriate
regardless of inevitable market changes. You have a partnership with your
Waddell & Reed financial advisor, and that partnership is built upon a
customized program based on your specific needs. Focusing on that plan,
despite market fluctuations, is your key to a sound financial future. Thank
you for your ongoing commitment and support.
Respectfully,
Robert L. Hechler
President
<PAGE>
SHAREHOLDER SUMMARY
--------------------------------------------------------------
United High Income Fund II, Inc.
PORTFOLIO STRATEGY:
Invests generally in High-Risk, High-Yield Fixed Income Securities
Maximum 20% Common Stock
OBJECTIVE:
To seek a high level of current income as its primary goal, with a 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
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Six Months Ended March 31, 2000
---------------------------------------
DIVIDENDS PAID $0.17
=====
NET ASSET VALUE ON
3/31/00 $ 3.75
9/30/99 3.88
------
CHANGE PER SHARE $(0.13)
======
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 3-31-00 -6.73% -1.04%
5-year period ended 3-31-00 6.67% 7.94%
10-year period ended 3-31-00 9.36% 10.01%
*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, 2000, United High Income Fund II, Inc. had net assets totaling
$332,116,130 invested in a diversified portfolio of:
81.90% Corporate Debt Securities
9.79% Common and Preferred Stocks and Warrants
7.14% Cash and Cash Equivalents and Unrealized Gain on Open
Forward Currrency Contracts
1.17% Other Government Security
As a shareholder of United High Income Fund II, Inc., for every $100 you had
invested on March 31, 2000, your Fund owned:
$45.82 Transportation, Communication, Electric and Sanitary
Services Bonds
15.34 Services Bonds
14.57 Manufacturing Bonds
9.79 Common and Preferred Stocks and Warrants
7.14 Cash and Cash Equivalents and Unrealized Gain on Open
Forward Currrency Contracts
5.05 Wholesale and Retail Trade Bonds
1.17 Other Government Security
1.12 Miscellaneous Bonds
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Business Services - 0.63%
Clear Channel Communications, Inc.* .......... 28,932 $ 1,998,116
Cybernet Internet Services
International, Inc., Warrants (A)* ......... 1,000 100,000
Total ...................................... 2,098,116
Cable and Other Pay Television Services - 0.16%
Adelphia Communications Corporation,
13.0% Preferred ............................ 5,000 540,000
Chemicals and Allied Products - 1.52%
Smith International, Inc.* ................... 65,000 5,037,500
Communication - 2.18%
Allegiance Telecom, Inc., Warrants (A)*....... 2,500 375,000
Crown Castle International Corp.* ............ 30,000 1,135,312
IXC Communications, Inc.,
12.5% Preferred ............................ 317 326,510
IntelCom Group Inc., Warrants (A)* ........... 7,425 222,750
Intermedia Communications Inc.,
13.5% Preferred* ........................... 3,751 3,601,625
MetroNet Communications Corp.,
Warrants (A)* .............................. 1,000 145,000
ONO Finance Plc, Rights (A)* ................. 2,500 375,000
OnePoint Communications Corp.,
Warrants (A)* .............................. 2,000 40,000
Primus Telecommunications Group,
Incorporated, Warrants* .................... 2,000 124,000
VersaTel Telecom International N.V.,
Warrants (A)* .............................. 1,500 900,000
Total ...................................... 7,245,197
Electric, Gas and Sanitary Services - 0.00%
Consolidated Hydro, Inc.,
Class B Warrants* .......................... 7,578 15
Consolidated Hydro, Inc.,
Class C Warrants* .......................... 4,919 10
Total ...................................... 25
Electronic and Other Electric Equipment - 0.50%
Level 3 Communications, Inc.* ................ 15,000 1,585,781
Metricom, Inc., Warrants* .................... 1,250 62,500
Total ...................................... 1,648,281
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
COMMON AND PREFERRED STOCKS
AND WARRANTS (Continued) Shares Value
Engineering and Management Services - 0.05%
Harris Interactive Inc.* ..................... 26,400 $ 174,488
Food and Kindred Products - 0.50%
Keebler Foods Company ........................ 57,500 1,649,531
Nondepository Institutions - 0.25%
California Federal Preferred Capital
Corporation, 9.125% Preferred .............. 37,500 820,313
Oil and Gas Extraction - 0.67%
Burlington Resources Incorporated ............ 60,000 2,220,000
Paper and Allied Products - 0.18%
SF Holdings Group, Inc., Class C (A)*......... 870 9
SF Holdings Group, Inc., 13.75%
Preferred .................................. 100 455,000
SF Holdings Group, Inc., 13.75%
Preferred (A)* ............................. 30 135,554
Total ...................................... 590,563
Petroleum and Coal Products - 1.43%
Exxon Mobil Corporation ...................... 35,000 2,723,437
Royal Dutch Petroleum Company,
NY Shares .................................. 35,000 2,014,688
Total ...................................... 4,738,125
Printing and Publishing - 0.30%
PRIMEDIA Inc., 10.0% Preferred ............... 10,000 1,007,500
Radio and Television Broadcasting Stations - 0.78%
Infinity Broadcasting Corporation,
Class A* ................................... 80,500 2,606,188
Radio Telephone Communications - 0.64%
Microcell Telecommunications Inc.,
Warrants (A)* .............................. 20,000 1,798,120
Powertel, Inc., Warrants* .................... 5,600 324,800
Total ...................................... 2,122,920
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 9.79%.......................... $ 32,498,747
(Cost: $24,742,589)
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.39%
Hines Horticulture, Inc.,
11.75%, 10-15-05 ........................... $ 1,301 $ 1,307,505
Amusement and Recreation Services - 3.80%
Aztar Corporation,
8.875%, 5-15-07 ............................ 1,150 1,040,750
Hollywood Park, Inc.,
9.25%, 2-15-07 ............................. 1,750 1,723,750
Mohegan Tribal Gaming Authority,
8.75%, 1-1-09 .............................. 1,000 937,500
Premier Parks Inc.:
9.25%, 4-1-06 .............................. 2,000 1,860,000
9.75%, 6-15-07 ............................. 2,500 2,356,250
Station Casinos, Inc.:
10.125%, 3-15-06 ........................... 1,000 1,007,500
8.875%, 12-1-08 ............................ 2,500 2,300,000
YankeeNets LLC,
12.75%, 3-1-07 (A) ......................... 1,500 1,380,000
Total ...................................... 12,605,750
Auto Repair, Services and Parking - 0.59%
Avis Rent A Car, Inc.,
11.0%, 5-1-09 .............................. 2,000 1,970,000
Automotive Dealers and Service Stations - 0.29%
TravelCenters of America, Inc.,
10.25%, 4-1-07 ............................. 1,000 960,000
Business Services - 5.24%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-06 ............................ 1,750 1,785,000
Coinmach Corporation,
11.75%, 11-15-05 ........................... 3,000 2,850,000
Cybernet Internet Services International,
Inc.,
14.0%, 7-1-09 .............................. 1,000 800,000
Lamar Advertising Company:
9.625%, 12-1-06 ............................ 2,000 2,000,000
8.625%, 9-15-07 ............................ 1,250 1,181,250
National Equipment Services, Inc.,
10.0%, 11-30-04 ............................ 3,750 3,553,125
PSINet, Inc.:
10.0%, 2-15-05 ............................. 4,000 3,780,000
10.5%, 12-1-06 (A) ......................... 1,500 1,440,000
Total ...................................... 17,389,375
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
Cable and Other Pay Television Services - 7.53%
Adelphia Communications Corporation:
10.25%, 7-15-00 ............................ $1,250 $ 1,250,000
9.25%, 10-1-02 ............................. 950 940,500
10.5%, 7-15-04 ............................. 1,500 1,515,000
CSC Holdings, Inc.,
8.125%, 8-15-09 ............................ 2,000 2,016,300
Charter Communications Holdings, LLC
and Charter Communications Holdings
Capital Corporation,
8.625%, 4-1-09 ............................. 1,750 1,540,000
Classic Cable, Inc.,
9.375%, 8-1-09 ............................. 1,750 1,618,750
Comcast UK Cable Partners Limited,
0.0%, 11-15-07 (B) ......................... 4,000 3,800,000
Diamond Cable Communications Plc,
0.0%, 12-15-05 (B) ......................... 3,000 2,865,000
Diamond Holdings plc,
9.125%, 2-1-08 ............................. 1,500 1,432,500
FrontierVision Holdings, L.P.,
11.0%, 10-15-06 ............................ 1,500 1,533,750
Renaissance Media Group LLC,
0.0%, 4-15-08 (B) .......................... 1,750 1,155,000
Telewest Communications plc:
0.0%, 10-1-07 (B) .......................... 1,500 1,402,500
0.0%, 4-15-09 (A)(B) ....................... 1,000 565,000
United International Holdings, Inc.,
0.0%, 2-15-08 (B) .......................... 5,000 3,375,000
Total ...................................... 25,009,300
Chemicals and Allied Products - 0.26%
Chattem, Inc.,
8.875%, 4-1-08 ............................. 1,000 855,000
Communication - 20.61%
Alestra, S. de R.L. de C.V.,
12.625%, 5-15-09 ........................... 2,250 2,255,625
Allegiance Telecom, Inc.,
0.0%, 2-15-08 (B) .......................... 3,250 2,307,500
Concentric Network Corporation,
12.75%, 12-15-07 ........................... 1,000 1,045,000
Crown Castle International Corp.:
0.0%, 5-15-11 (B) .......................... 5,000 2,862,500
9.0%, 5-15-11 .............................. 1,000 920,000
EchoStar DBS Corporation,
9.375%, 2-1-09 ............................. 6,500 6,272,500
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
ESAT Telecom Group PLC,
11.875%, 11-1-09 (C) ....................... EUR 2,000 $2,432,050
GST Telecommunications,
0.0%, 11-15-07 (B) ......................... $2,500 2,100,000
Global Crossing Holdings Ltd.,
9.5%, 11-15-09 (A) ......................... 2,000 1,920,000
Hyperion Telecommunications, Inc.:
0.0%, 4-15-03 (B) .......................... 5,000 4,600,000
12.0%, 11-1-07 ............................. 750 753,750
ICG Holdings, Inc.,
0.0%, 9-15-05 (B) .......................... 2,250 2,103,750
ICG Services, Inc.,
0.0%, 5-1-08 (B) ........................... 2,500 1,350,000
ITC /\ DeltaCom, Inc.:
11.0%, 6-1-07 .............................. 2,500 2,537,500
8.875%, 3-1-08 ............................. 1,000 930,000
9.75%, 11-15-08 ............................ 1,500 1,462,500
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-06 (B) .......................... 1,250 1,165,625
Leap Wireless International, Inc., Units,
12.5%, 4-15-10 (A)(D) ...................... 2,000 2,000,000
MetroNet Communications Corp.,
0.0%, 6-15-08 (B) .......................... 2,500 1,997,400
NEXTLINK Communications, Inc.,
10.75%, 6-1-09 ............................. 1,000 960,000
Nuevo Grupo Iusacell, S.A. de C.V.,...........
14.25%, 12-1-06 (A) ........................ 2,000 2,170,000
ONO Finance Plc,
13.0%, 5-1-09 .............................. 2,500 2,600,000
OnePoint Communications Corp.,
14.5%, 6-1-08 .............................. 2,000 1,300,000
Primus Telecommunications Group, Incorporated:
11.75%, 8-1-04 ............................. 2,000 1,930,000
12.75%, 10-15-09 ........................... 1,000 975,000
RSL Communications, Ltd.,
10.5%, 11-15-08 ............................ 4,000 3,420,000
Rhythms NetConnections Inc.:
12.75%, 4-15-09 ............................ 2,000 1,700,000
14.0%, 2-15-10 (A) ......................... 2,000 1,740,000
SpectraSite Holdings, Inc.,
0.0%, 3-15-10 (A)(B) ....................... 4,000 1,980,000
Time Warner Telecom LLC and Time Warner
Telecom Inc.,
9.75%, 7-15-08 ............................. 1,750 1,715,000
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
VersaTel Telecom B.V.,
11.875%, 7-15-09 ........................... $1,250 $ 1,228,125
VersaTel Telecom International N.V.,
13.25%, 5-15-08 ............................ 1,500 1,533,750
Viatel Inc.,
11.5%, 3-15-09 ............................. 1,250 1,125,000
WinStar Communications, Inc.:
0.0%, 10-15-05 (B) ......................... 2,250 2,317,500
12.75%, 4-15-10 (A) ........................ 690 727,500
Total ...................................... 68,437,575
Depository Institutions - 0.15%
Sovereign Bancorp, Inc.,
10.25%, 5-15-04 ............................ 500 503,115
Eating and Drinking Places - 1.64%
Dominois, Inc.,
10.375%, 1-15-09 ........................... 2,000 1,830,000
Foodmaker, Inc.,
8.375%, 4-15-08 ............................ 3,000 2,748,750
NE Restaurant Company, Inc.,
10.75%, 7-15-08 ............................ 1,000 861,250
Total ...................................... 5,440,000
Electric, Gas and Sanitary Services - 1.29%
El Paso Electric Company:
8.9%, 2-1-06 ............................... 2,000 2,094,000
9.4%, 5-1-11 ............................... 2,000 2,185,440
Total ...................................... 4,279,440
Electronic and Other Electric Equipment - 1.83%
Covad Communications Group, Inc.,
12%, 2-15-10 (A) ........................... 1,500 1,335,000
Elgar Holdings, Inc.,
9.875%, 2-1-08 ............................. 1,250 612,500
Level 3 Communications, Inc.:
11.0%, 3-15-08 (A) ......................... 1,750 1,680,000
9.125%, 5-1-08 ............................. 500 430,000
0.0%, 12-1-08 (B) .......................... 2,500 1,443,750
Metricom, Inc.,
13%, 2-15-10 ............................... 750 585,000
Total ...................................... 6,086,250
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
Fabricated Metal Products - 0.31%
AXIA Incorporated,
10.75%, 7-15-08 ............................ $ 750 $ 577,500
Neenah Corporation,
11.125%, 5-1-07 ............................ 500 446,250
Total ...................................... 1,023,750
Food and Kindred Products - 0.48%
B & G Foods, Inc.,
9.625%, 8-1-07 ............................. 2,000 1,610,000
Food Stores - 0.41%
Big V Supermarkets, Inc.,
11.0%, 2-15-04 ............................. 1,500 1,365,000
Furniture and Fixtures - 0.42%
Sealy Mattress Company,
0.0%, 12-15-07 (B) ......................... 2,000 1,415,000
Furniture and Home Furnishings Stores - 0.10%
MTS, INCORPORATED,
9.375%, 5-1-05 ............................. 750 324,375
Health Services - 2.23%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-02 .............................. 3,250 3,128,125
Columbia/HCA Healthcare Corporation,
7.25%, 5-20-08 ............................. 750 665,625
IASIS Healthcare Corporation,
13.0%, 10-15-09 (A) ........................ 1,750 1,736,875
Tenet Healthcare Corporation,
8.625%, 1-15-07 ............................ 2,000 1,885,000
Total ...................................... 7,415,625
Hotels and Other Lodging Places - 3.03%
CapStar Hotel Company,
8.75%, 8-15-07 ............................. 1,000 870,000
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-09 ............................... 1,250 1,150,000
HMH Properties, Inc.,
7.875%, 8-1-08 ............................. 3,000 2,505,000
Lodgian Financing Corp.,
12.25%, 7-15-09 ............................ 3,000 2,647,500
Prime Hospitality Corp.:
9.25%, 1-15-06 ............................. 2,000 1,940,000
9.75%, 4-1-07 .............................. 1,000 952,500
Total ...................................... 10,065,000
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
Industrial Machinery and Equipment - 1.26%
American Standard Inc.,
9.25%, 12-1-16 ............................. $ 825 $ 810,562
Anchor Lamina Inc. and
Anchor Lamina America, Inc.,
9.875%, 2-1-08 ............................. 1,000 748,750
Terex Corporation,
8.875%, 4-1-08 ............................. 3,000 2,610,000
Total ...................................... 4,169,312
Insurance Carriers - 0.30%
LifePoint Hospitals Holdings, Inc.,
10.75%, 5-15-09 ............................ 1,000 1,005,000
Miscellaneous Retail - 1.28%
Frankis Nursery & Crafts, Inc.,
10.25%, 3-1-08 ............................. 2,000 600,000
Michaels Stores, Inc.,
10.875%, 6-15-06 ........................... 3,500 3,635,625
Total ...................................... 4,235,625
Motion Pictures - 0.45%
AMC Entertainment Inc.,
9.5%, 3-15-09 .............................. 750 382,500
Regal Cinemas, Inc.,
9.5%, 6-1-08 ............................... 2,500 1,112,500
Total ...................................... 1,495,000
Oil and Gas Extraction - 0.28%
Canadian Forest Oil Co. Ltd.,
8.75%, 9-15-07 ............................. 1,000 920,000
Paper and Allied Products - 2.04%
Container Corporation of America,
10.75%, 5-1-02 ............................. 2,000 2,020,000
Fonda Group, Inc. (The),
9.5%, 3-1-07 ............................... 2,000 1,670,000
Mail-Well I Corporation,
8.75%, 12-15-08 ............................ 2,000 1,750,000
SF Holdings Group, Inc.,
0.0%, 3-15-08 (B) .......................... 2,500 1,343,750
Total ...................................... 6,783,750
Petroleum and Coal Products - 0.37%
Building Materials Corporation of America,
8.0%, 12-1-08 .............................. 1,400 1,230,250
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
Primary Metal Industries - 2.20%
Algoma Steel Inc.,
12.375%, 7-15-05 ........................... $1,000 $ 975,000
Commonwealth Aluminum Corporation,
10.75%, 10-1-06 ............................ 2,000 1,990,000
ISG Resources, Inc.,
10.0%, 4-15-08 ............................. 1,750 1,570,625
WCI Steel, Inc.,
10.0%, 12-1-04 ............................. 1,000 985,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-07 ............................ 2,000 1,790,000
Total ...................................... 7,310,625
Printing and Publishing - 0.81%
Perry-Judd's Incorporated,
10.625%, 12-15-07 .......................... 750 594,375
World Color Press, Inc.,
8.375%, 11-15-08 ........................... 2,250 2,100,623
Total ...................................... 2,694,998
Radio and Television Broadcasting Stations - 5.14%
Allbritton Communications Company,
9.75%, 11-30-07 ............................ 2,000 1,880,000
American Radio Systems Corporation,
9.0%, 2-1-06 ............................... 1,000 1,018,750
Chancellor Media Corporation of Los Angeles:
10.5%, 1-15-07 ............................. 2,000 2,150,000
8.0%, 11-1-08 .............................. 3,350 3,299,750
LIN Holdings Corp.,
0.0%, 3-1-08 (B) ........................... 3,500 2,161,250
Rogers Communications Inc.,
9.125%, 1-15-06 ............................ 3,000 2,985,000
Salem Communications Corporation,
9.5%, 10-1-07 .............................. 1,000 930,000
Spanish Broadcasting System, Inc.,
9.625%, 11-1-09 ............................ 1,750 1,688,750
Susquehanna Media Co.,
8.5%, 5-15-09 .............................. 1,000 955,000
Total ...................................... 17,068,500
Radio Telephone Communications - 8.39%
GT Group Telecom, Inc., Units,
0.0%, 2-1-10 (A)(B)(E) ..................... 2,250 1,260,000
Intercel, Inc.,
0.0%, 2-1-06 (B) ........................... 1,750 1,588,125
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
Microcell Telecommunications Inc.,
0.0%, 6-1-06 (B) ........................... $5,900 $ 5,221,500
Nextel Communications, Inc.:
0.0%, 9-15-07 (B) .......................... 1,500 1,095,000
0.0%, 2-15-08 (B) .......................... 2,500 1,687,500
Nextel International, Inc.,
0.0%, 4-15-08 (B) .......................... 5,125 3,177,500
Nextel Partners, Inc.,
0.0%, 2-1-09 (B) ........................... 5,500 3,520,000
Sprint Spectrum L.P.,
0.0%, 8-15-06 (B) .......................... 5,100 4,881,159
Tritel PCS, Inc.,
0.0%, 5-15-09 (B) .......................... 2,000 1,240,000
Triton PCS, Inc.,
0.0%, 5-1-08 (B) ........................... 2,000 1,375,000
US Unwired Inc.,
0.0%, 11-1-09 (A) (B) ...................... 2,500 1,337,500
VoiceStream Wireless Corporation,
10.375%, 11-15-09 (A) ...................... 1,500 1,492,500
Total ...................................... 27,875,784
Railroad Transportation - 0.22%
TFM, S.A. de C.V.,
0.0%, 6-15-09 (B) .......................... 1,000 730,000
Rubber and Miscellaneous Plastics Products - 1.65%
Globe Manufacturing Corp.,
10.0%, 8-1-08 .............................. 1,250 500,000
Graham Packaging Company and
GPC Capital Corp. I,
8.75%, 1-15-08 ............................. 1,500 1,215,000
Home Products International, Inc.,
9.625%, 5-15-08 ............................ 2,500 2,275,000
LDM Technologies, Inc.,
10.75%, 1-15-07 ............................ 2,000 1,500,000
Total ...................................... 5,490,000
Textile Mill Products - 0.93%
Anvil Knitwear, Inc.,
10.875%, 3-15-07 ........................... 1,500 1,245,000
Consoltex Group Inc.,
11.0%, 10-1-03 ............................. 2,000 1,820,000
Glenoit Corporation,
11.0%, 4-15-07 ............................. 125 28,750
Total ...................................... 3,093,750
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
Transportation by Air - 1.28%
Atlas Air, Inc.,
9.375%, 11-15-06 ........................... $4,500 $ 4,241,250
Transportation Equipment - 2.01%
Delco Remy International, Inc.,
8.625%, 12-15-07 ........................... 1,650 1,518,000
Federal-Mogul Corporation:
7.75%, 7-1-06 .............................. 2,000 1,646,880
7.875%, 7-1-10 ............................. 2,500 2,036,250
Westinghouse Air Brake Company (The),
9.375%, 6-15-05 ............................ 1,500 1,473,750
Total ...................................... 6,674,880
Transportation Services - 0.50%
Railworks Corporation,
11.5%, 4-15-09 ............................. 1,750 1,653,750
Trucking and Warehousing - 0.86%
Iron Mountain Incorporated,
10.125%, 10-1-06 ........................... 1,000 975,000
Pierce Leahy Corp.,
9.125%, 7-15-07 ............................ 2,000 1,875,000
Total ...................................... 2,850,000
Wholesale Trade - Durable Goods - 1.00%
AAi.Fostergrant, Inc.,
10.75%, 7-15-06 ............................ 500 152,500
Federal Data Corporation,
10.125%, 8-1-05 ............................ 1,000 680,000
Heafner (J.H.) Company, Inc. (The),
10.0%, 5-15-08 ............................. 2,500 2,037,500
WESCO Distribution, Inc.,
9.125%, 6-1-08 ............................. 500 435,000
Total ...................................... 3,305,000
Wholesale Trade - Nondurable Goods - 0.33%
Core-Mark International, Inc.,
11.375%, 9-15-03 ........................... 1,200 1,119,000
TOTAL CORPORATE DEBT SECURITIES - 81.90% ....... $272,008,534
(Cost: $292,936,859)
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
MARCH 31, 2000
Principal
Amount in
OTHER GOVERNMENT SECURITY - 1.17% Thousands Value
Mexico
United Mexican States,
9.75%, 4-6-05 .............................. $3,750 $ 3,890,625
(Cost: $3,748,704)
Face
Amount in
Thousands
UNREALIZED GAIN ON OPEN
FORWARD CURRENCY CONTRACTS - 0.01%
Euro Dollar, 5-30-00 (C) ..................... EUR 1,268 $ 47,915
TOTAL SHORT-TERM SECURITIES - 2.62% ............ $ 8,691,778
(Cost: $8,691,778)
TOTAL INVESTMENT SECURITIES - 95.49% ........... $317,137,599
(Cost: $330,119,930)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 4.51% 14,978,531
NET ASSETS - 100.00% .......................... $332,116,130
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, 2000, the value of these
securities amounted to $26,855,808 or 8.09% of net assets.
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(C) Traded in a foreign currency.
(D) Each unit of Leap Wireless International, Inc. consists of one 12.5%
senior note due 2010 and one warrant to purchase common stock.
(E) Each unit of GT Group Telecom, Inc. consists of $1,000 principal amount
of 13.25% senior discount notes due 2010 and one warrant to purchase
4.9106 Class B non-voting shares.
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, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value (Notes 1 and 3) ... $317,138
Cash ............................................... 1
Receivables:
Investment securities sold ........................ 13,462
Interest and dividends ............................ 6,726
Fund shares sold .................................. 135
Prepaid insurance premium ........................... 13
--------
Total assets ..................................... 337,475
--------
Liabilities
Investment securities purchased...................... 3,190
Payable to Fund shareholders......................... 1,738
Dividends payable ................................... 275
Accrued transfer agency and dividend
disbursing (Note 2) ................................ 78
Accrued service fee (Note 2) ........................ 63
Accrued management fee (Note 2) ..................... 6
Accrued distribution fee (Note 2) ................... 5
Accrued accounting services fee (Note 2) ............ 4
--------
Total liabilities ................................ 5,359
--------
Total net assets ............................... $332,116
========
Net Assets
$1.00 par value capital stock
Capital stock ..................................... $ 88,635
Additional paid-in capital ........................ 306,784
Accumulated undistributed loss:
Accumulated undistributed net realized
loss on investment transactions .................. (50,316)
Net unrealized depreciation in value of
investments ...................................... (12,987)
--------
Net assets applicable to outstanding
units of capital ............................... $332,116
========
Net asset value per share (net assets divided
by shares outstanding)
Class A ............................................. $3.75
Class B ............................................. $3.75
Class C ............................................. $3.75
Class Y ............................................. $3.75
Capital shares outstanding
Class A ............................................. 87,604
Class B ............................................. 298
Class C ............................................. 52
Class Y ............................................. 681
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, 2000
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ......................... $17,321
Dividends ......................................... 447
-------
Total income ..................................... 17,768
-------
Expenses (Note 2):
Investment management fee ......................... 1,126
Service fee:
Class A........................................... 430
Class B........................................... 1
Class C........................................... ---*
Transfer agency and dividend disbursing:
Class A........................................... 389
Class B........................................... 1
Class C........................................... ---*
Accounting services fee ........................... 28
Distribution fee:
Class A........................................... 12
Class B........................................... 2
Class C........................................... 1
Audit fees ........................................ 11
Custodian fees .................................... 6
Legal fees ........................................ 4
Shareholder servicing - Class Y .................... 2
Other ............................................. 95
-------
Total expenses ................................... 2,108
-------
Net investment income .......................... 15,660
-------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net loss on securities ..................... (12,493)
Realized net gain on foreign currency transactions .. 24
-------
Realized net loss on investments .................. (12,469)
-------
Unrealized appreciation in value of securities ...... 761
Unrealized appreciation in value of forward
currency contracts ................................ 48
-------
Unrealized appreciation in value of investments
during the period ................................ 809
-------
Net loss on investments .......................... (11,660)
-------
Net increase in net assets resulting
from operations ............................... $4,000
=======
*Not shown due to rounding.
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,
2000 1999
Decrease in Net Assets ------------ --------------
Operations:
Net investment income ............................. 15,660 $34,440
Realized net loss on
investments ..................................... (12,469) (21,144)
Unrealized appreciation
(depreciation) ................................... 809 (2,844)
-------- --------
Net increase in net assets
resulting from operations ...................... 4,000 10,452
-------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ........................................... (15,540) (34,192)
Class B ........................................... (21) ---
Class C ........................................... (4) ---
Class Y ........................................... (119) (248)
-------- --------
(15,684) (34,440)
-------- --------
Capital share transactions
(Note 5) .......................................... (29,899) (20,658)
-------- --------
Total decrease ................................ (41,583) (44,646)
Net Assets
Beginning of period ................................. 373,699 418,345
-------- --------
End of period ....................................... 332,116 $373,699
======== ========
Undistributed net investment
income ........................................... $--- $---
==== ====
*See "Financial Highlights" on pages 21 - 24.
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 ------------------------------------
3/31/00 1999 1998 1997 1996 1995
-------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period................. $3.88 $4.12 $4.42 $4.14 $4.03 $3.96
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .............. .17 .35 .37 .36 .35 .35
Net realized and
unrealized gain
(loss) on
investments ......... (.13) (.24) (.30) .28 .11 .07
----- ----- ----- ----- ----- -----
Total from investment
operations ............ .04 .11 .07 .64 .46 .42
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income................. (.17) (.35) (.37) (.36) (.35) (.35)
----- ----- ----- ----- ----- -----
Net asset value,
end of period ......... $3.75 $3.88 $4.12 $4.42 $4.14 $4.03
===== ===== ===== ===== ===== =====
Total return* .......... 0.94% 2.66% 1.22% 16.20% 11.90% 11.25%
Net assets, end of
period (in
millions) ............. $328 $371 $416 $407 $368 $368
Ratio of expenses to
average net assets..... 1.17%** 1.06% 0.96% 0.93% 0.95% 0.89%
Ratio of net investment
income to average
net assets ............ 8.70%** 8.60% 8.26% 8.54% 8.60% 8.93%
Portfolio turnover
rate .................. 27.31% 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.
**Annualized
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/6/99*
through
3/31/00
-------
Net asset value,
beginning of period ... $3.88
----
Income from investment
operations:
Net investment income . .15
Net realized and
unrealized loss
on investments ...... (.13)
----
Total from investment
operations ............ .02
----
Less dividends declared
from net investment
income .............. (.15)
----
Net asset value,
end of period ......... $3.75
====
Total return ........... 0.31%
Net assets, end of
period (in
millions) ............. $1
Ratio of expenses to
average net assets .... 2.06%**
Ratio of net investment
income to average
net assets ............ 7.77%**
Portfolio turnover
rate ..................27.31%***
*Commencement of operations.
**Annualized.
***For the six months ended March 31, 2000.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/6/99*
through
3/31/00
-------
Net asset value,
beginning of period ... $3.88
----
Income from investment
operations:
Net investment income . .15
Net realized and
unrealized loss
on investments ...... (.13)
----
Total from investment
operations ............ .02
----
Less dividends declared
from net investment
income .............. (.15)
----
Net asset value,
end of period ......... $3.75
====
Total return ........... 0.28%
Net assets, end of
period (000
omitted) .............. $195
Ratio of expenses to
average net assets .... 2.11%**
Ratio of net investment
income to average
net assets ............ 7.73%**
Portfolio turnover
rate ..................27.31%***
*Commencement of operations.
**Annualized.
***For the six months ended March 31, 2000.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
six For the fiscal year period
months ended September 30, from 2/27/96*
ended --------------------- through
3/31/00 1999 1998 1997 9/30/96
------- ------ ------ ------ --------
Net asset value,
beginning of period.... $3.88 $4.12 $4.42 $4.14 $4.15
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .............. .18 .36 .37 .37 .21
Net realized and
unrealized gain (loss)
on investments ....... (.13) (.24) (.30) .28 (.01)
----- ----- ----- ----- -----
Total from investment
operations............. .05 .12 .07 .65 .20
----- ----- ----- ----- -----
Less dividends declared
from net investment
income................. (.18) (.36) (.37) (.37) (.21)
----- ----- ----- ----- -----
Net asset value,
end of period.......... $3.75 $3.88 $4.12 $4.42 $4.14
===== ===== ===== ===== =====
Total return ........... 1.10% 2.95% 1.38% 16.38% 5.00%
Net assets, end of
period (in
millions) ............. $3 $3 $2 $2 $2
Ratio of expenses
to average net
assets................. 0.84%** 0.77% 0.79% 0.77% 0.77%**
Ratio of net
investment income
to average net
assets................. 8.98%** 8.89% 8.43% 8.69% 8.83%**
Portfolio
turnover rate.......... 27.31% 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
MARCH 31, 2000
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 accounting
principles generally accepted in the United States of America.
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 o All of the Fundis 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 accounting principles generally accepted in the United States of
America. 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 accounting
principles generally accepted in the United States of America 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 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. 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, Class B and Class C shares, the Fund 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
0.15% 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
$182,009. With respect to Class A, Class B and Class C shares, W&R paid sales
commissions of $126,210 and all expenses in connection with the sale of Fund
shares, except for registration fees and related expenses.
A contingent deferred sales charge ("CDSC") may be assessed against a
shareholder's redemption amount of Class B and Class C shares and is paid to
W&R. The purpose of the deferred sales charge is to compensate W&R for the
costs incurred by W&R in connection with the sale of Fund shares.
With respect to Class B shares, the amount of the CDSC will be the following
percent of the total amount invested during a calendar year to acquire the
shares or the value of the shares redeemed, whichever is less. Redemption at
any time during the first calendar year of investment, 5%; the second calendar
year, 4%; the third calendar year, 3%; the fourth calendar year, 3%; the fifth
calendar year, 2%; the sixth calendar year, 1% and thereafter, 0%.
If Class C shares are sold within 12 months of buying these shares, a 1% CDSC
will be imposed.
The deferred sales charge will not be imposed on shares representing payment
of dividends or distributions or on amounts which represent an increase in the
value of the shareholder's account resulting from capital appreciation above
the amount paid for shares purchased during the deferred sales charge period.
During the period ended March 31, 2000, W&R received $630 and $83 in deferred
sales charges from Class B shares and Class C shares, respectively.
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 0.25% of the Fundis 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.
Under the Distribution and Service Plan adopted by the Fund for Class B and
Class C shares, respectively, the Fund may pay W&R, on an annual basis, a
service fee of up to 0.25% of the average daily net assets of the class to
compensate W&R for providing services to shareholders of that class and/or
maintaining shareholder accounts for that class and a distribution fee of up
to 0.75% of the average daily net assets of the class to compensate W&R for
distributing the shares of that class. The Class B Plan and the Class C Plan
each permit W&R to receive compensation, through the distribution and service
fee, respectively, for its distribution activities for that class, which are
similar to the distribution activities described with respect to the Class A
Plan, and for its activities in providing personal services to shareholders of
that class and/or maintaining shareholder accounts of that class, which are
similar to the corresponding activities for which it is entitled to
reimbursement under the Class A Plan.
The Fund paid Directors' fees of $6,408 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 $90,729,400 while proceeds from maturities and sales
aggregated $123,765,522. Purchases of short-term securities aggregated
$1,433,211,826 while proceeds from maturities and sales aggregated
$1,443,389,861. No U.S. Government Securities were bought or sold during the
period ended March 31, 2000.
For Federal income tax purposes, cost of investments owned at March 31, 2000
was $330,119,930, resulting in net unrealized depreciation of $13,030,246, of
which $12,872,276 related to appreciated securities and $25,902,522 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. 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 each
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.
Transactions in capital stock are summarized below. Amounts are in thousands.
For the For the
six months fiscal year
ended ended
March 31, September 30,
2000 1999
------------------------
Shares issued from sale
of shares:
Class A 3,523 10,626
Class B 315 ---
Class C 53 ---
Class Y 4 655
Shares issued from
reinvestment of dividends:
Class A 3,653 7,683
Class B 5 ---
Class C 1 ---
Class Y 31 60
Shares redeemed:
Class A (15,250) (23,492)
Class B (22) ---
Class C (2) ---
Class Y (44) (648)
------ ------
Decrease in
outstanding capital
shares (7,733) (5,116)
====== ======
Value issued from sale
of shares:
Class A $ 13,620 $ 43,551
Class B 1,215 ---
Class C 205 ---
Class Y 14 2,741
Value issued from
reinvestment of dividends:
Class A 14,088 31,283
Class B 21 ---
Class C 4 ---
Class Y 118 246
Value redeemed:
Class A (58,921) (95,780)
Class B (86) ---
Class C (8) ---
Class Y (169) (2,699)
-------- --------
Decrease in outstanding
capital $(29,899) $(20,658)
======== ========
<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, 2000, 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, 1999,
and the financial highlights for the six-month period ended March 31, 2000,
and for each of the five fiscal years in the period ended September 30, 1999.
These financial statements and the financial highlights are the responsibility
of the Fundis 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 auditing standards generally
accepted in the United States of America. 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, 2000, 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, 2000, 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,
1999, and the financial highlights for the six-month period ended March 31,
2000, and for each of the five fiscal years in the period ended September 30,
1999, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
May 5, 2000
<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, San Mateo, 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
Kristen A. Richards, Vice President and Secretary
Louise D. Rieke, Vice President
Daniel C. Schulte, Vice President
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell
& Reed representative or by submitting Internal Revenue Service Form W-4P.
Once made, an election can be revoked by providing written notice to Waddell &
Reed, Inc. If you elect not to have tax withheld you may be required to make
payments of estimated tax. Penalties may be imposed by the IRS if withholding
and estimated tax payments are not adequate.
<PAGE>
The United Group of Mutual Funds
United 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 Tax-Managed Equity 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
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1015SA(3-00)
printed on recycled paper
<PAGE>
