CORPORATE
HIGH YIELD
FUND II, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
February 29, 2000
<PAGE>
CORPORATE HIGH YIELD FUND II, INC.
The Benefits and
Risks of
Leveraging
Corporate High Yield Fund II, Inc. has the ability to utilize leverage through
borrowings or issuance of short-term debt securities or shares of Preferred
Stock. The concept of leveraging is based on the premise that the cost of assets
to be obtained from leverage will be based on short-term interest rates, which
normally will be lower than the return earned by the Fund on its longer-term
portfolio investments. To the extent that the total assets of the Fund
(including the assets obtained from leverage) are invested in higher-yielding
portfolio investments, the Fund's Common Stock shareholders will benefit from
the incremental yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend rates
on any Preferred Stock, if the Fund were to issue Preferred Stock) may reduce
the Common Stock's yield and negatively impact its market price. If the income
derived from securities purchased with assets received from leverage exceeds the
cost of leverage, the Fund's net income will be greater than if leverage had not
been used. Conversely, if the income from the securities purchased is not
sufficient to cover the cost of leverage, the Fund's net income will be less
than if leverage had not been used, and therefore the amount available for
distribution to Common Stock shareholders will be reduced. In this case, the
Fund may nevertheless decide to maintain its leveraged position in order to
avoid capital losses on securities purchased with leverage. However, the Fund
will not generally utilize leverage if it anticipates that its leveraged capital
structure would result in a lower rate of return for its Common Stock than would
be obtained if the Common Stock were unleveraged for any significant amount of
time.
Proxy Results
During the six-month period ended February 29, 2000, Corporate High Yield Fund
II, Inc.'s shareholders voted on the following proposals. The proposals were
approved at a shareholders' meeting on December 15, 1999. The description of
each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- --------------------------------------------------------------------------------------------------
<C> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 8,432,989 353,486
Joe Grills 8,430,589 355,886
Walter Mintz 8,425,886 360,589
Robert S. Salomon Jr. 8,430,989 355,486
Melvin R. Seiden 8,429,716 356,759
Stephen B. Swensrud 8,429,482 356,993
Arthur Zeikel 8,421,216 365,259
- --------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche llp as the independent
auditors of the Fund to serve for the current fiscal year. 8,600,708 70,366 115,401
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
DEAR SHAREHOLDER
High-Yield Market Overview
For the six-month period ended February 29, 2000, little changed in the
high-yield bond market since our last report to shareholders. The market still
contends with interest rate pressure, weak technicals, limited liquidity and
distinctly uninspiring investment performance. Our consolation lies in the
relative performance of the high-yield bond market compared to several
investment alternatives as shown in the table below.
- --------------------------------------------------------------------------------
Six Months Three Months
Ended Ended
Feb. 29, 2000 Feb. 29, 2000
- --------------------------------------------------------------------------------
Corporate High
Yield Fund II + 4.32% + 3.50%
CS First Boston
Global High
Yield Index + 1.52 + 1.43
Ten-Year Treasury
Securities - 0.91 - 1.00
Standard & Poor's
500 Index + 4.11 - 1.33
Dow Jones
Industrial Average - 5.77 - 6.56
NASDAQ +71.62 +40.84
- --------------------------------------------------------------------------------
In many ways, the high-yield bond market has been a reflection of the equity
markets and its wide dichotomy between the "haves and have-nots." A few sectors,
such as communications, have been extremely popular. Issues in a hot sector are
pursued and have provided significant performance support for high-yield bonds.
Buyers flock to securities with momentum and lose interest when momentum shifts
to a new issue or sector. Less exciting securities in plodding industrial
sectors languish in both price and market interest. As witnessed in the equity
market, earnings disappointments result in selling pressure for the company's
securities. However, illiquidity in the high-yield market compounds the downward
pressure on prices. It is the downside that saps returns because, unlike
equities, high-yield bonds are limited in appreciation potential by call prices
and par maturities.
With this backdrop, it is difficult to achieve near-term comfort with the
direction of the high-yield market. We believe continued tightening of monetary
policy by the Federal Reserve Board will put pressure on the high-yield market.
Furthermore, we believe that investors have shunned fixed-income investments in
favor of the exciting returns that have driven the NASDAQ. Until that trend is
reversed, the high-yield market will be without one of its traditional technical
supports.
Though the high-yield market remains in the doldrums, we remain confident that
high-yield issues represent value for those with a long-term time horizon. At
606 basis points (6.06%), the spread or difference between yields of Treasury
bonds and high-yield bonds remains at historically wide levels. Investors are
being paid well for the incremental risk of investing in the high-yield market.
Further, more absolute yields are attractive, with the CS First Boston Global
High Yield Index at 12.58%. Default rates have begun to taper off, while
underlying economic trends remain favorable. We believe that in this environment
corporate earnings should begin to level or improve. This trend should support
bond prices and allow bond coupons to strengthen returns.
Fund Performance
For the six months ended February 29, 2000, the total investment return on the
Fund's Common Stock was +4.32%, based on a change in the per share net asset
value from $10.62 to $10.37, and assuming reinvestment of $0.630 per share
income dividends. During the same period, the net annualized yield of the Fund's
Common Stock was 12.05%.
Performance for a high-yield fund is always achieved by walking a tightrope
between credit risk and interest yield. Within the context of this difficult
market, the Fund did better than keep its balance during the past six months.
While returns are clearly not as good as those generated in a healthier
high-yield market environment, the Fund's return handily outperformed the
benchmark CS First Boston Global High Yield Index. Our industry weighting
strategies worked in the Fund's favor, with strong performance from emerging
markets, mobile communications and chemicals. The Fund holds a larger proportion
than the benchmark Index in these sectors. Both emerging markets and chemicals
benefited from the improving world economy. Notable in this category was a
nearly 12% price appreciation in the 11.75% bonds of styrene producer, Sterling
Chemicals Inc., as investors reassessed global demand in favor of producers such
as Sterling Chemical. The prospect of Internet-driven growth in addition to
already healthy voice usage has supported the prices of mobile communications
bonds. Millicom International Cellular, one of our larger holdings, benefited
from this trend, as well as receiving a boost in perceived asset value when
investors compared Millicom's portfolio of wireless properties with those of
recently acquired companies. In the weaker sectors, we sidestepped some of the
worst performers that dragged down results for the Index. We avoided
supermarkets, as well as textile issues that succumbed to competitive pressures
in recent months.
Leverage Strategy
The Fund was on average about 25% leveraged during the six-month period ended
February 29, 2000. Thus, the Fund borrowed the equivalent of 25% of total assets
invested, earning incremental yield on the investments we made with the borrowed
funds. At February 29, 2000, the Fund was 22.4% leveraged, having borrowed $31.9
million at a borrowing cost of 6.4375%. Our leverage position hurt us in this
period, as it typically does when bond prices fall. However, we do not believe
that trying to time this market by reducing our leverage now, then attempting to
add leverage as the market rebounds, will contribute to long-term returns. Given
our view that the high-yield market offers long-term value, we expect to
maintain leverage near current levels. (For a complete explanation of the
benefits and risks of leveraging, see page 1 of this report to shareholders.)
Investment Strategy
In this skittish and divided market, our strategy has been to maintain a solid
core of better-quality issues in the portfolio, to take advantage of growth
sectors in the market and to avoid any weak areas. This requires a close eye on
the relative value of portfolio holdings and their counterparts in the market
and on the operating trends of the individual companies. To this end, we sold
our positions in Cumulus Media, Inc. during the period. While Cumulus Media's
radio properties continued to grow, the bonds and preferred stock in our
positions looked fully valued relative to the risk profile of the company. For a
slightly better yield, we replaced Cumulus Media with better-rated bonds of
Global Crossing Holding Limited. Global Crossing is a worldwide
telecommunications provider, specializing in data communications and primarily
serving as a carrier's carrier. We believe growth prospects for the company are
excellent given the ever-increasing demand for communications capacity and the
competitive benefits of the company's state-of-the-art worldwide fiber optic
network.
In better-quality securities, we added to our holdings in HMH Properties, Inc.,
whose bonds are rated BB/Ba2. HMH Properties owns positions in a portfolio of
Marriott and Ritz Carlton hotels. We view this company as well-managed with
relatively predictable earnings growth. We also established a position in bonds
rated BB/Ba3 in Azurix Corporation, an international water utility, whose main
cash-generating asset is Wessex Water Ltd. in southwestern England. Building on
that solid core, Azurix is expanding in international markets.
During the period, we sold all or part of positions in various wireless
telephone companies, Nextel Communications, Inc., and two AT&T affiliates,
TeleCorp PCS and Triton PCS Inc. While all of these companies have fine
potential earnings prospects, we believed we could position the portfolio for
greater upside in issues such as Airgate PCS Inc., a Sprint PCS affiliate. We
also sold at a substantial loss our holdings in Ameriserve, a distributor to
fast food restaurants such as Burger King. The company had been unable to put an
expected turnaround in place and had faced considerable liquidity constraints,
while asset value diminished. Shortly after our sale, the company declared
bankruptcy, and the bonds fell further.
In Conclusion
We thank you for your investment in Corporate High Yield Fund II, Inc., and we
look forward to assisting you with your financial needs in the months and years
ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Senior Vice President and
Portfolio Manager
/s/ Elizabeth M. Phillips
Elizabeth M. Phillips
Vice President and Portfolio Manager
April 4, 2000
2 & 3
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Automotive--0.5% NR* NR* $1,000,000 Breed Technologies Inc., 9.25% due 4/15/2008 (f) $ 5,000
BB+ Ba2 500,000 Federal-Mogul Corporation, 7.375% due 1/15/2006 449,773
-----------
454,773
===================================================================================================================================
Broadcasting--Radio BB- Ba3 1,000,000 Antenna TV SA, 9% due 8/01/2007 910,000
& Television--1.6% B+ B2 750,000 Globo Comunicacoes e Participacoes, Ltd., 10.50%
due 12/20/2006 (d) 655,312
-----------
1,565,312
===================================================================================================================================
Cable--1.2% B+ B2 1,250,000 Charter Communications Holdings LLC, 8.625%
due 4/01/2009 1,137,500
===================================================================================================================================
Cable--International--6.7% Australis Media Ltd. (a)(f):
D NR* 50,655 1.75%/15.75% due 5/15/2003 507
D NR* 2,961,000 1.75%/15.75% due 5/15/2003 (i) 29,610
BB B1 1,500,000 Cablevision SA, 13.75% due 5/01/2009 1,530,000
B- B3 500,000 Diamond Cable Communications PLC, 13.25% due 9/30/2004 535,000
B- B3 1,250,000 International Cabletel, Inc., 11.643%** due 2/01/2006 1,162,500
D Caa3 1,950,000 Supercanal Holdings SA, 11.50% due 5/15/2005 (d)(f) 1,150,500
TeleWest Communications PLC:**
B+ B1 2,200,000 9.11% due 4/15/2004 (d) 1,314,500
B+ B1 750,000 11.001% due 10/01/2007 706,875
-----------
6,429,492
===================================================================================================================================
Chemicals--8.8% BBB- Baa3 1,250,000 Equistar Chemicals LP, 8.50% due 2/15/2004 1,235,922
B- B3 1,250,000 Great Lakes Carbon Corp., 11.75% due 5/15/2008+ 1,162,500
NR* B2 1,250,000 Huntsman Corporation, 9.50% due 7/01/2007 (d) 1,168,750
NR* NR* 1,500,000 Huntsman ICI Chemicals, 12.384%** due 12/31/2009 (d) 472,500
BB Ba3 2,000,000 Lyondell Chemical Company, 9.625% due 5/01/2007 1,907,500
B+ B2 1,000,000 Octel Developments PLC, 10% due 5/01/2006 975,000
Sterling Chemicals Inc:
BB- B3 750,000 12.375% due 7/15/2006 772,500
B Caa3 900,000 11.75% due 8/15/2006 774,000
-----------
8,468,672
===================================================================================================================================
Communications--1.2% B+ B2 2,150,000 Orion Network Systems, Inc., 15.167%** due 1/15/2007 1,139,500
===================================================================================================================================
Computer Services/ BB- Ba3 1,000,000 Amkor Technologies Inc., 9.25% due 5/01/2006 970,000
Electronics--5.3% CCC+ B3 1,750,000 MCMS Inc., 9.75% due 3/01/2008 857,500
B B2 1,500,000 SCG Holding Corporation, 12% due 8/01/2009 (d) 1,627,500
B B2 1,750,000 Zilog Inc., 9.50% due 3/01/2005 1,618,750
-----------
5,073,750
===================================================================================================================================
Consumer Products--1.9% B- B3 1,000,000 Albecca Inc., 10.75% due 8/15/2008 790,000
B- B2 250,000 Chattem, Inc., 8.875% due 4/01/2008 225,000
B B3 500,000 Corning Consumer Products, 9.625% due 5/01/2008 370,000
CCC+ Caa1 750,000 Syratech Corp., 11% due 4/15/2007 442,500
-----------
1,827,500
===================================================================================================================================
Consumer Services--1.6% BB- B2 500,000 Avis Rent A Car, Inc., 11% due 5/01/2009 502,500
B B2 2,000,000 Protection One Alarm Monitoring, 8.125%
due 1/15/2009 (d) 1,060,000
-----------
1,562,500
===================================================================================================================================
Diversified--1.2% CCC+ Caa2 1,250,000 Foamex LP, 13.50% due 8/15/2005 1,164,062
===================================================================================================================================
Energy--6.8% CCC- Caa3 900,000 Belden & Blake Corp., 9.875% due 6/15/2007 450,000
B B3 500,000 Clark USA Inc., 10.875% due 12/01/2005 190,000
CCC B3 1,250,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 1,037,500
BB Ba3 1,000,000 Port Arthur Finance Corporation, 12.50% due 1/15/2009 930,000
BB- Ba3 1,750,000 RBF Finance Company, 11% due 3/15/2006 1,828,750
BB- B1 1,000,000 Tesoro Petroleum Corp., 9% due 7/01/2008 922,500
B- B3 750,000 United Refining Co., 10.75% due 6/15/2007 450,000
CCC- Caa3 900,000 Wiser Oil Company, 9.50% due 5/15/2007 720,000
-----------
6,528,750
===================================================================================================================================
Entertainment--1.9% B- B3 1,250,000 Premier Parks Inc., 9.75% due 6/15/2007 1,187,500
B- Caa1 1,000,000 Regal Cinemas Inc., 9.50% due 6/01/2008 640,000
----------
1,827,500
===================================================================================================================================
Financial Services--4.3% CCC- Caa3 1,750,000 Amresco Inc., 9.875% due 3/15/2005 1,242,500
D Caa3 2,000,000 PennCorp Financial Group, 9.25% due 12/15/2003 1,860,000
BB+ Ba3 1,000,000 Sovereign Bancorp, 10.50% due 11/15/2006 1,000,000
-----------
4,102,500
===================================================================================================================================
Foreign Government B+ B2 1,000,000 Republic of Brazil, 10.125% due 5/15/2027 797,500
Obligations--0.8%
===================================================================================================================================
Gaming--3.2% NR* NR* 450 Capital Gaming International, Inc., 12% due 5/28/2001 135
D Caa1 2,000,000 GB Property Funding Corp., 10.875% due 1/15/2004 (f) 1,380,000
Jazz Casino Co. LLC:
NR* NR* 1,446,930 5.987% due 11/15/2009+ 759,638
NR* NR* 84,000 Contingent Notes due 11/15/2009 (g)(h) 0
Venetian Casino/LV Sands:
B- Caa1 250,000 12.25% due 11/15/2004 227,500
CCC+ Caa3 1,000,000 10% due 11/15/2005 740,000
-----------
3,107,273
===================================================================================================================================
Health Services--9.7% B- B3 1,250,000 ALARIS Medical Systems, Inc., 9.75% due 12/01/2006 1,043,750
BB+ Ba2 750,000 Columbia HCA/Healthcare Corp., 7.15% due 3/30/2004 693,750
CCC+ B3 1,750,000 Extendicare Health Services, 9.35% due 12/15/2007 1,015,000
Fresenius Medical Capital:
B+ ba3 300,000 Trust I, 9% due 12/01/2006 290,250
B+ ba3 700,000 Trust II, 7.875% due 2/01/2008 626,500
BB Ba3 1,000,000 ICN Pharmaceutical Inc., 8.75% due 11/15/2008 (d) 935,000
CCC+ B3 1,750,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 1,312,500
B- Caa1 1,125,000 Magellan Health Services, 9% due 2/15/2008 916,875
</TABLE>
4 & 5
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Health Services D C $1,250,000 Mariner Post--Acute Network, 9.50% due 11/01/2007 (f) $ 25,000
(concluded) NR* B2 1,000,000 Quest Diagnostic Inc., 10.75% due 12/15/2006 1,042,500
B+ Ba3 1,500,000 Quorum Health Group Inc., 8.75% due 11/01/2005 1,425,000
-----------
9,326,125
===================================================================================================================================
Hotels & Motels--2.1% BB Ba2 2,250,000 HMH Properties, Inc., 8.45% due 12/01/2008 2,019,375
===================================================================================================================================
Independent Power BB Ba3 1,000,000 Midland Funding II, 13.25% due 7/23/2006 1,162,220
Producers--1.2%
===================================================================================================================================
Industrial--1.2% Neff Corp.:
B B3 1,000,000 10.25% due 6/01/2008 900,000
B B3 250,000 10.25% due 6/01/2008 225,000
-----------
1,125,000
===================================================================================================================================
Industrial--Services--1.0% B- B3 1,000,000 Orius Capital Corporation, 12.75% due 2/01/2010 (d) 1,000,000
===================================================================================================================================
Industrial-- CCC+ Caa2 1,250,000 Metal Management Inc., 10% due 5/15/2008 937,500
Transportation--1.0%
===================================================================================================================================
Internet Transport--2.4% B- B3 1,000,000 PSINet Inc., 11% due 8/01/2009 1,002,500
NR* NR* 1,250,000 Splitrock Services Inc., 11.75% due 7/15/2008 1,331,250
-----------
2,333,750
===================================================================================================================================
Media & Communications-- B- B3 2,250,000 Satelites Mexicanos SA, 10.125% due 11/01/2004 1,755,000
International--1.8%
===================================================================================================================================
Metals & Mining--2.0% CCC+ B3 2,000,000 Kaiser Aluminum & Chemical Corp., 12.75% due 2/01/2003 1,965,000
===================================================================================================================================
Packaging--1.3% B+ Ba3 1,250,000 Vicap SA, 11.375% due 5/15/2007 1,207,813
===================================================================================================================================
Paper & Forest B B2 900,000 Ainsworth Lumber Company, 12.50% due 7/15/2007+ 969,750
Products--4.6% Doman Industries Limited:
B Caa1 1,000,000 8.75% due 3/15/2004 865,000
B+ B3 500,000 12% due 7/01/2004 523,750
CCC+ Caa1 1,000,000 Repap New Brunswick, 10.625% due 4/15/2005 925,000
CCC+ B3 1,000,000 Tjiwi Kimia Finance Mauritius, 10% due 8/01/2004 710,000
CCC+ B3 500,000 Tjiwi Kimia International BV, 13.25% due 8/01/2001 440,000
-----------
4,433,500
===================================================================================================================================
Product Fisher Scientific International:
Distribution--1.7% B- B3 750,000 9% due 2/01/2008 690,000
B- B3 500,000 9% due 2/01/2008 460,000
CCC- Ca 1,100,000 US Office Products Co., 9.75% due 6/15/2008 495,000
-----------
1,645,000
===================================================================================================================================
Publishing & B B2 1,500,000 MDC Communications Corp., 10.50% due 12/01/2006 1,440,000
Printing--1.5%
===================================================================================================================================
Real Estate--1.4% BB- Ba3 1,500,000 Forest City Enterprises Inc., 8.50% due 3/15/2008 1,383,750
===================================================================================================================================
Recreation--0.7% B+ B1 725,000 Intrawest Corp., 9.75% due 8/15/2008 697,812
===================================================================================================================================
Shipping--0.5% BB Ba2 500,000 Stena AB, 10.50% due 12/15/2005 460,000
===================================================================================================================================
Specialty Retailing--1.1% B B2 1,250,000 Jo-Ann Stores Inc., 10.375% due 5/01/2007 1,062,500
===================================================================================================================================
Steel--1.0% NR* B2 750,000 CSN Iron SA, 9.125% due 6/01/2007 (d) 630,000
B Caa1 1,000,000 Republic Technology, 13.75% due 7/15/2009 (d)(j) 350,000
-----------
980,000
===================================================================================================================================
Telecommunications--0.2% CCC+ Caa1 500,000 Dolphin Telecom PLC, 17.456%** due 6/01/2008 226,250
===================================================================================================================================
Telephony-- B+ B2 1,000,000 Call-Net Enterprises, Inc., 9.27%** due 8/15/2007 577,500
Competitive Local NR* NR* 1,250,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 (d) 1,218,750
Exchange Carrier--15.5% B- B3 1,000,000 Esprit Telecom Group PLC, 10.875% due 6/15/2008 940,000
CCC+ Caa1 1,500,000 GT Group Telecom, 13.25%** due 2/01/2010 (d) 900,000
BB Ba2 2,750,000 Global Crossing Holding Limited, 9.50%
due 11/15/2009 (d) 2,660,625
Intermedia Communications Inc.:
B B2 500,000 10.503%** due 7/15/2007 396,250
B B2 500,000 8.60% due 6/01/2008 457,500
L-3 Communications Corp.:
B B2 650,000 10.375% due 5/01/2007 659,750
B B2 1,000,000 8.50% due 5/15/2008 905,000
B+ B2 250,000 Metromedia Fiber Network, 10% due 12/15/2009 246,250
Nextlink Communications Inc.:
B B2 1,250,000 12.50% due 4/15/2006 1,321,875
B B2 500,000 9% due 3/15/2008 465,000
B B2 1,000,000 10.75% due 6/01/2009 1,005,000
B- Caa1 1,000,000 Tele1 Europe BV, 13% due 5/15/2009 1,030,000
BBB- B1 2,000,000 Telefonica de Argentina, 11.875% due 11/01/2004 2,160,000
-----------
14,943,500
===================================================================================================================================
Textiles--1.2% B B2 1,250,000 Polymer Group Inc., 8.75% due 3/01/2008 1,159,375
===================================================================================================================================
Transportation--11.2% B- B3 1,500,000 American Reefer Co. Ltd., 10.25% due 3/01/2008 915,000
BB- NR* 1,250,000 Autopistas del Sol SA, 10.25% due 8/01/2009 (d) 1,031,250
BB- Ba3 2,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 1,670,000
BB- B1 1,250,000 Sea Containers Ltd., 12.50% due 12/01/2004 1,250,000
B+ B2 1,000,000 TFM, SA de CV, 11.939%** due 6/15/2009 720,000
BB- Ba3 500,000 Transportacion Maritima Mexicana, SA de CV, 9.25%
due 5/15/2003 437,500
B- B2 4,271,000 Transtar Holdings LP, 13.375% due 12/15/2003 4,431,163
NR* NR* 539,255 Trism, 12% due 3/15/2005 (c) 323,553
-----------
10,778,466
</TABLE>
6 & 7
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
===================================================================================================================================
Utilities--4.1% BB Ba3 $1,500,000 Azurix Corporation, 10.375% due 2/15/2007 (d) $ 1,507,800
NR* NR* 2,359,521 Tucson Electric & Power Co., 10.21%
due 1/01/2009 (b)(c) 2,439,037
-----------
3,946,837
===================================================================================================================================
Wireless CCC Caa1 1,000,000 Airgate PCS Inc., 12.713%** due 10/01/2009 580,000
Communications-- Nextel Communications, Inc:
Domestic Paging & B B1 750,000 9.505%** due 10/31/2007 543,750
Cellular--6.1% B B1 1,000,000 9.375% due 11/15/2009 963,750
B B3 2,000,000 Pinnacle Holdings Inc., 11.674%** due 3/15/2008 1,332,500
B- B2 1,325,000 VoiceStream Wireless Corporation/VoiceStream
Wireless Holding Company,
10.375% due 11/15/2009 (d) 1,369,719
B- B3 1,000,000 Western Wireless Corp., 10.50% due 2/01/2007 1,050,000
-----------
5,839,719
===================================================================================================================================
Wireless NR* NR* 1,000,000 Celcaribe SA, 14.50% due 3/15/2004 862,500
Communications-- B B3 2,070,000 Comunicacion Celular SA, 13.153%** due 3/01/2005 (d) 1,397,250
International Paging B- Caa1 1,000,000 McCaw International Ltd., 12.328%** due 4/15/2007 725,000
& Cellular--7.4% B- Caa1 2,750,000 Millicom International Cellular, 14.047%**
due 6/01/2006 2,371,875
CCC+ Caa1 2,750,000 Telesystem International Wireless Inc., 17.143%**
due 6/30/2007 1,760,000
-----------
7,116,625
===================================================================================================================================
Total Investments in Corporate Bonds
(Cost--$138,844,729)--128.9% 124,131,701
===================================================================================================================================
<CAPTION>
Shares
Held Stocks & Warrants
<S> <C> <C> <C>
Cable--0.0% 1,915 Wireless One Inc. (Warrants) (e) 19
===================================================================================================================================
Energy--1.0% 69,708 Forcenergy Inc. (f) 975,912
===================================================================================================================================
Entertainment--0.4% 19,739 On Command Corporation (f) 335,563
6,417 On Command Corporation (Warrants) (e) 30,481
------------
366,044
===================================================================================================================================
Gaming--0.1% 123 Capital Gaming International, Inc. (When Issue) (f) 1
24,357 JCC Holding Company (Class A) (f) 57,848
------------
57,849
===================================================================================================================================
Internet Transport--0.3% 1,250 Splitrock Services Inc. (Warrants) (e) 287,500
===================================================================================================================================
Supermarkets--0.0% 1,873 Grand Union Co. (Warrants) (e) 1,054
===================================================================================================================================
Telephony-- 721 Intermedia Communications Inc. (Convertible Preferred)+ 717,395
Competitive Local 1,000 Tele1 Europe BV (Warrants) (e) 77,000
Exchange Carrier--0.8% ------------
794,395
===================================================================================================================================
Transportation--0.6% 49,000 HMI (f) 563,500
34,153 Trism (f) 17,077
------------
580,577
===================================================================================================================================
Wireless 2,070 Comunicacion Celular SA (Warrants) (d)(e) 388
Communications--
International Paging
& Cellular--0.0%
===================================================================================================================================
Total Investments in Stocks & Warrants (Cost--
$5,497,719)--3.2% 3,063,738
===================================================================================================================================
<CAPTION>
Face
Amount Short-Term Securities
===================================================================================================================================
<S> <C> <C> <C>
Commercial $ 270,000 General Motors Acceptance Corp., 5.94% due 3/01/2000 270,000
Paper***--0.3%
===================================================================================================================================
Total Investments in Short-Term Securities
(Cost--$270,000)--0.3% 270,000
===================================================================================================================================
Total Investments (Cost--$144,612,448)--132.4% 127,465,439
Liabilities in Excess of Other Assets--(32.4%) (31,188,756)
------------
Net Assets--100.0% $ 96,276,683
============
===================================================================================================================================
</TABLE>
* Not Rated.
** Represents a zero coupon or step bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
*** Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
+ Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(a) Represents a step bond. Coupon payments are paid-in-kind, in which the
Fund receives additional face at an annual rate of 1.75% until May 15,
2000. Subsequently, the Fund will receive cash coupon payments at an
annual rate of 15.75% until maturity.
(b) Restricted securities as to resale. The value of the Fund's investments in
restricted securities was approximately $2,439,000, representing 2.5% of
net assets.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tucson Electric & Power Co., 10.21% due 1/01/2009 3/23/1994 $2,312,331 $2,439,037
- -----------------------------------------------------------------------------------------
Total $2,312,331 $2,439,037
========== ==========
- -----------------------------------------------------------------------------------------
</TABLE>
(c) Subject to principal paydowns.
(d) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(e) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number
of shares are subject to adjustment under certain conditions until the
expiration date.
(f) Non-income producing security.
(g) Floating rate note.
(h) Represents an obligation by Jazz Casino Co. LLC to pay a semi-annual
amount to the Fund through 11/15/2009. The payments are based upon varying
interest rates and the amounts, which may be paid-in-kind, are contingent
upon the earnings before income taxes, depreciation and amortization of
Jazz Casino Co. LLC on a fiscal year basis.
(i) Each $1,000 face amount contains one warrant of Australis Media Ltd.
(j) Each $1,000 face amount contains one warrant of Republic Technology.
See Notes to Financial Statements.
8 & 9
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of February 29, 2000
===================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$144,612,448) ............................... $ 127,465,439
Receivables:
Securities sold ................................................................... $ 3,413,688
Interest .......................................................................... 2,968,587 6,382,275
-------------
Prepaid expenses and other assets ................................................... 154,336
-------------
Total assets ........................................................................ 134,002,050
-------------
===================================================================================================================================
Liabilities: Loans ............................................................................... 31,900,000
Payables:
Securities purchased .............................................................. 5,134,616
Interest on loans ................................................................. 350,519
Custodian bank .................................................................... 153,504
Dividends to shareholders ......................................................... 135,157
Investment adviser ................................................................ 40,828
Commitment fees ................................................................... 2,631 5,817,255
-------------
Accrued expenses .................................................................... 8,112
-------------
Total liabilities ................................................................... 37,725,367
-------------
===================================================================================================================================
Net Assets: Net assets .......................................................................... $ 96,276,683
=============
===================================================================================================================================
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized ......................... $ 928,799
Paid-in capital in excess of par .................................................... 128,239,366
Undistributed investment income--net ................................................ 146,280
Accumulated realized capital losses on investments--net ............................. (15,890,753)
Unrealized depreciation on investments--net ......................................... (17,147,009)
-------------
Net Assets--Equivalent to $10.37 per share based on 9,287,994 shares of capital stock
outstanding (market price--$9.00) ................................................... $ 96,276,683
=============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended February 29, 2000
======================================================================================================
<S> <C> <C> <C>
Investment Income: Interest and discount earned ........................ $ 7,040,516
Dividends ........................................... 64,573
Other ............................................... 20,623
-----------
Total income ........................................ 7,125,712
-----------
======================================================================================================
Expenses: Loan interest expense ............................... $ 1,010,879
Investment advisory fees ............................ 323,174
Professional fees ................................... 36,540
Borrowing cost ...................................... 32,378
Accounting services ................................. 29,312
Directors' fees and expenses ........................ 19,986
Transfer agent fees ................................. 17,837
Printing and shareholder reports .................... 13,181
Listing fees ........................................ 7,937
Custodian fees ...................................... 7,380
Pricing services .................................... 5,753
Other ............................................... 8,440
-----------
Total expenses ...................................... 1,512,797
-----------
Investment income--net .............................. 5,612,915
-----------
======================================================================================================
Realized & Realized loss on investments--net ................... (3,663,880)
Unrealized Gain Change in unrealized depreciation on investments--net 1,538,764
(Loss) on -----------
Investments--Net:
Net Increase in Net Assets Resulting from Operations $ 3,487,799
===========
======================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
February 29, August 31,
Increase (Decrease) in Net Assets: 2000 1999
------------- -------------
==================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ......................................................... $ 5,612,915 $ 11,801,892
Realized loss on investments--net .............................................. (3,663,880) (4,578,158)
Change in unrealized depreciation on investments--net .......................... 1,538,764 (1,109,456)
------------- -------------
Net increase in net assets resulting from operations ........................... 3,487,799 6,114,278
------------- -------------
==================================================================================================================================
Dividends to Dividends to shareholders from investment income--net .......................... (5,853,823) (12,384,283)
Shareholders: ------------- -------------
==================================================================================================================================
Capital Share Value of shares issued to Common Stock shareholders in reinvestment of dividends -- 2,353,724
Transactions: -------------
==================================================================================================================================
Net Assets: Total decrease in net assets ................................................... (2,366,024) (3,916,281)
Beginning of period ............................................................ 98,642,707 102,558,988
------------- -------------
End of period* ................................................................. $ 96,276,683 $ 98,642,707
============= =============
*Undistributed investment income--net ........................................... $ 146,280 $ 387,188
============= =============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended February 29, 2000
=====================================================================================================
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations ........ $ 3,487,799
Operating Activities: Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in receivables ..................................... (97,903)
Increase in other assets .................................... (51,368)
Increase in other liabilities ............................... 56,660
Realized and unrealized loss on investments--net ............ 2,125,116
Amortization of discount .................................... (1,301,589)
------------
Net cash provided by operating activities ................... 4,218,715
------------
=====================================================================================================
Cash Provided by Proceeds from sales of long-term investments ................ 29,990,482
Investing Activities: Purchases of long-term investments .......................... (25,776,224)
Purchases of short-term investments ......................... (23,797,671)
Proceeds from sales and maturities of short-term investments 23,783,000
------------
Net cash provided by investing activities ................... 4,199,587
------------
=====================================================================================================
Cash Used for Cash receipts from borrowings ............................... 21,500,000
Financing Activities: Cash payments on borrowings ................................. (24,200,000)
Dividends paid to shareholders .............................. (5,914,867)
------------
Net cash used for financing activities ...................... (8,614,867)
------------
=====================================================================================================
Cash: Net decrease in cash ........................................ (196,565)
Cash at beginning of period ................................. 196,565
------------
Cash at end of period ....................................... $ --
============
=====================================================================================================
Cash Flow Information: Cash paid for interest ...................................... $ 987,722
============
=====================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios For the
have been derived from information provided Six Months For the Year
in the financial statements. Ended Ended August 31,
February 29, -----------------------------------------------
Increase (Decrease) in Net Asset Value: 2000+ 1999+ 1998+ 1997+ 1996
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 10.62 $ 11.30 $ 13.07 $ 12.56 $ 12.44
Operating ------- -------- -------- -------- --------
Performance: Investment income--net ....................... .60 1.30 1.33 1.26 1.35
Realized and unrealized gain (loss) on
investments--net (.22) (.63) (1.77) .52 .15
------- -------- -------- -------- --------
Total from investment operations ............... .38 .67 (.44) 1.78 1.50
------- -------- -------- -------- --------
Less dividends from investment income--net ..... (.63) (1.35) (1.33) (1.27) (1.38)
------- -------- -------- -------- --------
Net asset value, end of period ................. $ 10.37 $ 10.62 $ 11.30 $ 13.07 $ 12.56
======= ======== ======== ======== ========
Market price per share, end of period .......... $ 9.00 $10.4375 $ 11.125 $ 13.44 $ 13.00
======= ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on net asset value per share ............. 4.32%++ 6.08% (4.10%) 14.91% 12.71%
Return:** ======= ======== ======== ======== ========
Based on market price per share ................ (7.88%)++ 5.90% (8.16%) 14.14% 20.94%
======= ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses, excluding interest expense ........... 1.04%* 1.07% .89% .81% .81%
Net Assets: ======= ======== ======== ======== ========
Expenses ....................................... 3.15%* 2.87% 2.06% 1.22% 1.65%
======= ======== ======== ======== ========
Investment income--net ......................... 11.68%* 11.62% 10.35% 9.23% 9.15%
======= ======== ======== ======== ========
===================================================================================================================================
Leverage: Amount of borrowings outstanding, end of
period (in thousands) .......................... $31,900 $ 34,600 $ 32,900 $ 13,000 $ 9,250
======= ======== ======== ======== ========
Average amount of borrowings outstanding
during the period (in thousands) ............... $33,554 $ 34,078 $ 23,036 $ 8,433 $ 16,948
======= ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the period .................... $ 3.61 $ 3.71 $ 2.57 $ .97 $ 1.98
======= ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of period (in thousands) ....... $96,277 $ 98,643 $102,559 $115,903 $108,391
Data: ======= ======== ======== ======== ========
Portfolio turnover ............................. 23.93% 56.58% 45.73% 70.76% 69.75%
======= ======== ======== ======== ========
===================================================================================================================================
</TABLE>
+ Based on average shares outstanding.
++ Aggregate total investment return.
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Corporate High Yield Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles, which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
KYT.
(a) Valuation of investments--Portfolio securities are valued on the basis of
prices furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders. In
certain circumstances, portfolio securities are valued at the last sale price on
the exchange that is the primary market for such securities, or the last quoted
bid price for those securities for which the over-the-counter market is the
primary market or for listed securities in which there were no sales during the
day. The value of interest rate swaps, caps and floors is determined in
accordance with a formula and then confirmed periodically by obtaining a bank
quotation. Options written or purchased are valued at the last sale price in the
case of exchange-traded options. In the case of options traded in the
over-the-counter market, valuation is the last asked price (options written) or
the last bid price (options purchased). Obligations with remaining maturities of
sixty days or less are valued at amortized cost, which approximates market
value, unless this method no longer produces fair valuations. Rights or warrants
to acquire stock, or stock acquired pursuant to the exercise of a right or
warrant, may be valued taking into account various factors such as original cost
to the Fund, earnings and net worth of the issuer, market prices for securities
of similar issuers, assessment of the issuer's future prosperity, liquidation
value or third party transactions involving the issuer's securities. Securities
and assets for which there exist no price quotations or valuations and all other
assets including futures contracts and related options are valued at fair value
as determined in good faith by or on behalf of the Board of Directors of the
Fund.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Options--The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
14 & 15
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Interest rate transactions--The Fund is authorized to enter into interest rate
swaps and purchase or sell interest rate caps and floors. In an interest rate
swap, the Fund exchanges with another party their respective commitments to pay
or receive interest on a specified notional principal amount. The purchase of an
interest rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest rate, to
receive payments of interest equal to the difference between the index and the
predetermined rate on a notional principal amount from the party selling such
interest rate cap (or floor).
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Custodian bank--The Fund recorded an amount payable to the custodian bank
reflecting an overnight overdraft resulting from a failed trade that settled the
next day.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services the Fund pays a monthly fee at
an annual rate of .50% of the Fund's average weekly net assets plus the proceeds
of any outstanding principal borrowed.
During the six months ended February 29, 2000, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), $622 for security price quotations to compute the net
asset value of the Fund.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 29, 2000 were $30,529,330 and $33,404,170, respectively.
Net realized losses for the six months ended February 29, 2000 and net
unrealized losses as of February 29, 2000 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
- --------------------------------------------------------------------------------
Long-term investments .............. $ (3,663,880) $(17,147,009)
------------ ------------
- --------------------------------------------------------------------------------
Total .............................. $ (3,663,880) $(17,147,009)
============ ============
- --------------------------------------------------------------------------------
As of February 29, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $17,147,009, of which $3,018,029 related to appreciated
securities and $20,165,038 related to depreciated securities. The aggregate cost
of investments at February 29, 2000 for Federal income tax purposes was
$144,612,448.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10, all of which were initially classified as Common Stock. The Board of
Directors is authorized, however, to classify and reclassify any unissued shares
of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding during the six months ended February 29, 2000
remained constant and during the year ended August 31, 1999 increased by 211,019
as a result of dividend reinvestment.
5. Short-Term Borrowings:
On January 26, 2000, the Fund extended its credit agreement with State Street
Bank and Trust Company and Bank of America, N.A. The agreement is a $50,000,000
credit facility bearing interest at the Federal Funds Rate plus .50% and/or
LIBOR plus .50%. For the six months ended February 29, 2000, the average amount
borrowed was approximately $33,554,000 and the daily weighted average interest
rate was 6.04%. For the six months ended February 29, 2000, facility and
commitment fees aggregated approximately $32,000.
6. Capital Loss Carryforward:
At August 31, 1999, the Fund had a net capital loss carryforward of
approximately $9,795,000, of which $2,626,000 expires in 2003, $3,371,000
expires in 2004, $1,021,000 expires in 2005 and $2,777,000 expires in 2007. This
amount will be available to offset like amounts of any future taxable gains.
7. Subsequent Event:
On March 7, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.094965 per share,
payable on March 31, 2000 to shareholders of record as of March 17, 2000.
16 & 17
<PAGE>
Corporate High Yield Fund II, Inc., February 29, 2000
PORTFOLIO INFORMATION
<TABLE>
<CAPTION>
Percent of
As of February 29, 2000 Long-Term Investments
====================================================================================================================================
<S> <C> <C> <C>
Ten Largest Transtar Holdings LP Transtar is a transportation holding company with seven railroads, a Great Lakes
Holdings shipping fleet and Holdings an inland barge operation. Transtar provides sole
rail access and primary water transport for nearly all the steel plants of USX. 3.5%
----------------------------------------------------------------------------------------------------------------------
Nextlink Communications Nextlink provides local, long distance and enhanced telephone communications
Inc. services to commercial customers. The company operates in 23 facilities-based
networks in fourteen states. 2.2
----------------------------------------------------------------------------------------------------------------------
Global Crossing Global Crossing is a worldwide telecommunications provider, specializing in data
Holding Limited communications and primarily serving as a carrier's carrier. The network consists
of undersea and terrestrial digital fiber optic systems based on Internet protocol. 2.1
----------------------------------------------------------------------------------------------------------------------
Tucson Electric & This electric utility serves Tucson, Arizona, and surrounding areas. Our bonds
Power Co. are secured lease obligation bonds on the company's Springerville coal-fired
power generation plant. 1.9
----------------------------------------------------------------------------------------------------------------------
Millicom International Millicom International develops and operates cellular telephone systems
Cellular worldwide. The company has interest in 33 cellular systems in 20 countries,
primarily in emerging markets in Asia, Latin America, Europe and Africa. 1.9
----------------------------------------------------------------------------------------------------------------------
Nextel Communications, Nextel is building a network to provide digital wireless communications
Inc. services that ultimately will have a nationwide footprint. The company currently
has service in over 225 cities, with service to over 85% of the US population.
The company has over 1.2 million units in service. 1.8
----------------------------------------------------------------------------------------------------------------------
Telefonica de Argentina Telefonica de Argentina provides monopoly telephone service to the southern
half of Argentina, including about half the Buenos Aires metropolitan area
where nearly one-third of Argentina's population is located. 1.7
----------------------------------------------------------------------------------------------------------------------
TeleWest TeleWest is one of the largest UK cable television and telephone operators,
Communications PLC owning and operating franchises covering almost one-third of total UK-franchised
homes and businesses. Its network also provides a digital, switched data network
using Internet protocol, for both residential and business Internet access.
TeleWest also owns a 50% interest in Cable London. 1.6
----------------------------------------------------------------------------------------------------------------------
HMH Properties, Inc. HMH, a wholly-owned subsidiary of Host Marriott Corporation, owns or holds
controlling interests in 69 full-service hotels, comprising the majority of
Host Marriott's lodging properties. The properties are generally operated under
the Marriott and Ritz-Carlton brand names. Host Marriott manages most of the
properties for fees based on revenues or operating profit. 1.6
----------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Kaiser Aluminum & Chemical Corp., an affiliate of Maxxam Inc., is one of the
Chemical Corp. world's leading producers of aluminum. The company mines and refines bauxite
into alumina, produces aluminum from alumina and manufactures fabricated
aluminum products. 1.5
====================================================================================================================================
</TABLE>
Portfolio Profile
The quality ratings* of securities in the Fund as of February 29, 2000 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Long-Term Investments
- --------------------------------------------------------------------------------
BBB/Baa .......................................................... 4.6%
BB/Ba ............................................................ 24.9
B/B .............................................................. 61.3
CCC/Caa or lower ................................................. 4.8
NR (Not Rated) ................................................... 4.4
- --------------------------------------------------------------------------------
* In cases where bonds are rated differently by Standard & Poor's Corp. and
Moody's Investors Service, Inc., bonds are categorized according to the
higher of the two ratings.
- --------------------------------------------------------------------------------
Percent of
Foreign Holdings Long-Term Investments
- --------------------------------------------------------------------------------
Total Foreign Holdings ............................................... 33.7%
Emerging Markets Holdings ............................................ 16.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Portfolio Maturity ........................................... 6.4 Years
- --------------------------------------------------------------------------------
Percent of
Five Largest Foreign Countries* Long-Term Investments
- --------------------------------------------------------------------------------
Canada .................................................................. 6.2%
Argentina ............................................................... 4.6
United Kingdom .......................................................... 4.6
Mexico .................................................................. 3.3
Brazil .................................................................. 2.6
- --------------------------------------------------------------------------------
* All holdings are denominated in US dollars.
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries Total Assets
- --------------------------------------------------------------------------------
Telephony--Competitive Local Exchange Carrier ....................... 11.7%
Transportation ...................................................... 8.5
Health Services ..................................................... 7.0
Chemicals ........................................................... 6.3
Energy .............................................................. 5.6
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Elizabeth M. Phillips, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, Secretary
Custodian & Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
KYT
18 & 19
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of Corporate High Yield Fund II, Inc. for their information. It is
not a prospectus, circular or representation intended for use in the purchase
of shares of the Fund or any securities mentioned in the report. Past
performance results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its Common Stock to
provide Common Stock shareholders with a potentially higher rate of return.
Leverage creates risk for Common Stock shareholders, including the likelihood of
greater volatility of net asset value and market price of Common Stock shares,
and the risk that fluctuations in short-term interest rates may reduce the
Common Stock's yield. Statements and other information herein are as dated and
are subject to change
Corporate High
Yield Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011 16913--2/00
[LOGO] Printed on post-consumer recycled paper
