CORPORATE
HIGH YIELD
FUND II, INC.
FUNE LOGO
Semi-Annual Report
February 28, 1995
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Harry Woolf, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
Vincent T. Lathbury III, Vice President
Elizabeth M. Phillips, Vice President
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
Custodian & Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
KYT
<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.
Corporate High
Yield Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
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. Since 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 are the
beneficiaries of the incremental yield.
<PAGE>
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.
<TABLE>
Per Share Selected
Quarterly Financial
Data*
<CAPTION>
Net Realized Unrealized Dividends/Distributions
Investment Gains Gains Net Investment Capital
For the Period Income (Losses) (Losses) Income Gains
<S> <C> <C> <C> <C> <C>
November 26, 1993++ to February 28, 1994 $.31 $ .03 $ .17 $(.20) --
March 1, 1994 to May 31, 1994 .38 (.04) (1.69) (.37) --
June 1, 1994 to August 31, 1994 .37 (.13) (.25) (.37) --
September 1, 1994 to November 30, 1994 .36 (.24) (.78) (.36) --
December 1, 1994 to February 28, 1995 .38 (.11) .52 (.39) --
<CAPTION>
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
November 26, 1993++ to February 28, 1994 $14.62 $14.14 $15.00 $13.875 772
March 1, 1994 to May 31, 1994 14.43 12.75 14.375 12.25 942
June 1, 1994 to August 31, 1994 12.99 12.30 13.625 11.875 736
September 1, 1994 to November 30, 1994 12.41 11.41 12.625 10.375 1,198
December 1, 1994 to February 28, 1995 12.00 11.09 12.125 11.00 887
<FN>
++Commencement of Operations.
*Calculations are based upon shares of Common Stock outstanding at the end of each period.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
<PAGE>
DEAR SHAREHOLDER
The high-yield market has shown positive momentum in the first
months of 1995. An improved Treasury market, better technicals and
strong earnings reports caused the market to break its downward
trend and begin to stabilize in mid-December. For the six months
ended February 28, 1995, the total return on the unmanaged Merrill
Lynch High Yield Master Index was +5.07% versus a -3.04% return for
the prior six months. During the same period, the Index again
outperformed the +2.96% total return for ten-year US Treasury notes.
Sectors in the high-yield market that registered the best
performances thus far in 1995 include wireless and
telecommunications, textiles and apparel, food and beverage, and
gaming. Several of these sectors underperformed in last year's bear
market. Improved returns for these sectors in part reflect the
market's buoyancy which pushed up deferred interest bonds,
particularly in the wireless and telecommunications sector. In
addition, there is a more optimistic fundamental environment, as in
the case of gaming, where casino bonds had suffered from concerns
about increased competition. We believe that out-of-favor sectors
such as these, where bonds are offered at large discounts to par
value, offer opportunity as well as challenge for 1995.
In the short term, conditions for high-yield bonds should remain
favorable. While we believe it is likely that the economy will slow
to a non-inflationary growth rate during the first half of 1995, a
recession will probably be avoided. Certainly, the interest rate
environment is likely to be more benign in 1995. Further, we believe
that corporate profits could increase, particularly in such cyclical
industries as paper which only began its recovery cycle in 1994.
Initial public offerings also should continue to provide credit
support. In the first quarter of 1995, portfolio holdings Fort
Howard Corp. and American Standard Inc. have completed equity
issues. We believe that defaults and credit problems will rise in
1995, but be moderate by historic standards. Market technicals were
favorable for the first two months of 1995, with continuing cash
inflows to high-yield mutual funds and limited new-issue supply.
Investment Strategy & Outlook
For the six-month period ended February 28, 1995, the total
investment return on the Fund's Common Stock was +1.41%, based on a
change in the per share net asset value from $12.37 to $11.75, and
assuming reinvestment of $0.752 per share income dividends. During
the same period, the net annualized yield of the Fund's Common Stock
was 12.64%. Throughout the six-month period ended February 28, 1995,
the Fund was on average 30% leveraged. On February 28, 1995, the
Fund was 30.5% leveraged, having borrowed $43 million of the $60
million of credit available at an average borrowing cost of 6.86%.
<PAGE>
With better conditions in the high-yield market starting in
December, the Fund's performance began to improve, although overall
performance during the six-month period was weak. Outperforming
sectors in the portfolio included: casinos, communications, building
materials and paper. Gaming holdings in Corporate High Yield Fund
II, Inc. are weighted toward Atlantic City casinos, which rebounded
as Pennsylvania elections diminished the short-term threat of gaming
in Philadelphia. Underperforming sectors included food and beverage
and supermarkets, where weak earnings and the bankruptcy filing of
Grand Union Co., a Northeast supermarket, depressed results.
During the past six months, we improved the credit quality of the
Fund's portfolio for a very modest yield cut. Positions purchased
had an average rating of B+, while positions sold had an average
rating of B. On average, sold positions yielded 12.4% and purchases
yielded 12.3%. Our purchases generally follow a bottom-up approach
where we evaluate the prospects credit by credit, rather than making
broad-based sector investments unless we believe a sector is
significantly undervalued or has clear upside potential.
We believe industry fundamentals created bright prospects for many
credits in the paper sector, where we see strong operating
fundamentals over the next year. New positions in this industry
include senior secured debt of Repap Wisconsin, Inc. and senior
subordinated debt of S.D. Warren Co., both with B+ ratings and both
in the improving fine paper products industry. We also purchased BB-
rated senior notes of Rainy River Forest Products, Inc., the former
newsprint division of Boise Cascade. In the communications sector,
we added B+ rated Sinclair Broadcasting Group, Inc., a well-
positioned owner of Fox-affiliated TV stations and a BB- rated
telephone company in Argentina. We also added to our casino holdings
with the first mortgage bonds of B+ rated Harrah's Jazz Company, a
Promus-backed land-based casino to be built in New Orleans. Fully
valued positions sold included Triton Energy Corp., Interco Inc. and
Sealy. The average portfolio maturity at February 28, 1995 was 9
years. At the close of the six-month period ended February 28,
1995, major industries represented in the portfolio included: hotels
and casinos, 9.5% of total market value; paper, 9.4%; food and
beverage, 6.5%; and utilities, 5.9%.
With the Fund fully invested and leveraged, we intend to continue
our selective upgrade of the portfolio. As we expect a relatively
benign environment for high-yield bonds, we intend to remain close
to fully leveraged to take advantage of the potential for improved
returns using leverage. (For a complete explanation of the benefits
and risks of leveraging, see page 1 of this report to shareholders.)
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
and objectives in the months and years ahead.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
(Elizabeth M. Phillips)
Elizabeth M. Phillips
Vice President and Portfolio Manager
March 24, 1995
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Airlines--4.6% BB+ Baa3 $1,930,236 Delta Air Lines Inc., 9.875% due
4/30/2008** $ 2,036,399 $ 1,960,522
USAir Inc.:
BB B1 1,890,245 11.20% due 3/19/2005** 1,663,416 1,739,025
BB B1 1,000,000 10.375% due 3/01/2013 955,000 860,000
------------- -------------
4,654,815 4,559,547
Broadcasting & CCC+ Caa 3,670,000 American Telecasting, Inc., 12.50% due
Cable--9.0% 6/15/2004* 2,180,594 1,614,800
NR+++ NR+++ 18,350 American Telecasting, Inc. (Warrants) (a) -- 18,350
B+ B2 2,600,000 Bell Cablemedia PLC, 12.31% due 7/15/2004* 1,524,150 1,553,500
BB+ B1 1,500,000 CF Cable TV Inc., 11.625% due 2/15/2005 1,500,000 1,560,000
B B1 2,000,000 Comcast Corp., 10.625% due 7/15/2012 2,050,000 2,055,000
B+ B3 3,665,000 Videotron Holdings PLC, 12% due 7/01/2004* 2,143,218 2,162,350
------------- -------------
9,397,962 8,964,000
<PAGE>
Broadcasting & BB+ B3 2,000,000 SCI Television Inc., 11% due 6/30/2005 2,081,563 2,050,000
Publishing--3.9% B+ B3 1,925,000 Sinclair Broadcast Group, Inc., 10% due
12/15/2003 1,799,875 1,809,500
------------- -------------
3,881,438 3,859,500
Building B B1 3,150,000 American Standard Inc., 11.37% due 6/01/2005* 2,124,492 2,145,938
Products--4.5% B Ba3 2,500,000 InterCity Products Corp., 9.75% due
3/01/2000 2,468,750 2,312,500
------------- -------------
4,593,242 4,458,438
Capital Goods--1.7% B+ B3 2,000,000 Sequa Corp., 9.375% due 12/15/2003 2,051,875 1,720,000
Chemicals--1.9% B+ Ba3 3,000,000 G-I Holdings Inc., 10.45% due 10/01/1998* (c) 2,078,545 1,920,000
Communications-- CCC+ B3 1,000,000 Nextel Communications Inc., 11.97% due
6.2% 8/15/2004* 577,345 390,000
Pan Am Sat L.P.:
B+ Ba3 1,000,000 9.75% due 8/01/2000 1,052,500 985,000
B- B3 2,000,000 9.64% due 8/01/2003* 1,487,654 1,310,000
BB- B2 2,000,000 Telefonica de Argentina S.A., 11.875%
due 11/01/2004 1,960,160 1,722,500
CCC+ B3 2,000,000 USA Mobile Communications Holdings,
Inc., 9.50% due 2/01/2004 1,965,000 1,700,000
------------- -------------
7,042,659 6,107,500
Conglomerates-- B+ Ba 2,000,000 Coltec Industries, Inc., 10.25% due 4/01/2002 2,135,000 2,010,000
4.0% BB- B1 2,000,000 Sherritt Gordon Ltd., 9.75% due 4/01/2003 2,000,000 1,920,000
------------- -------------
4,135,000 3,930,000
Consumer B- Caa 1,000,000 Polymer Group Inc., 12.25% due 7/15/2002 (b) 1,002,500 990,000
Products--2.9% B B2 2,000,000 Revlon Consumer Products Corp., 9.375% due
4/01/2001 1,750,993 1,870,000
------------- -------------
2,753,493 2,860,000
<PAGE>
Containers--6.1% B B2 3,000,000 Anchor Glass Container Corp., 9.875% due
12/15/2008 3,052,500 2,565,000
B- Caa 3,000,000 Ivex Holdings Corp., 11.91% due 3/15/2005* 1,728,632 1,327,500
B- B3 2,485,000 Silgan Holdings, Inc., 11.99% due 12/15/2002* 2,199,550 2,186,800
------------- -------------
6,980,682 6,079,300
Energy--7.8% B- B2 500,000 Falcon Drilling Company, Inc., 9.75% due
1/15/2001 (b) 500,000 470,000
B+ B2 1,000,000 Gulf Canada Resources Ltd., 9.25% due
1/15/2004 988,750 945,000
BB- B1 2,000,000 Maxus Energy Corp., 11.50% due 11/15/2015 2,130,000 1,870,000
BB- B1 2,000,000 TransTexas Gas Corp., 10.50% due 9/01/2000 1,950,000 1,990,000
B+ B1 2,510,000 Triton Energy Corp., 9.75% due 12/15/2000* 2,115,938 2,008,000
BB- B1 500,000 Yacimientos Petroliferos Fiscales S.A.
(Sponsored) (ADR), 8% due 2/15/2004++++++ 365,000 372,500
------------- -------------
8,049,688 7,655,500
Entertainment--1.2% B Caa 1,000,000 Marvel Holdings Inc., 9.125% due 2/15/1998 885,000 900,000
CCC- B3 3,390,000 Spectravision, Inc., 11.65% due 12/01/2002++ 3,211,291 241,351
------------- -------------
4,096,291 1,141,351
Financial B+ B1 2,000,000 Lomas Mortgage USA, 10.25% due 10/01/2002 2,091,250 1,680,000
Services--6.3% BB B1 2,000,000 Penncorp Financial, 9.25% due 12/15/2003 2,000,000 1,850,000
BB B1 3,000,000 Reliance Group Holdings Inc., 9.75% due
11/15/2003 3,035,000 2,745,000
------------- -------------
7,126,250 6,275,000
Food & B+ B3 2,000,000 Chiquita Brands International Inc., 11.50%
Beverage--9.2% due 6/01/2001 2,120,000 2,050,000
B B2 2,000,000 Coca-Cola Bottling Group, 9% due 11/15/2003 1,975,625 1,840,000
B B3 500,000 Curtice Burns Foods, Inc., 12.25% due
2/01/2005 500,000 521,250
B- B2 2,000,000 Envirodyne Industries, Inc., 10.25% due
12/01/2001 2,037,500 1,600,000
BB- B1 3,000,000 Fresh Del Monte Produce, 10% due 5/01/2003 2,875,000 2,100,000
B B2 1,000,000 Specialty Foods Corp., 10.25% due 8/15/2001 915,000 960,000
------------- -------------
10,423,125 9,071,250
Foreign--1.2% BB- B1 2,000,000 Republic of Argentina, 8.375% due 12/20/2003 1,901,500 1,210,000
<PAGE>
Home Builders-- B- B2 2,150,000 Baldwin Homes Company, 10.375% due 8/01/2003 2,119,625 1,333,000
2.2% B B3 1,000,000 Greystone Homes Inc., 10.75% due 3/01/2004 (b) 1,000,000 855,000
------------- -------------
3,119,625 2,188,000
Hotels--2.0% BB- B1 2,000,000 Host Marriott Hospitality, Inc., 10.375% due
6/15/2011 2,044,726 2,000,000
Hotels & BB B1 2,000,000 Bally's Park Place, Inc., 9.25% due 3/15/2004 1,942,500 1,770,000
Casinos--13.3% NR+++ Caa 1,500,000 Capital Gaming International, Inc., 11.50%
due 2/01/2001 1,178,255 975,000
NR+++ NR+++ 34,125 Capital Gaming International, Inc. (Warrants)
(a) 168,019 42,656
B+ B2 3,000,000 GB Property Funding Corp., 10.875% due
1/15/2004 2,952,500 2,580,000
B+ B1 2,000,000 Harrah's Jazz Company, 14.25% due 11/15/2001 2,000,000 2,190,000
B B2 2,000,000 Showboat, Inc., 13% due 8/01/2009 1,970,000 2,060,000
NR+++ Caa 1,818,000 Trump Castle Funding Inc., 11.75% due
11/15/2003 1,556,349 1,108,980
B B3 3,000,000 Trump Plaza Funding, Inc., 10.875% due
6/15/2001 2,963,750 2,400,000
------------- -------------
14,731,373 13,126,636
Industrial-- Transamerican Refining Corporation:
Energy--1.6% B- Caa 500,000 16.50%+++++ due 2/15/2002*** 500,000 536,875
B- Caa 1,000,000 16.50%+++++ due 2/15/2002 1,018,750 1,030,000
------------- -------------
1,518,750 1,566,875
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Industrial BB- B2 $ 2,000,000 ADT Operations Inc., 9.25% due 8/01/2003 $ 2,035,000 $ 1,920,000
Services--1.9%
Medical--2.0% BB- Ba2 2,000,000 National Medical Enterprises Inc., 9.625%
due 9/01/2002 2,000,000 2,000,000
Metals & Mining-- Maxxam Group, Inc.:
2.9% B- B3 2,000,000 11.25% due 8/01/2003 1,990,000 1,860,000
B B3 1,835,000 14.73% due 8/01/2003* 1,038,539 1,045,950
------------- -------------
3,028,539 2,905,950
<PAGE>
Paper--13.2% B B2 3,000,000 Fort Howard Corp., 9% due 2/01/2006 2,966,250 2,647,500
BB- Ba3 2,000,000 Rainy River Forest Products, Inc., 10.75%
due 10/15/2001 1,994,612 2,045,000
B+ B1 2,000,000 Repap Wisconsin, Inc., 9.25% due 2/01/2002 1,745,000 1,885,000
B B1 2,000,000 Riverwood International Corp., 11.25% due
6/15/2002 2,175,000 2,100,000
B+ B1 1,000,000 S.D. Warren Co., 12% due 12/15/2004 (b) 1,000,000 1,060,000
B+ B1 2,000,000 Stone Consolidated Corp., 10.25% due
12/15/2000 2,000,000 2,000,000
Stone Container Corp.:
B B1 500,000 9.875% due 2/01/2001 476,250 488,750
B+ B1 500,000 10.75% due 10/01/2002 495,000 517,500
B B1 300,000 11.50% due 10/01/2004 297,846 318,000
------------- -------------
13,149,958 13,061,750
Restaurants--2.6% CCC+ Caa 3,000,000 Flagstar Corp., 11.375% due 9/15/2003 3,112,500 2,587,500
Retail Specialty B- B3 2,000,000 Pamida Holdings Inc., 11.75% due 3/15/2003 2,023,125 1,860,000
- --3.3% B- B3 1,500,000 Specialty Retailers, Inc., 11% due
8/15/2003 1,518,750 1,380,000
------------- -------------
3,541,875 3,240,000
Steel--4.0% B B2 2,000,000 A.K. Steel Holding Corp., 10.75% due
4/01/2004 2,000,000 2,045,000
B+ B1 2,000,000 WCI Steel Inc., 10.50% due 3/01/2002 2,000,000 1,940,000
------------- -------------
4,000,000 3,985,000
Supermarkets--4.1% D Caa 2,000,000 Grand Union Co., 12.25% due 7/15/2002 (c) 2,103,750 660,000
B B2 1,500,000 Penn Traffic Co., 9.625% due 4/15/2005 1,555,625 1,406,250
B B2 2,000,000 Ralph's Grocery Co., 9% due 4/01/2003 1,981,250 1,940,000
------------- -------------
5,640,625 4,006,250
Textiles--2.8% B+ B3 3,000,000 Westpoint Stevens, Inc., 9.375% due
12/15/2005 2,993,125 2,790,000
Transportation BB- Ba2 2,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 2,030,000 1,875,000
Services--4.0% NR+++ NR+++ 4,271,000 Transtar Holdings, Inc., 12.75% due
12/15/2003* 2,372,391 2,135,500
------------- -------------
4,402,391 4,010,500
<PAGE>
Utilities--8.3% B+ B1 2,954,000 Beaver Valley Funding Corp., 9% due 6/01/2017 2,776,415 2,215,500
CTC Mansfield Funding Corp.:
B+ Ba3 700,000 10.25% due 3/30/2003 649,250 675,500
B+ Ba3 1,300,000 11.125% due 9/30/2016 1,399,938 1,241,305
Public Service Company of New Mexico:
B Ba3 1,000,000 10.30% due 1/15/2014 1,030,000 995,000
B Ba3 1,000,000 10.15% due 1/15/2016 1,022,500 976,250
NR+++ NR+++ 2,359,521 Tucson Electric & Power Co., 10.21% due
1/01/2009 (b) 2,312,331 2,084,259
------------- -------------
9,190,434 8,187,814
Total Investments in Corporate Bonds--
138.7% 153,675,486 137,387,661
<CAPTION>
Shares
Held Common Stocks
<S> <C> <S> <C> <C>
Hotels & 40,005 Capital Gaming International, Inc. 360,314 150,019
Casinos--0.1%
Total Investments in Common Stocks--0.1% 360,314 150,019
<CAPTION>
Face
Amount Short-Term Securities
<S> <C> <S> <C> <C>
Commercial $1,650,000 General Electric Capital Corp., 6% due
Paper****--1.7% 3/01/1995 1,650,000 1,650,000
Promissory 15,000 Capital Gaming International, Inc., 5% due
Notes--0.0% 8/01/1995 15,000 15,000
<PAGE>
Repurchase 382,000 Goldman Sachs & Co., purchased on 2/28/1995
Agreements++++--0.4% to yield 6% to 3/01/1995 382,000 382,000
Total Investments in Short-Term Securities--
2.1% 2,047,000 2,047,000
Total Investments--140.9% $ 156,082,800 139,584,680
=============
Liabilities in Excess of Other Assets--(40.9%) (40,544,700)
-------------
Net Assets--100.0% $ 99,039,980
=============
<FN>
*Represents a zero coupon or step bond, the interest rate shown is
the effective yield at the time of purchase.
**Subject to principal paydowns.
***Represents a unit. Each unit consists of one 16.50% mortgage note
due 2002 and 16.84 warrants.
****Commercial Paper is traded on a discount basis; the interest
rate shown is the rate paid at the time of purchase by the Fund.
++Represents a pay-in-kind security which may pay interest in
additional face.
++++Repurchase Agreements are fully collateralized by US Government
Obligations.
++++++American Depositary Receipts (ADR).
+++Not Rated.
+++++Coupon rate resets periodically. The coupon rate shown is the
rate in effect at February 28, 1995.
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock. The purchase price and the number of shares
are subject to adjustment under certain conditions until the
expiration date.
(b)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $5,459,000,
representing 5.5% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Falcon Drilling Company,
Inc., 9.75% due 1/15/2001 1/14/1994 $ 500,000 $ 470,000
Greystone Homes Inc.,
10.75% due 3/01/2004 3/03/1994 1,000,000 855,000
Polymer Group Inc.,
12.25% due 7/15/2002 7/07/1994 1,002,500 990,000
S.D. Warren Co., 12%
due 12/15/2004 12/13/1994 1,000,000 1,060,000
Tucson Electric &Power
Co., 10.21% due 1/01/2009 3/23/1994 2,312,331 2,084,259
Total $5,814,831 $5,459,259
========== ==========
(c)Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of February 28, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$156,082,800) (Note 1a) $139,584,680
Cash 307
Receivables:
Interest $ 3,579,131
Securities sold 2,319,545 5,898,676
------------
Deferred facility fees (Note 1e) 37,500
Deferred organization expenses (Note 1e) 49,679
Prepaid expenses and other assets 43,213
------------
Total assets 145,614,055
------------
Liabilities: Payables:
Loans (Note 5) 43,250,000
Securities purchased 3,018,750
Interest on loans (Note 5) 139,046
Investment adviser (Note 2) 53,056
Commitment fees 7,742 46,468,594
------------
Accrued expenses and other liabilities 105,481
------------
Total liabilities 46,574,075
------------
Net Assets: Net assets $ 99,039,980
============
Capital: Common stock, par value $.10 per share; 200,000,000 shares
authorized $ 843,100
Paid-in capital in excess of par 117,754,760
Undistributed investment income--net 917,322
Accumulated realized capital losses--net (3,977,082)
Unrealized depreciation on investments--net (16,498,120)
------------
Net Assets--Equivalent to $11.75 per share based on 8,431,000
shares of capital stock outstanding (market price $12.00) $ 99,039,980
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended February 28, 1995
<S> <S> <C>
Investment Income Interest and discount earned $ 8,154,770
(Note 1d): Other 15,641
------------
Total income 8,170,411
------------
Expenses: Loan interest expense (Note 5) 1,379,644
Investment advisory fees (Note 2) 347,367
Borrowing cost (Note 5) 89,155
Professional fees 70,717
Accounting services (Note 2) 30,217
Transfer agent fees 21,959
Directors' fees and expenses 21,854
Printing and shareholder reports 14,754
Custodian fees 7,600
Amortization of organization expenses (Note 1e) 5,654
Pricing fees 3,208
Listing fees 132
Other 19,172
------------
Total expenses 2,011,433
------------
Investment income--net 6,158,978
------------
Realized & Realized loss on investments--net (2,918,204)
Unrealized Gain Change in unrealized depreciation on investments--net (2,044,727)
(Loss) on
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,196,047
(Notes 1b, 1d ============
& 3):
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the For the Period
Six Months Nov. 26,
Ended 1993++ to
Increase (Decrease) in Net Assets: Feb. 28, 1995 Aug. 31, 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 6,158,978 $ 8,641,131
Realized loss on investments--net (2,918,204) (1,058,878)
Change in unrealized depreciation on investments--net (2,044,727) (14,453,393)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 1,196,047 (6,871,140)
------------ ------------
Dividends to Investment income--net (6,255,153) (7,627,634)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends
to shareholders (6,255,153) (7,627,634)
Capital Share Value of shares sold to Common Stock shareholders 2,402,854 116,286,687
Transactions: Offering costs resulting from the issuance of shares -- (191,686)
------------ ------------
Net increase in net assets derived from capital
share transactions 2,402,854 116,095,001
------------ ------------
Net Assets: Total increase (decrease) in net assets (2,656,252) 101,596,227
Beginning of period 101,696,232 100,005
------------ ------------
End of period* $ 99,039,980 $101,696,232
============ ============
<FN>
*Undistributed investment income--net $ 917,322 $ 1,013,497
============ ============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
For the Six Months Ended February 28, 1995
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 1,196,047
Operating Adjustments to reconcile net increase in net assets resulting from
Activities: operations to net cash provided by operating activities:
Increase in receivables (84,926)
Decrease in other liabilities (50,984)
Realized and unrealized loss on investments--net 4,962,931
Amortization of discount (1,672,329)
-------------
Net cash provided by operating activities 4,350,739
-------------
Cash Provided by Proceeds from sales of long-term investments 31,543,644
Investing Purchases of long-term investments (29,933,258)
Activities: Purchases of short-term investments (166,226,159)
Proceeds from maturities of short-term investments 166,318,000
-------------
Net cash provided by investing activities 1,702,227
-------------
Cash Used for Cash receipts on capital shares sold 2,402,854
Financing Short-term borrowings--net (1,750,000)
Activities: Dividends paid to shareholders (6,708,979)
-------------
Net cash used for financing activities (6,056,125)
-------------
Cash: Net decrease in cash (3,159)
Cash at beginning of period 3,466
-------------
Cash at end of period $ 307
-------------
Cash Flow Cash paid for interest $ 1,374,771
Information: =============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Six For the Period
from information provided in the financial statements. Months Ended Nov. 26, 1993++
Feb. 28, to Aug. 31,
Increase (Decrease) in Net Asset Value: 1995 1994
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 12.37 $ 14.18
Operating ------------ ------------
Performance: Investment income--net .74 1.06
Realized and unrealized loss on investments--net (.61) (1.91)
------------ ------------
Total from investment operations .13 (.85)
------------ ------------
Less dividends from investment income--net (.75) (.94)
------------ ------------
Capital charge resulting from the issuance of Common Stock -- (.02)
------------ ------------
Net asset value, end of period $ 11.75 $ 12.37
============ ============
Market price per share, end of period $ 12.00 $ 12.125
============ ============
Total Investment Based on net asset value per share 1.41%+++ (6.28%)+++
Return:** ============ ============
Based on market price per share 5.66%+++ (13.15%)+++
============ ============
Ratios to Expenses, net of reimbursement and excluding interest expense .91%* .50%*
Average ============ ============
Net Assets: Expenses, net of reimbursement 2.89%* 1.68%*
============ ============
Expenses 2.89%* 2.00%*
============ ============
Investment income--net 8.85%* 8.75%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 99,040 $ 101,696
Data: ============ ============
Portfolio turnover 22.97% 42.21%
============ ============
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads. Total
investment returns based on market value, which can be significantly
greater or lesser than the net asset value, result in substantially
different returns.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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. 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 (other than
short-term obligations but including listed issues) may be 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. Positions in options are valued at the
last sale price on the market where any such option is principally
traded. Obligations with remaining maturities of sixty days or less
are valued at amortized cost unless this method no longer produces
fair valuations. Repurchase agreements are valued at cost plus
accrued interest. 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 for which there exist no price
quotations or valuations and all other assets 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.
<PAGE>
* Financial futures contracts--The Fund may purchase or sell interest
rate 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.
* 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.
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors for the purpose of hedging against interest rate fluctuations
or to enhance the Fund's income. 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).
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 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). Interest income (including amortization of
premium and discount) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
Facility fees are amortized over the term of the related loan.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
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 0.50% of
the Fund's average weekly net assets plus the proceeds of any
outstanding principal borrowed.
During the six months ended February 28, 1995, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of Merrill Lynch,
Pierce, Fenner, & Smith Inc. ("MLPF&S"), $2,725 for security price
quotations to compute the net asset value of the Fund.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
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, FDS, MLPF&S, and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1995 were $31,455,758 and
$33,863,189, respectively.
Net realized and unrealized losses as of February 28, 1995 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $ (2,918,204) $(16,498,120)
------------- ------------
Total $ (2,918,204) $(16,498,120)
============= ============
As of February 28, 1995, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $16,498,120, of
which $1,198,597 related to appreciated securities and $17,696,717
related to depreciated securities. The aggregate cost of investments
at February 28, 1995 for Federal income tax purposes was
$156,082,800.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
par value $.10, all of which are 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.
For the six months ended February 28, 1995, shares issued and
outstanding increased by 206,683 to 8,431,000 as a result of
dividend reinvestment. At February 28, 1995, total paid-in capital
amounted to $118,597,860.
5. Short-Term Borrowings:
On February 4, 1995, the Fund renewed its one-year loan
commitment in the amount of $60,000,000. Borrowings under this
commitment are subject to certain limitations contained in the
credit agreement. For this commitment, the Fund pays one quarter of
1% of the unused principal amount. From September 1, 1994 to
February 28, 1995, the maximum amount borrowed was $47,500,000, the
average amount borrowed was $43,024,862 and the daily weighted
average interest rate was 6.39%. For the six months ended February
28, 1995, facility and commitment fees aggregated approximately
$21,436.
<PAGE>
<TABLE>
PORTFOLIO INFORMATION
<CAPTION>
Percent of
As of February 28, 1995 Net Assets
<S> <S> <S> <C>
Ten Largest Maxxam Group, Inc . Maxxam is a holding company whose affiliate, Kaiser Aluminum, is a
Holdings 11.25% 8/01/2003 leading producer of aluminum. Kaiser's common stock secures these bonds.
14.73% 8/01/2003 Through subsidiaries, Pacific Lumber and Britt Lumber, Maxxam is the
largest producer of premium grade redwood lumber in the world. 2.9%
Westpoint Stevens, Inc. Westpoint Stevens is a US manufacturer of bed and bath products such as
9.375% 12/15/2005 sheets, comforters, blankets, bedspreads and towels. Brand names include
Martex, Stevens, and Lady Pepperell. 2.8
Reliance Group Reliance Group is a holding company whose principal business is
Holdings, Inc. the ownership of property and casualty and title insurance companies. 2.8
9.75% 11/15/2003
Fort Howard Corp. Fort Howard manufactures tissue paper products for the home and
9% 2/01/2006 away-from-home markets. Principal products include table napkins,
paper towels, bath tissue, wipers and boxed facial tissue. 2.7
USAir Inc. USAir is the sixth largest US airline with major hubs in
11.20% 3/19/2005 Pittsburgh, Charlotte, Philadelphia, and Baltimore. Our investment
10.375% 3/01/2013 is in equipment trust certificates secured by modern, saleable
aircraft. 2.6
Flagstar Corp. Flagstar owns a portfolio of restaurant and food service businesses,
11.375% 9/15/2003 including Denny's, the Hardee's franchise in the Southeastern United
States, Quincy's, and a sizable institutional food service. 2.6
GB Property Funding Corp. GB Property Funding finances the Sands Casino in Atlantic City which
10.875% 1/15/2004 is the ultimate security for these first mortgage notes. 2.6
Anchor Glass Anchor is the second largest glass container company in the
Container Corp. United States. Together with its parent, Vitro, a well-regarded
9.875% 12/15/2008 Mexican conglomerate, Anchor is one of the three largest glass
container companies in the world. 2.6
Trump Plaza Funding, Inc. Trump Plaza Funding owns and operates Trump Plaza Hotel & Casino on
10.875% 6/15/2001 the boardwalk in Atlantic City. The bonds are first mortgage notes
secured by the hotel and casino property. 2.4
Inter City Products Corp. Inter City Products is a leading North American manufacturer of air
9.75% 3/02/2000 conditioners and other heating and cooling products for residential
and light commercial markets. 2.3
</TABLE>
<PAGE>
Quality
Ratings
The quality ratings of securities in the Fund as of February 28, 1995
were as follows:
Rating++ Percent of Net Assets
B or lower 64.4%
BB 31.0
NR (Not Rated) 3.2
[FN]
++The quality ratings shown are weighted averages by Standard &
Poor's Corp. and Moody's Investors Service, Inc.
