CORPORATE
HIGH YIELD
FUND II, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1998
<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.
Portfolio Profile
As of February 28, 1998
- --------------------------------------------------------------------------------
Percent of
Quality Ratings+ Net Assets
- --------------------------------------------------------------------------------
BBB................................................................ 5%
BB................................................................. 26
B or lower......................................................... 60
NR (Not Rated)..................................................... 9
- --------------------------------------------------------------------------------
+The quality ratings shown are weighted averages by Standard & Poor's
Corp. and Moody's Investors Service, Inc.
Percent of Total
Foreign Holdings Long-Term Investments
- --------------------------------------------------------------------------------
Total Foreign Holdings......................................... 27.4%
Emerging Markets Holdings...................................... 13.4
- --------------------------------------------------------------------------------
Percent of Total
Top Five Foreign Countries* Long-Term Investments
- --------------------------------------------------------------------------------
Canada....................................................... 4.8%
Argentina.................................................... 3.4
Colombia..................................................... 3.1
Brazil....................................................... 2.9
Mexico....................................................... 2.7
- --------------------------------------------------------------------------------
*All holdings are denominated in US dollars.
<PAGE>
Corporate High Yield Fund II, Inc., February 28, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER
- --------------------------------------------------------------------------------
High-Yield Market Overview
In a period generally buffeted by volatility in world stock and bond markets,
the high-yield bond market delivered positive results, but underperformed
alternative investments, during the six months ended February 28, 1998. Concerns
about the possible impact of the Asian currency crisis in late 1997 gave way to
greater optimism in early 1998, benefiting both US stocks and high-yield bonds.
For the six months ended February 28, 1998, the high-yield market, as measured
by the unmanaged CS First Boston High Yield Index, returned +6.21%, compared to
a +7.60% return for ten-year Treasury bonds and +17.60% for the unmanaged
Standard & Poor's 500 Index.
Valuations in the high-yield market have continued to reflect both favorable
fundamentals and solid technical underpinnings. On the fundamental side,
favorable economic conditions, the continuing strength of the stock market and a
steady pace of corporate mergers, equity issuance, and debt refinancing have
supported full valuations. These favorable fundamentals have been enhanced
further by low default rates and improved credit quality for many high-yield
issuers. The technical side of the market also has supported valuations.
Significant ongoing capital flows into our market have more than compensated for
record levels of new issuance and have supported prices. As a result, the yield
spread between high-yield bonds (as measured by the CS First Boston High Yield
Index) and ten-year Treasury bonds remained near historically narrow levels at
371 basis points (3.71%). The spread has widened 34 basis points since August
31, 1997. This modest spread widening reflects a somewhat more cautious attitude
of investors toward the higher risk end of the bond universe and the consequent
desire for more yield to compensate for the perceived risk.
We believe that the healthy fundamental and technical underpinnings of the
market will persist at least through mid-year. In our view, market uncertainty
will increase as the year progresses when the impact of the Asian economic
crisis begins to have a greater effect on the US economy.
Fund Performance
For the six months ended February 28, 1998, total investment return on the
Fund's Common Stock was +5.24%, based on a change in the per share net asset
value from $13.07 to $13.08, and assuming reinvestment of $0.657 per share
income dividends. During the same period, the net annualized yield of the Fund's
Common Stock was 10.20%. The Fund's performance for the six-month period
primarily reflects the defensive market posture we have maintained over the past
year. Foreign holdings experienced considerable volatility during the period,
dampening returns. However, we believe that, for the most part, our foreign
investments are in companies with solid business prospects and sound capital
structures, which will support credit quality. It is our belief that these bonds
provide healthy return potential for the future, with fairly limited default
risk.
Leverage Strategy
Reflecting our confidence in near-term continuation of favorable fundamentals
and technicals in the high-yield market, we increased borrowings slightly over
the past six months. The Fund began the period borrowing the equivalent of 15.1%
of total assets invested. Borrowings at February 28, 1998 were 19.6% of total
assets. The Fund was on average 12% leveraged over the six-month period ended
February 28, 1998. The interest rate on the Fund's borrowings was 5.86% at
February 28. Borrowings are primarily invested in "cushion" bonds that we
believe have limited downside risk from adverse interest rate moves or from
earnings disappointments. While such bonds generally have limited upside as
well, we are able to enhance the yield of the portfolio somewhat by earning the
modest spread between our borrowing cost and the yield on our investments. (For
a complete explanation of the benefits and risks of leveraging, see page 1 of
this report to shareholders.)
Investment Strategy
Though market conditions for high-yield bonds have been quite favorable, we
believe there are several events that could increase investor sensitivity to
credit risk and erode confidence in our market. Among these are a significant
stock market correction, rising default rates, a slower economy or slower profit
growth. In an investment environment in which risk premiums are small, we
believe it is appropriate to limit downside risk. We continue to emphasize
shorter maturities and higher-quality issues, which we believe will be less
sensitive to widening yield spreads.
Portfolio Characteristics
Communications and media remain our largest broad sector category, totaling
nearly 7.4% of total long-term investments. Of the narrowly classified
industries, the largest allocations were: transportation, 11.5% of net assets;
paper & forest products, 9.2%; media & communications--international, 9.1%;
energy, 7.7%; and financial services, 7.0%. Non-US bonds totaled nearly 27.4% of
the portfolio, with emerging market issues accounting for 13.4% of total
long-term investments. At February 28, 1998, the average maturity for the
portfolio was 7 years, 1 month.
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/ Arthur Zeikel
Arthur Zeikel
President
/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 2, 1998
Proxy Results
During the six-month period ended February 28, 1998, Corporate High Yield Fund
II, Inc. shareholders voted on the following proposals. The proposals were
approved at a shareholders' meeting on October 9, 1997. The description of each
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Joe Grills 8,468,556 202,198
Walter Mintz 8,469,022 201,732
Robert S. Salomon Jr. 8,470,578 200,176
Melvin R. Seiden 8,464,898 205,856
Stephen B. Swensrud 8,475,123 195,631
Arthur Zeikel 8,466,542 204,212
- -----------------------------------------------------------------------------------------------------------
<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. 8,446,562 80,695 143,498
- -----------------------------------------------------------------------------------------------------------
</TABLE>
2 & 3
<PAGE>
Corporate High Yield Fund II, Inc., February 28, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Aerospace & B- B2 $ 650,000 L-3 Communications Corp., 10.375% due 5/01/2007 $ 650,000 $ 716,625
Defense--0.6%
====================================================================================================================================
Airlines--1.0% B+ B1 1,030,723 USAir Inc., 11.20% due 3/19/2005** 907,036 1,183,641
====================================================================================================================================
Automotive--1.2% B B3 625,000 Collins & Aikman Corp., 11.50% due 4/15/2006 625,000 706,250
B+ B2 625,000 Venture Holdings Trust, 9.50% due 7/01/2005 603,577 646,875
------------ ------------
1,228,577 1,353,125
====================================================================================================================================
Broadcasting-- B- B2 1,250,000 EZ Communications, Inc., 9.75% due 12/01/2005 1,265,625 1,367,188
Radio & Television-- B B2 500,000 Sinclair Broadcasting Group Inc., 10% due 9/30/2005 494,375 540,000
2.2% B B2 625,000 Young Broadcasting Inc., 11.75% due 11/15/2004 695,313 692,187
------------ ------------
2,455,313 2,599,375
====================================================================================================================================
Building BB+ B1 250,000 Cemex S.A., 12.75% due 7/15/2006 (c) 250,000 305,000
Materials--0.3%
====================================================================================================================================
Cable--4.5% CCC+ Caa 2,323,149 American Telecasting, Inc., 13.646% due 6/15/2004* 1,969,659 638,866
B- B2 1,250,000 EchoStar Communications Corp., 10.923% due 6/01/2004* 1,152,048 1,178,125
B B2 1,000,000 Intermedia Capital Partners, 11.25% due 8/01/2006 1,003,750 1,125,000
BB- B2 1,250,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 1,267,813 1,412,500
BB+ Ba3 500,000 TCI Communications Inc., 9.65% due 3/31/2027 545,625 586,990
B- B3 1,915,000 Wireless One Inc., 13.998% due 8/01/2006* (g) 1,186,255 296,825
------------ ------------
7,125,150 5,238,306
====================================================================================================================================
Cable-- Australis Media Ltd. (b):
International--2.9% D C 26,228 1.75%/15.75% due 5/15/2003 17,730 8,655
NR++ NR++ 2,961,000 1.75%/15.75% due 5/15/2003 (d) 2,086,637 1,065,960
Diamond Cable Communications PLC*:
B- B3 875,000 10.773% due 12/15/2005 669,238 669,375
B- B3 250,000 11.387% due 2/15/2007 157,590 166,250
NTL Incorporated:
B- B3 500,000 10% due 2/15/2007 500,313 535,000
B- B3 1,250,000 Series B, 11.643% due 2/01/2006* 893,856 1,000,000
------------ ------------
4,325,364 3,445,240
====================================================================================================================================
Capital Goods--0.9% B+ B3 1,000,000 Sequa Corporation, 9.375% due 12/15/2003 1,032,500 1,052,500
====================================================================================================================================
Chemicals--0.4% B+ B2 500,000 Huntsman Corporation, 9.50% due 7/01/2007 (c) 500,000 517,500
====================================================================================================================================
Computer BB- Ba1 1,000,000 Advanced Micro Devices Inc., 11% due 8/01/2003 1,038,750 1,075,000
Services/ B- B2 750,000 Amphenol Corporation, 9.875% due 5/15/2007 750,000 810,000
Electronics--3.4% B B2 1,000,000 Celestica International Inc., 10.50% due 12/31/2006 1,000,000 1,067,500
B- B3 1,000,000 MCMS Inc., 9.75% due 3/01/2008 (c) 1,000,000 1,000,000
------------ ------------
3,788,750 3,952,500
====================================================================================================================================
Consumer B B3 2,225,000 CLN Holdings Inc., 12.181% due 5/15/2001* 1,522,023 1,621,469
Products--1.8% B B3 375,000 Packaged Ice Inc., 9.75% due 2/01/2005 (c) 372,660 384,375
B+ B1 122,000 Samsonite Corporation, 11.125% due 7/15/2005 117,883 137,250
------------ ------------
$ 2,012,566 $ 2,143,094
====================================================================================================================================
Consumer B B2 $1,110,000 Affinity Group Inc., 11.50% due 10/15/2003 1,140,250 1,179,375
Services--1.0%
====================================================================================================================================
Diversified--0.4% B- B2 500,000 Koppers Industries, Inc., 9.875% due 12/01/2007 (c) 500,000 520,000
====================================================================================================================================
Energy--7.7% B+ B2 1,125,000 Benton Oil and Gas Co., 11.625% due 5/01/2003 1,125,000 1,226,250
B B1 1,250,000 KCS Energy Inc., 11% due 1/15/2003 1,279,375 1,371,875
BBB- Baa3 2,000,000 Oleoducto Central S.A., 9.35% due 9/01/2005** (c) 2,000,000 2,020,000
B+ B3 3,950,000 TransAmerican Energy Corp., 13.155% due 6/15/2002* 3,337,521 3,318,000
B+ B3 1,000,000 Trizec Hahn Corp., Series B, 10.875% due 12/01/2005 1,000,000 1,100,000
------------ ------------
8,741,896 9,036,125
====================================================================================================================================
Entertainment--1.2% B B2 1,250,000 Six Flags Theme Parks, 9.937% due 6/15/2005* 1,326,026 1,381,250
====================================================================================================================================
Financial B B2 1,250,000 AMRESCO, Inc., 9.875% due 3/15/2005 1,250,000 1,250,000
Services--7.0% B Ba3 1,508,000 First Nationwide Holdings Inc., 10.625% due 10/01/2003 1,678,920 1,685,190
BBB- A3 1,000,000 IBJ Preferred Capital Co. LLC, 8.79% due 12/29/2049 (c) 985,000 972,500
BB+ B1 2,000,000 Penncorp Financial Group, Inc., 9.25% due 12/15/2003 2,000,000 2,100,000
BB- Ba2 2,000,000 Reliance Group Holdings Inc., 9.75% due 11/15/2003 2,010,000 2,095,200
BB NR++ 162,000 Veritas Holdings GMBH, 9.625% due 12/15/2003 163,418 174,555
------------ ------------
8,087,338 8,277,445
====================================================================================================================================
Food & B B3 500,000 Curtice Burns Foods, Inc., 12.25% due 2/01/2005 500,000 552,500
Beverage--2.0% BB- Ba3 1,705,000 Fresh Del Monte Produce Corp., 10% due 5/01/2003 1,644,750 1,781,725
------------ ------------
2,144,750 2,334,225
====================================================================================================================================
Foreign BB- B1 1,000,000 Republic of Brazil, 10.125% due 5/15/2027 910,505 971,000
Government
Obligations--0.8%
====================================================================================================================================
Furniture--0.9% B B1 1,000,000 Lifestyle Furnishings, Inc., 10.875% due 8/01/2006 1,126,250 1,115,000
====================================================================================================================================
Gaming--7.0% B+ B2 2,000,000 GB Property Funding Corp., 10.875% due 1/15/2004 1,952,500 1,700,000
D Caa 2,000,000 Harrah's Jazz Company, 14.25% due 11/15/2001 (f) 2,000,000 620,000
B+ B2 750,000 Hollywood Casino Corp., 12.75% due 11/01/2003 809,375 825,000
B+ B2 1,000,000 Station Casinos, Inc., 9.75% due 4/15/2007 992,774 1,127,500
BB- B1 2,000,000 Trump Atlantic City, 11.25% due 5/01/2006 2,000,000 2,057,500
NR++ Caa 750,000 Trump Castle Funding Inc., 11.75% due 11/15/2003 700,643 718,125
Venetian Casino Resort LLC (c):
CCC+ Caa1 1,000,000 10% due 11/15/1999 937,522 910,000
B- B3 250,000 12.25% due 11/15/2004 254,063 255,000
------------ ------------
9,646,877 8,213,125
====================================================================================================================================
Health B B3 1,250,000 ALARIS Medical, Inc., 9.75% due 12/01/2006 1,263,750 1,331,250
Services--5.8% BBB Ba2 750,000 Columbia/HCA Healthcare Corporation, 7.15%
due 3/30/2004 720,000 713,385
B- B2 500,000 Extendicare Inc., 9.35% due 12/15/2007 (c) 500,000 520,000
Fresenius Medical Capital:
B+ Ba3 300,000 Trust I, 9% due 12/01/2006 314,250 321,000
B+ Ba3 700,000 Trust II, 7.875% due 2/01/2008 (c) 701,750 696,500
B- B3 500,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 500,000 513,750
B- B3 500,000 Paragon Health Network, Inc., 9.50% due 11/01/2007 (c) 497,770 512,500
B+ B2 1,000,000 Quest Diagnostic Inc., 10.75% due 12/15/2006 1,000,000 1,122,500
B B1 1,000,000 Vencor, Inc., 8.625% due 7/15/2007 987,500 1,107,500
------------ ------------
6,485,020 6,838,385
====================================================================================================================================
</TABLE>
4 & 5
<PAGE>
Corporate High Yield Fund II, Inc., February 28, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Hotel--0.9% BB- Ba3 $1,000,000 HMH Properties Inc., 8.875% due 7/15/2007 $ 1,001,250 $ 1,053,750
====================================================================================================================================
Independent Power BB- Ba3 500,000 Calpine Corporation, 8.75% due 7/15/2007 498,176 517,500
Producers--0.4%
====================================================================================================================================
Industrial--1.2% B- B3 1,250,000 Foamex Capital Corp. L.P., 13.50% due 8/15/2005 1,425,000 1,425,000
====================================================================================================================================
Media & BB - Ba3 1,000,000 Antenna TV S.A., 9% due 8/01/2007 969,262 1,005,000
Communications-- Call-Net Enterprises, Inc.*:
International--9.1% BB - B1 1,250,000 10.927% due 12/01/2004 1,080,947 1,162,500
BB - B1 1,000,000 9.27% due 8/15/2007 667,490 701,250
BB - B1 1,250,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 (c) 1,237,500 1,287,500
NR++ NR++ 1,000,000 Facilicom International, 10.50% due 1/15/2008 1,000,000 1,017,500
BB - B1 750,000 Globo Communicacoes Participacoes, Ltd., 10.50%
due 12/20/2006 (c) 748,142 748,125
BB Ba2 1,250,000 Grupo Televisa, S.A., 11.375% due 5/15/2003 1,250,000 1,387,500
B - B3 1,000,000 Satelites Mexicanos S.A., 10.125% due 11/01/2004 (c) 1,000,000 1,020,000
BBB - Ba3 2,000,000 Telefonica de Argentina S.A., 11.875% due 11/01/2004 1,960,160 2,352,400
------------ ------------
9,913,501 10,681,775
====================================================================================================================================
Metals & CCC+ B2 2,000,000 Kaiser Aluminum & Chemical Corp., 12.75%
Mining--6.2% due 2/01/2003 2,090,000 2,130,000
Maxxam Group, Inc.:
CCC+ B3 2,000,000 11.25% due 8/01/2003 1,990,000 2,120,000
CCC+ B3 1,835,000 14.726% due 8/01/2003* 1,620,556 1,844,175
B B3 1,000,000 Westmin Resources Ltd., 11% due 3/15/2007 1,000,000 1,160,000
------------ ------------
6,700,556 7,254,175
====================================================================================================================================
Packaging--1.2% B+ Ba3 1,250,000 Vicap S.A., 11.375% due 5/15/2007 (c) 1,243,375 1,387,500
====================================================================================================================================
Paper & Forest B B3 1,250,000 Ainsworth Lumber Company, 12.50% due 7/15/2007+ 1,216,617 1,232,358
Products--9.2% B B2 1,000,000 Bear Island Paper LLC, 10% due 12/01/2007 (c) 1,000,000 1,020,000
B+ B1 1,000,000 Container Corporation of America, 11.25% due 5/01/2004 1,095,000 1,088,750
BB - B1 1,375,000 Doman Industries Ltd., 8.75% due 3/15/2004 1,268,125 1,340,625
BB Ba3 625,000 Malette Inc., 12.25% due 7/15/2004 695,312 700,000
P.T. Pabrik Kertas Tjiwa Kimia:
B - B2 500,000 13.25% due 8/01/2001 555,000 435,000
B - B2 1,000,000 10% due 8/01/2004 (c) 994,550 790,000
Repap New Brunswick, Inc.:
CCC B2 1,000,000 9.875% due 7/15/2000 1,000,000 1,020,000
CC Caa 750,000 10.625% due 4/15/2005 721,250 738,750
B - B3 500,000 Riverwood International Corp., 10.25% due 4/01/2006 483,750 520,000
B+ B1 1,000,000 S.D. Warren Co., 12% due 12/15/2004 1,000,000 1,112,500
B+ B1 750,000 US Timberlands Klamath Falls, 9.625% due 11/15/2007 750,000 788,437
------------ ------------
10,779,604 10,786,420
====================================================================================================================================
Product B- B3 1,000,000 AmeriServ Food Company, 10.125% due 7/15/2007 1,000,000 1,082,500
Distribution--2.4% B- B3 750,000 Fisher Scientific International Inc., 9%
due 2/01/2008 (c) 750,000 761,250
B - B3 1,000,000 Nebraska Book Co., 8.75% due 2/15/2008 (c) 1,000,000 995,000
------------ ------------
2,750,000 2,838,750
====================================================================================================================================
Publishing & Hollinger International, Inc.:
Printing--1.6% BB+ Ba3 $ 500,000 8.625% due 3/15/2005 497,500 526,250
BB- B1 500,000 9.25% due 3/15/2007 496,790 533,750
B B3 750,000 MDC Communications Corp., 10.50% due 12/01/2006 750,000 810,000
------------ ------------
1,744,290 1,870,000
====================================================================================================================================
Specialty B+ B1 1,000,000 NBTY, Inc., 8.625% due 9/15/2007 991,750 1,027,500
Retailing--0.9%
====================================================================================================================================
Steel--0.6% NR++ B1 750,000 CSN Iron S.A., 9.125% due 6/01/2007 (c) 608,750 653,437
====================================================================================================================================
Supermarkets--1.0% NR++ Caa 1,250,000 Food 4 Less Supermarkets, Inc., 11.039% due 7/15/2005* 1,046,851 1,162,500
====================================================================================================================================
Telephony/ B+ B2 1,000,000 GCI Inc., 9.75% due 8/01/2007 1,000,000 1,062,500
Competitive B B2 500,000 Intermedia Communications, Inc.,
Local Exchange 10.503% due 7/15/2007* 327,315 366,875
Carriers--3.6% Nextlink Communications Inc.:
B B3 1,250,000 12.50% due 4/15/2006 1,250,000 1,437,500
B B3 500,000 9% due 3/15/2008 (c) 498,990 498,990
B+ Baa3 750,000 Teleport Communications Group Inc., 9.875%
due 7/01/2006 791,625 858,750
------------ ------------
3,867,930 4,224,615
====================================================================================================================================
Textiles--1.1% B B2 1,250,000 Polymer Group, Inc., 8.75% due 3/01/2008 (c) 1,250,000 1,250,000
====================================================================================================================================
Transportation-- BB- B1 1,000,000 Alpha Shipping PLC, 9.50% due 2/15/2008 (c) 994,280 975,000
11.5% B+ B1 1,000,000 American Reefer Co. Ltd., 10.25% due 3/01/2008 (c) 1,000,000 1,000,000
BB- NR++ 1,250,000 Autopistas Del Sol S.A., 10.25% due 8/01/2009 (c) 1,225,000 1,215,625
BB- Ba2 2,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 2,030,000 2,066,500
GS Superhighway Holdings:
BB Ba2 500,000 9.875% due 8/15/2004 498,750 382,500
BB Ba3 500,000 10.25% due 8/15/2007 501,875 380,000
Sea Containers Ltd.:
BB- B1 1,250,000 12.50% due 12/01/2004 1,368,750 1,412,500
BB- Ba3 750,000 7.875% due 2/15/2008 (c) 750,000 750,000
NR++ B3 4,271,000 Transtar Holdings, Inc., 12.907% due 12/15/2003* 3,420,902 3,822,545
B- B3 1,750,000 Trism Inc., 10.75% due 12/15/2000 1,666,875 1,540,000
------------ ------------
13,456,432 13,544,670
====================================================================================================================================
Utilities--6.7% B+ Ba1 750,000 AES Corporation, 8.50% due 11/01/2007 (c) 748,500 772,500
BB- B1 1,750,000 Beaver Valley Funding Corp., 9% due 6/01/2017 1,635,625 1,965,075
BB- NR++ 977,000 First PV Funding Corp., 10.30% due 1/15/2014 1,040,099 1,034,233
BBB- Ba3 1,500,000 Metrogas S.A., 12% due 8/15/2000 1,497,500 1,638,750
NR++ NR++ 2,359,520 Tucson Electric & Power Co., 10.21%
due 1/01/2009** (e) 2,312,331 2,469,026
------------ ------------
7,234,055 7,879,584
====================================================================================================================================
Wireless CCC+ B2 1,000,000 Cencall Communications Corporation, 13.935%
Communications-- due 1/15/2004* 756,570 965,000
Domestic Paging & Nextel Communications Inc.*:
Cellular--3.1% CCC+ B2 1,200,000 12.576% due 8/15/2004 946,523 1,146,000
CCC B2 750,000 9.505% due 10/31/2007 491,257 468,750
B- B3 1,000,000 Western Wireless Corp., 10.50% due 2/01/2007 995,937 1,095,000
------------ ------------
3,190,287 3,674,750
====================================================================================================================================
Wireless NR++ NR++ 1,000,000 Celcaribe S.A., 12.082% due 3/15/2004* 1,025,000 1,030,000
Communications-- CCC+ B3 2,250,000 Cellular Communication International Inc., 11.885%
International Paging due 8/15/2000* 1,684,377 1,923,750
& Cellular--5.6% B+ B3 2,070,000 Comunicacion Celular, 13.153% due 11/15/2003* 1,459,787 1,599,075
</TABLE>
6 & 7
<PAGE>
Corporate High Yield Fund II, Inc., February 28, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Wireless CCC NR++ $1,250,000 McCaw International Ltd., 11.757% due 4/15/2007* $ 811,044 $ 818,750
Communications-- B- B3 1,500,000 Millicom International Cellular S.A., 13.803%
International Paging & due 6/01/2006* 961,294 1,156,875
Cellular (concluded) ------------ ------------
5,941,502 6,528,450
====================================================================================================================================
Total Investments in Corporate Bonds--119.3% 138,027,477 140,133,212
====================================================================================================================================
Shares
Held Stocks & Warrants
====================================================================================================================================
Cable--0.0% 18,350 American Telecasting, Inc. (Warrants) (a) 0 7,340
1,915 Wireless One Inc. (Warrants) (a) 40,445 96
------------ ------------
40,445 7,436
====================================================================================================================================
Entertainment--1.7% 17,076 On Command Corporation (f) 3,186,975 221,988
5,447 On Command Corporation (Warrants) (a) 43,576 29,618
1,575 Time Warner Inc. (Preferred) (Series M) 1,726,313 1,789,594
------------ ------------
4,956,864 2,041,200
====================================================================================================================================
Supermarkets--0.0% 35,348 Grand Union Co. (f) 2,103,750 36,453
====================================================================================================================================
Telephony-- 556 Intermedia Communications, Inc.
Competitive Local (Convertible Preferred) (c)(f) 562,553 681,100
Exchange
Carriers--0.6%
====================================================================================================================================
Wireless 3,020 Nextel Communications Inc. (Class A) (f) 48,750 89,090
Communications-- 797 Nextel Communications Inc. (Preferred) (f) 802,790 916,550
Domestic Paging & ------------ ------------
Cellular--0.9% 851,540 1,005,640
====================================================================================================================================
Wireless 1,250 Cellular Communications International Inc.
Communications-- (Warrants) (a)(c) 30,163 19,625
International Paging & 2,070 Comunicacion Celular S.A. (Warrants) (a)(c) 2,261 14,490
Cellular--0.0% ------------ ------------
32,424 34,115
====================================================================================================================================
Total Investments in Stocks & Warrants--3.2% 8,547,576 3,805,944
====================================================================================================================================
Face
Amount Short-Term Securities
====================================================================================================================================
Commercial $ 309,000 General Motors Acceptance Corp., 5.69% due 3/02/1998 309,000 309,000
Paper***--0.3%
====================================================================================================================================
Total Investments in Short-Term Securities--0.3% 309,000 309,000
====================================================================================================================================
Total Investments--122.8% $146,884,053 144,248,156
============
Liabilities in Excess of Other Assets--(22.8%) (26,775,371)
------------
Net Assets--100.0% $117,472,785
============
====================================================================================================================================
</TABLE>
* Represents a zero coupon or step bond; the interest rate shown is the
effective yield at the time of purchase.
** Subject to principal paydowns.
*** 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
shares/face.
++ Not Rated.
(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) 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.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) Each $1,000 face amount contains one warrant of Australis Media Ltd.
(e) Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $2,469,000, representing 2.1% of
net assets.
Acquisition Value
Issue Date Cost (Note 1a)
- --------------------------------------------------------------------------------
Tucson Electric & Power Co., 10.21%
due 1/01/2009 3/23/1994 $2,312,331 $2,469,026
- --------------------------------------------------------------------------------
Total $2,312,331 $2,469,026
========== ==========
- --------------------------------------------------------------------------------
(f) Non-income producing security.
(g) Each $1,000 face amount contains one warrant of Wireless One Inc.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of February 28, 1998
=============================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$146,884,053) (Note 1a) $144,248,156
Cash .......................................................... 1,250,381
Receivables:
Securities sold ............................................. $ 2,914,730
Interest .................................................... 2,594,607 5,509,337
------------
Deferred organization expenses (Note 1e) ...................... 14,460
Prepaid expenses and other assets ............................. 303,279
------------
Total assets .................................................. 151,325,613
------------
=============================================================================================================
Liabilities: Loans (Note 5) ................................................ 28,400,000
Payables:
Securities purchased ........................................ 5,134,605
Interest on loans (Note 5) .................................. 208,698
Investment adviser (Note 2) ................................. 54,217 5,397,520
------------
Accrued expenses and other liabilities ........................ 55,308
------------
Total liabilities ............................................. 33,852,828
------------
=============================================================================================================
Net Assets: Net assets .................................................... $117,472,785
============
=============================================================================================================
Capital: Common stock, $.10 par value, 200,000,000 shares authorized ... $ 898,383
Paid-in capital in excess of par .............................. 124,716,254
Undistributed investment income--net .......................... 745,473
Accumulated realized capital losses on investments--net (Note 6) (6,251,428)
Unrealized depreciation on investments--net ................... (2,635,897)
------------
Net Assets--Equivalent to $13.08 per share based on 8,983,827
shares of capital stock outstanding (market price $13.6875) ... $117,472,785
============
=============================================================================================================
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Corporate High Yield Fund II, Inc., February 28, 1998
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1998
================================================================================
Investment Income Interest and discount earned ............ $ 6,590,858
(Note 1d): Dividends ............................... 257,988
Other ................................... 39,035
------------
Total income ............................ 6,887,881
------------
================================================================================
Expenses: Loan interest expense (Note 5) .......... 472,282
Investment advisory fees (Note 2) ....... 328,501
Professional fees ....................... 34,561
Borrowing cost (Note 5) ................. 30,735
Accounting services (Note 2) ............ 25,817
Directors' fees and expenses ............ 20,841
Transfer agent fees ..................... 16,317
Printing and shareholder reports ........ 14,557
Custodian fees .......................... 8,540
Amortization of organization expenses
(Note 1e) ............................. 6,066
Pricing services ........................ 3,752
Other ................................... 16,247
------------
Total expenses .......................... 978,216
------------
Investment income--net .................. 5,909,665
------------
================================================================================
Realized & Unrealized Realized gain on investments--net ....... 1,634,243
Gain (Loss) on Change in unrealized depreciation on
Investment--Net investments--net ...................... (1,665,935)
(Notes 1b,1d & 3): Net Increase in Net Assets Resulting from ------------
Operations ............................ $ 5,877,973
============
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Feb. 28, 1998 Aug. 31, 1997
===========================================================================================================================
<S> <C> <C>
Operations: Investment income--net .............................................. $ 5,909,665 $ 11,013,801
Realized gain (loss) on investments--net ............................ 1,634,243 (1,676,196)
Change in unrealized depreciation on investments--net ............... (1,665,935) 6,290,109
------------ ------------
Net increase in net assets resulting from operations ................ 5,877,973 15,627,714
------------ ------------
===========================================================================================================================
Dividends to Investment income--net .............................................. (5,856,992) (11,103,616)
Shareholders (Note 1f): ------------ ------------
Net decrease in net assets resulting from dividends to shareholders . (5,856,992) (11,103,616)
------------ ------------
===========================================================================================================================
Capital Share Value of shares issued to Common Stock shareholders in reinvestment
Transactions (Note 4): of dividends ...................................................... 1,549,052 2,987,977
------------ ------------
Net increase in net assets derived from capital share transactions .. 1,549,052 2,987,977
------------ ------------
===========================================================================================================================
Net Assets: Total increase in net assets ........................................ 1,570,033 7,512,075
Beginning of period ................................................. 115,902,752 108,390,677
------------ ------------
End of period* ...................................................... $117,472,785 $115,902,752
============ ============
===========================================================================================================================
* Undistributed investment income--net .............................. $ 745,473 $ 692,800
============ ============
===========================================================================================================================
</TABLE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended February 28, 1998
============================================================================================================
<S> <C>
Cash Provided by Net increase in net assets resulting from operations ................ $ 5,877,973
Operating Activities: Adjustments to reconcile net increase (decrease) in net
assets resulting from operations to net cash provided
by operating activities:
Increase in receivables ........................................... (420,202)
Increase in other assets .......................................... (251,155)
Increase in other liabilities ..................................... 83,927
Realized and unrealized loss on investments--net .................. 31,692
Amortization of discount .......................................... (1,785,755)
------------
Net cash provided by operating activities ........................... 3,536,480
------------
============================================================================================================
Cash Used for Proceeds from sales of long-term investments ........................ 21,060,516
Investing Activities: Purchases of long-term investments .................................. (34,355,637)
Purchases of short-term investments ................................. (35,539,854)
Proceeds from sales and maturities of short-term investments ........ 35,456,000
------------
Net cash used for investing activities .............................. (13,378,975)
------------
============================================================================================================
Cash Provided by Cash receipts from borrowings ....................................... 31,100,000
Financing Activities: Cash payments on borrowings ......................................... (15,700,000)
Dividends paid to shareholders ...................................... (4,307,941)
------------
Net cash provided for financing activities .......................... 11,092,059
------------
============================================================================================================
Cash: Net increase in cash ................................................ 1,249,564
Cash at beginning of period ......................................... 817
------------
Cash at end of period ............................................... $ 1,250,381
============
============================================================================================================
Cash Flow Cash paid for interest .............................................. $ 364,638
Information: ============
============================================================================================================
Non-Cash Capital shares issued on reinvestment of dividends paid
Financing Activities: to shareholders ..................................................... $ 1,549,052
============
============================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Corporate High Yield Fund II, Inc., February 28, 1998
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have For the Year For the Period
been derived from information provided in the For the Six Ended August 31, Nov. 26,
financial statements. Months Ended ---------------------------------- 1993++ to
Increase (Decrease) in Net Asset Value: Feb. 28, 1998+ 1997+ 1996 1995 Aug. 31, 1994
<S> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
Per Share Net asset value, beginning of period .......... $ 13.07 $ 12.56 $ 12.44 $ 12.37 $ 14.18
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net ...................... .66 1.26 1.35 1.40 1.06
Realized and unrealized gain (loss)
on investments--net ......................... .01 .52 .15 .10 (1.91)
---------- ---------- ---------- ---------- ----------
Total from investment operations .............. .67 1.78 1.50 1.50 (.85)
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net .... (.66) (1.27) (1.38) (1.43) (.94)
---------- ---------- ---------- ---------- ----------
Capital charge resulting from the issuance
of Common Stock ............................... -- -- -- -- (.02)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ................ $ 13.08 $ 13.07 $ 12.56 $ 12.44 $ 12.37
========== ========== ========== ========== ==========
Market price per share, end of period ......... $ 13.6875 $ 13.4375 $ 13.00 $ 12.00 $ 12.125
========== ========== ========== ========== ==========
====================================================================================================================================
Total Investment Based on net asset value per share ............ 5.24%++ 14.91% 12.71% 13.41% (6.27%)+++
Return:** ========== ========== ========== ========== ==========
Based on market price per share ............... 7.12%++ 14.14% 20.94% 11.61% (13.15%)+++
========== ========== ========== ========== ==========
====================================================================================================================================
Ratios to Average Expenses, net of reimbursement and excluding
Net Assets: interest expense .............................. .77%* .81% .81% .86% .50%*
========== ========== ========== ========== ==========
Expenses, net of reimbursement ................ 1.49%* 1.22% 1.65% 2.49% 1.68%*
========== ========== ========== ========== ==========
Expenses ...................................... 1.49%* 1.22% 1.65% 2.49% 2.00%*
========== ========== ========== ========== ==========
Investment income--net ........................ 9.03%* 9.23% 9.15% 8.73% 8.75%*
========== ========== ========== ========== ==========
====================================================================================================================================
Leverage: Amount of borrowings outstanding, end of period
(in thousands) ................................ $ 28,400 $ 13,000 $ 9,250 $ 19,750 $ 45,000
========== ========== ========== ========== ==========
Average amount of borrowings outstanding during
the period (in thousands) ..................... $ 16,273 $ 8,433 $ 16,948 $ 21,336 $ 41,935
========== ========== ========== ========== ==========
Average amount of borrowings outstanding per
share during the period ....................... $ 1.83 $ .97 $ 1.98 $ 2.55 $ 5.10
========== ========== ========== ========== ==========
====================================================================================================================================
Supplemental Net assets, end of period (in thousands) ...... $ 117,473 $ 115,903 $ 108,391 $ 106,054 $ 101,696
Data: ========== ========== ========== ========== ==========
Portfolio turnover ............................ 18.23% 70.76% 69.75% 61.97% 42.21%
========== ========== ========== ========== ==========
====================================================================================================================================
</TABLE>
+ Based on average shares outstanding.
++ Commencement of operations.
* 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
loads.
+++ Aggregate total investment return.
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. 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 are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased are valued at
the last sale price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last bid price. 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 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.
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
12 & 13
<PAGE>
Corporate High Yield Fund II, Inc., February 28, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
(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, 1998, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Inc. ("MLPF&S"), $3,652 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 28, 1998 were $39,490,242 and $23,975,246, respectively.
Net realized gains for the six months ended February 28, 1998 and net unrealized
losses as of February 28, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Losses
- --------------------------------------------------------------------------------
Long-term investments .................. $1,634,243 $(2,635,897)
---------- -----------
Total .................................. $1,634,243 $(2,635,897)
========== ===========
- --------------------------------------------------------------------------------
As of February 28, 1998, net unrealized depreciation for Federal income tax
purposes aggregated $2,635,897, of which $8,187,337 related to appreciated
securities and $10,823,234 related to depreciated securities. The aggregate cost
of investments at February 28, 1998 for Federal income tax purposes was
$146,884,053.
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 28, 1998 and
during the year ended August 31, 1997 increased by 119,206 and 233,770,
respectively, as a result of dividend reinvestment.
5. Short-Term Borrowings:
On January 30, 1998, the Fund extended its credit agreement with Merrill Lynch
International Bank Limited, an affiliate of FAM, through January 31, 1999. The
agreement is for a $50,000,000 credit facility bearing interest at the Federal
Funds rate plus 0.25% and/or LIBOR plus 0.25%. For the six months ended February
28, 1998, the average amount borrowed was approximately $16,273,000 and the
daily weighted average interest rate was 5.85%. For the six months ended
February 28, 1998, facility and commitment fees aggregated approximately
$31,000.
6. Capital Loss Carryforward:
At August 31, 1997, the Fund had a net capital loss carryforward of
approximately $7,117,000, of which $2,725,000 expires in 2003, $3,371,000
expires in 2004 and $1,021,000 expires in 2005. This amount will be available to
offset like amounts of any future taxable gains.
7. Subsequent Event:
On March 9, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.107907 per share,
payable on March 31, 1998 to shareholders of record as of March 23, 1998.
PORTFOLIO INFORMATION
<TABLE>
<CAPTION>
Ten Largest
Holdings
Percent of Total
As of February 28, 1998 Long-Term Investments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maxxam Group, Inc. Maxxam is a holding company whose affiliate, Kaiser Aluminum, is a leading producer
11.25% 8/01/2003 of aluminum. Kaiser's common stock secures these bonds. Through subsidiaries,
14.726% 8/01/2003 Pacific Lumber and Britt Lumber, Maxxam is the largest producer of premium-grade
redwood lumber in the world. 2.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Transtar Holdings, Inc. Transtar is a transportation holding company with seven railroads, a Great Lakes shipping
12.907% 12/15/2003 fleet and an inland barge operation. Transtar provides sole rail access and primary
water transport for nearly all the steel plants of USX. 2.7
- ------------------------------------------------------------------------------------------------------------------------------------
Nextel Communications Inc. Nextel is building a network to provide digital wireless communications services that
13.935% 1/15/2004 ultimately will have a nationwide footprint. The company currently has service in
12.576% 8/15/2004 over 225 cities and expects service to cover 85% of the US population by the end
9.505% 10/31/2007 of 1998. The company has over 1.2 million units in service. Our holdings include
13% Preferred Stock bonds of 100%-owned Cencall Communications. 2.4
- ------------------------------------------------------------------------------------------------------------------------------------
TransAmerican Energy Corp. TransAmerican Energy has interests in natural gas and oil refining. The company owns
13.155% 6/15/2002 approximately 70% of TransTexas Gas Corp., a public natural gas exploration, development
and production company, primarily in South Texas. 100%-owned TransAmerican Refining Corp.
owns a large petroleum refinery on the Gulf Coast near New Orleans. The refinery is being
rebuilt to process heavy, sour crude oils into higher value, light petroleum products such as
gasoline and heating oil. 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
Tucson Electric & This electric utility serves Tucson, Arizona and surrounding areas. Our bonds are secured
Power Co. lease obligation bonds on the company's Springerville coal fired power generation plant. 1.7
10.21% 1/01/2009
- ------------------------------------------------------------------------------------------------------------------------------------
Telefonica de Telefonica de Argentina provides monopoly telephone service to the southern half of Argentina,
Argentina S.A. including about half the Buenos Aires metropolitan area where nearly one-third of Argentina's
11.875% 11/01/2004 population is located. 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Sea Containers Ltd. Sea Containers has three principal businesses: marine container leasing, ferry and rail
12.50% 12/01/2004 transportation services and luxury hotels and other leisure industry activities. The container
7.875% 2/15/2008 business is to become part of a joint venture with GE Capital Services that will operate the
joined container fleets as one of the two largest such fleets in the world. Ferry services
primarily serve routes in Northern Europe, including Great Britain to France and Sweden
to Denmark. 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Kaiser, an affiliate of Maxxam Group, Inc., is one of the world's leading producers of aluminum.
Chemical Corp. The company mines and refines bauxite into alumina, produces aluminum from alumina
12.75% 2/01/2003 and manufactures fabricated aluminum products. 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Reliance Group Holdings Inc. Reliance Group is a holding company whose principal business is the ownership of property
9.75% 11/15/2003 and casualty insurance companies. 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Penncorp Financial Group, Inc. Penncorp is an insurance holding company. Through its subsidiaries, the company underwrites
9.25% 12/15/2003 and markets fixed benefit accident and sickness insurance, life insurance and accumulation
products to middle income markets throughout the United States and Canada. 1.5
</TABLE>
14 & 15
<PAGE>
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Elizabeth M. Phillips, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian & Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
KYT
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 #16913-2/98
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