CORPORATE
HIGH YIELD
FUND II, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
August 31, 2000
<PAGE>
CORPORATE HIGH YIELD FUND II, INC.
The Benefits and Risks of Leveraging
Corporate High Yield Fund II, Inc. has the ability to utilize leverage through
borrowings or issuance of short-term debt securities or shares of Preferred
Stock. The concept of leveraging is based on the premise that the cost of assets
to be obtained from leverage will be based on short-term interest rates, which
normally will be lower than the return earned by the Fund on its longer-term
portfolio investments. To the extent that the total assets of the Fund
(including the assets obtained from leverage) are invested in higher-yielding
portfolio investments, the Fund's Common Stock shareholders will benefit from
the incremental yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend rates
on any Preferred Stock, if the Fund were to issue Preferred Stock) may reduce
the Common Stock's yield and negatively impact its market price. If the income
derived from securities purchased with assets received from leverage exceeds the
cost of leverage, the Fund's net income will be greater than if leverage had not
been used. Conversely, if the income from the securities purchased is not
sufficient to cover the cost of leverage, the Fund's net income will be less
than if leverage had not been used, and therefore the amount available for
distribution to Common Stock shareholders will be reduced. In this case, the
Fund may nevertheless decide to maintain its leveraged position in order to
avoid capital losses on securities purchased with leverage. However, the Fund
will not generally utilize leverage if it anticipates that its leveraged capital
structure would result in a lower rate of return for its Common Stock than would
be obtained if the Common Stock were unleveraged for any significant amount of
time.
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
DEAR SHAREHOLDER
High-Yield Market Overview
High-yield issues were a poor investment for the six-month period ended August
31, 2000. As measured by the unmanaged CS First Boston Global High Yield Index,
the high-yield market returned a meager +0.55% for the six months ended August
31, 2000, compared to a return for ten-year US Treasury bonds of +7.08% for the
same period. The high-yield market has continued to suffer from negative
earnings surprises, persistently high default rates, skittish investors and lack
of liquidity. Investors have followed a "sell first, ask questions later"
approach to earnings disappointments. Even the possibility of unfavorable news
has pushed bond prices down. This attitude and limited capital commitments from
market makers have decreased market liquidity. With this backdrop, an investor
might well wonder what is necessary to turn the market around and whether to
stay the course in the high-yield arena.
Regarding improvement in the high-yield market, we see a circular situation: If
high-yield prices were to stabilize or improve, returns would improve, cash
would flow into the high-yield market, bond prices would rise, liquidity would
increase, and returns improve further. To step into that virtuous circle and
achieve a positive change in market direction, we believe there are several
important, but not sufficient, conditions. Strengthening of corporate credit
fundamentals would buttress high-yield performance. Companies have been unable
to improve earnings through higher prices, while demand in many sectors has
tailed off. As a result, corporate earnings have faltered, albeit against
unrealistically strong expectations. Broad improvement is unlikely in the near
term. Tighter bank lending standards have reduced funds available to weaker
credits for meeting their financial commitments. These factors will keep default
rates high until earnings power improves. Furthermore, it is difficult for us to
envision a strong high-yield market in an environment of potentially rising
interest rates. Despite our equity-like investment characteristics and modest
correlation of returns with other types of bonds, high-yield securities are a
fixed-income investment. Valuations are determined at least in part with
reference to other fixed-income instruments. Interest rate increases by the
Federal Reserve Board have paused, probably at least through the US presidential
election in November. This supported better high-yield performance in the second
part of the six-month period ended August 31, 2000. Conceivably, that stability
could form a base for better returns in the high-yield market, although the
potential for enhanced earnings remains uncertain.
We believe that the high-yield market continues to represent value for those
with a long-term investment horizon. We also believe that timing the market is
difficult, as investor sentiment can turn unexpectedly. Previous bear markets in
high-yield securities have been followed by quick and dramatic upturns. While it
is not possible to say whether this will end with the same result or when such a
turn would occur, we believe that investors are being paid quite well to wait.
First, investors are being well paid from a relative value perspective. At 773
basis points (7.73%), the spread or difference between yields of Treasury bonds
and high-yield bonds remains at attractive levels. Second, investors are
benefiting from generous yields. As of August 31, 2000, the current yield of the
CS First Boston Global High Yield Index is eye-catching at 13.6%.
Fund Performance
For the fiscal year ended August 31, 2000, the total investment return on the
Fund's Common Stock was +4.22%, based on a change in per share net asset value
from $10.62 to $9.71, and assuming reinvestment of $1.228 per share income
dividends. During the fiscal year, the net annualized yield of the Fund's Common
Stock was 12.66%. For the six months ended August 31, 2000, the total investment
return on the Fund's Common Stock was -0.09%, based on a change in per share net
asset value from $10.37 to $9.71, and assuming reinvestment of $.598 per share
income dividends. During this period, the net annualized yield of the Fund's
Common Stock was 12.37%.
As expected in a negative bond price environment, leverage worked against us
during the six-month period ended August 31, 2000. Several Fund holdings also
experienced sharp drops in response to earnings disappointments. We continue to
evaluate these holdings to ensure that asset valuations still support bond
prices at current levels. Performance was aided by our overweighted position in
emerging markets, as those bonds exhibited strength during the six-month period.
Leverage Strategy
The Fund was on average 26% leveraged during the six-month period ended August
31, 2000. This means that we borrowed the equivalent of 26% of total assets
invested, earning incremental yield on the investments we made with the borrowed
funds. At August 31, 2000, the Fund was 23.8% leveraged, having borrowed $28.1
million at a borrowing cost of 6.88%. Given our belief that the high-yield
market remains a good value, we intend to maintain our leverage position near
25%. This level may vary somewhat in response to market conditions. (For a
complete explanation of the benefits and risks of leveraging, see page 1 of this
report to shareholders.)
Investment Strategy
Given our view that the high-yield market represents good long-term value and
that a market turnaround can be dramatic, we are holding to our basic strategy
of seeking value in the marketplace and attempting to limit credit problems. We
have attempted to maintain the credit-quality of the portfolio near the CS First
Boston Global High Yield Index. We are not avoiding investments in lower credit
quality companies where we see adequate asset value and potential for operating
improvement. We maintained overweighted positions in emerging markets,
chemicals, transportation and healthcare because of our belief in the favorable
long-term prospects and asset valuations in these sectors.
We added positions in the cable/media sector during the six months ended August
31, 2000, believing these areas to be stable businesses that represented good
value when purchased. These additions included BB-rated Primedia, Inc., a
diversified media company with a strong magazine publishing business. We also
added B-rated companies, including LIN Holdings Corp., a television broadcaster;
Adelphia Communications Corporation, a cable television and telecommunications
provider; and two cable television companies located in Germany, EKabel Hessen
and Callahan Nordrhein-Westfalen. We sold a number of telecommunications
positions believing that sector to be vulnerable to unpleasant earnings
surprises and potential funding shortfalls. Based on concerns over changes in
strategy and earnings shortfalls, we also sold our position in BB-rated Azurix
Corporation. The sale was fortuitous, as bonds subsequently traded down 15
points on earnings weakness. We reduced our holdings in Forcenergy Inc. stock at
a substantial profit. Forcenergy had been a speculative purchase at distressed
levels.
In Conclusion
We thank you for your investment in Corporate High Yield Fund II, Inc., and we
look forward to assisting you with your financial needs in the months and years
ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Senior Vice President and
Portfolio Manager
/s/ Elizabeth M. Phillips
Elizabeth M. Phillips
Vice President and Portfolio Manager
October 6, 2000
2 & 3
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Automotive--0.0% NR* NR* $1,000,000 Breed Technologies Inc., 9.25% due 4/15/2008 (i) $ 7,500
====================================================================================================================================
Broadcasting--Radio B+ B2 750,000 Globo Communicacoes e Participacoes, Ltd., 10.50%
& Television--1.6% due 12/20/2006 (f) 676,875
B- B3 1,100,000 LIN Holdings Corp., 13.485%** due 3/01/2008 770,000
-----------
1,446,875
====================================================================================================================================
Building BB Ba3 1,000,000 Building Materials Corporation, 8% due 12/01/2008 740,000
Materials--0.8%
====================================================================================================================================
Cable--6.4% Adelphia Communications Corporation:
B+ B2 2,500,000 9.25% due 10/01/2002 2,487,500
B+ B2 1,000,000 7.875% due 5/01/2009 850,000
CSC Holdings Inc.:
BB- Ba3 250,000 9.25% due 11/01/2005 251,875
BB- Ba3 1,000,000 9.875% due 5/15/2006 1,015,000
B+ B2 1,250,000 Charter Communications Holdings LLC, 8.625% due 4/01/2009 1,140,625
-----------
5,745,000
====================================================================================================================================
Cable-- Australis Media Ltd. (i)@:
International--8.8% D NR* 50,655 15.75% due 5/15/2003 507
D NR* 2,961,000 15.75% due 5/15/2003 (a) 29,610
BB B1 1,500,000 Cablevision SA, 13.75% due 5/01/2009 1,368,750
B- B3 900,000 Callahan Nordrhein-Westfalen, 14% due 7/15/2010 (f) 909,000
B B2 500,000 Diamond Cable Communications PLC, 13.25% due 9/30/2004 527,500
B- B3 900,000 Ekabel Hessen, 14.50% due 9/01/2010 897,750
B B2 1,250,000 International Cabletel, Inc., 11.643%** due 2/01/2006 1,176,563
BB+ Ba1 500,000 Rogers Cablesystems Ltd., 10% due 12/01/2007 (f) 522,500
D Caa3 1,950,000 Supercanal Holdings SA, 11.50% due 5/15/2005 (f)(i) 780,000
B+ B1 750,000 TeleWest Communications PLC, 11.001%** due 10/01/2007 716,250
B B2 2,200,000 United Pan-Europe Communications, 13.512%** due 2/01/2010 1,012,000
-----------
7,940,430
====================================================================================================================================
Chemicals--7.3% BBB- Baa3 1,250,000 Equistar Chemicals LP, 8.50% due 2/15/2004 1,241,050
NR* B2 1,250,000 Huntsman Corporation, 9.50% due 7/01/2007 (f) 1,093,750
B+ B3 1,500,000 Huntsman ICI Holdings, 12.384%** due 12/31/2009 517,500
BB Ba3 2,000,000 Lyondell Chemical Company, 9.625% due 5/01/2007 2,032,500
B+ B2 1,000,000 Octel Developments PLC, 10% due 5/01/2006 930,000
BB- B3 750,000 Sterling Chemicals Inc., 12.375% due 7/15/2006 774,375
-----------
6,589,175
====================================================================================================================================
Communications--1.0% B+ B2 2,150,000 Orion Network Systems, Inc., 15.167%** due 1/15/2007 860,000
====================================================================================================================================
Computer Services/ BB- Ba3 1,000,000 Amkor Technologies Inc., 9.25% due 5/01/2006 997,500
Electronics--5.5% B+ Ba3 800,000 Flextronics International Limited, 9.875% due
7/01/2010 (f) 828,000
CCC+ Caa3 1,750,000 MCMS Inc., 9.75% due 3/01/2008 1,312,500
B B2 975,000 SCG Holdings Corporation, 12% due 8/01/2009 1,053,000
B B2 800,000 Zilog Inc., 9.50% due 3/01/2005 736,000
-----------
4,927,000
====================================================================================================================================
Consumer B- B3 750,000 Albecca Inc., 10.75% due 8/15/2008 682,500
Products--3.5% B- B2 1,000,000 Chattem, Inc., 8.875% due 4/01/2008 857,500
B B3 500,000 Corning Consumer Products, 9.625% due 5/01/2008 195,000
B B3 1,000,000 Jostens Inc., 12.75% due 5/01/2010 (d) 1,021,250
CCC+ Caa1 750,000 Syratech Corp., 11% due 4/15/2007 420,937
-----------
3,177,187
====================================================================================================================================
Diversified--1.2% CCC+ Caa2 1,250,000 Foamex LP, 13.50% due 8/15/2005 1,037,500
====================================================================================================================================
Energy--7.1% CCC- Caa3 550,000 Belden & Blake Corp., 9.875% due 6/15/2007 459,250
CCC B3 1,250,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 1,062,500
BB Ba3 1,000,000 Port Arthur Finance Corporation, 12.50% due
1/15/2009 1,020,000
BB- Ba3 1,750,000 RBF Finance Company, 11% due 3/15/2006 2,012,500
BB- B1 750,000 Tesoro Petroleum Corp., 9% due 7/01/2008 730,313
B- B3 750,000 United Refining Co., 10.75% due 6/15/2007 450,000
CCC- Caa3 900,000 Wiser Oil Company, 9.50% due 5/15/2007 684,000
-----------
6,418,563
====================================================================================================================================
Entertainment--0.6% B- B3 500,000 Premier Parks Inc., 9.75% due 6/15/2007 475,000
CC Ca 1,000,000 Regal Cinemas Inc., 9.50% due 6/01/2008 85,000
-----------
560,000
====================================================================================================================================
Financial CCC- Caa3 1,750,000 Amresco Inc., 9.875% due 3/15/2005 630,000
Services--1.8% BB+ Ba3 1,000,000 Sovereign Bancorp, 10.50% due 11/15/2006 1,012,500
-----------
1,642,500
====================================================================================================================================
Food & Beverage--0.8% CCC+ Caa1 1,000,000 Aurora Foods Inc., 8.75% due 7/01/2008 765,000
====================================================================================================================================
Foreign Government B+ B2 1,000,000 Republic of Brazil, 10.125% due 5/15/2027 806,000
Obligations--0.9%
====================================================================================================================================
Gaming--3.1% D Caa1 2,000,000 GB Property Funding Corp., 10.875% due 1/15/2004 (i) 1,260,000
Jazz Casino Co. LLC:
NR* NR* 1,490,244 6.046% due 11/15/2009 (b)@ 298,049
NR* NR* 84,000 Contingent Notes due 11/15/2009 (c) 0
Venetian Casino/LV Sands:
B- Caa1 250,000 12.25% due 11/15/2004 253,750
CCC+ Caa3 1,000,000 14.25% due 11/15/2005 1,002,500
-----------
2,814,299
====================================================================================================================================
Health Services--9.8% B- B3 1,250,000 ALARIS Medical Systems, Inc., 9.75% due 12/01/2006 925,000
CCC+ B3 1,750,000 Extendicare Health Services, 9.35% due 12/15/2007 910,000
Fresenius Medical Capital:
B+ ba3 300,000 Trust I, 9% due 12/01/2006 298,500
B+ ba3 700,000 Trust II, 7.875% due 2/01/2008 661,500
BBB- Ba1 400,000 HEALTHSOUTH Corp., 7% due 6/15/2008 303,272
</TABLE>
4 & 5
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Health Services BB Ba3 $1,250,000 ICN Pharmaceuticals Inc., 8.75% due 11/15/2008 (f) $ 1,229,687
(concluded) CCC B3 1,750,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 1,365,000
B- Caa1 1,125,000 Magellan Health Services, 9% due 2/15/2008 646,875
D C 1,250,000 Mariner Post--Acute Network, 9.50% due 11/01/2007 (i) 28,125
B+ B2 1,000,000 Quest Diagnostics Inc., 10.75% due 12/15/2006 1,055,000
B+ Ba3 1,500,000 Quorum Health Group Inc., 8.75% due 11/01/2005 1,451,250
-----------
8,874,209
====================================================================================================================================
Hotels & Motels--2.4% BB Ba2 2,250,000 HMH Properties, Inc., 8.45% due 12/01/2008 2,179,687
====================================================================================================================================
Independent Power BB- Ba2 500,000 AES Drax Energy Ltd., 11.50% due 8/30/2010 (f) 522,500
Producers--2.4% BB+ Ba1 500,000 Calpine Corporation, 8.625% due 8/15/2010 496,173
BB+ Ba3 1,000,000 Midland Funding II, 13.25% due 7/23/2006 1,184,770
-----------
2,203,443
====================================================================================================================================
Industrial--0.8% Neff Corp.:
B B3 1,000,000 10.25% due 6/01/2008 550,000
B B3 250,000 10.25% due 6/01/2008 137,500
-----------
687,500
====================================================================================================================================
Industrial-- CCC Caa2 1,250,000 Metal Management Inc., 10% due 5/15/2008 125,000
Transportation--0.1%
====================================================================================================================================
Internet B- B3 1,100,000 PSINet Inc., 11% due 8/01/2009 950,125
Transport--1.1%
====================================================================================================================================
Media & B- B3 1,900,000 Satelites Mexicanos SA, 10.125% due 11/01/2004 1,330,000
Communications--
International--1.5%
====================================================================================================================================
Metals & Mining--3.1% B- B3 1,250,000 Great Lakes Carbon Corp., 11.75% due 5/15/2008@ 987,500
CCC+ B3 2,000,000 Kaiser Aluminum & Chemical Corp., 12.75% due 2/01/2003 1,840,000
-----------
2,827,500
====================================================================================================================================
Packaging--1.0% NR* NR* 1,000,000 Huntsman Packaging Corporation, 13% due 6/01/2010 (f) 880,000
====================================================================================================================================
Paper & Forest CCC+ B3 1,000,000 APP China Group Ltd., 14% due 3/15/2010 (f) 570,000
Products--4.7% B B2 900,000 Ainsworth Lumber Company, 12.50% due 7/15/2007@ 857,250
Doman Industries Limited:
B Caa1 1,000,000 8.75% due 3/15/2004 802,500
B+ B3 500,000 12% due 7/01/2004 510,000
CCC+ Caa1 1,000,000 Repap New Brunswick, 10.625% due 4/15/2005 1,030,000
CCC+ B3 500,000 Tjiwi Kimia International BV, 13.25% due 8/01/2001 450,000
-----------
4,219,750
====================================================================================================================================
Product CCC- Ca 1,100,000 US Office Products Co., 9.75% due 6/15/2008 209,000
Distribution--0.2%
====================================================================================================================================
Publishing & B B2 1,500,000 MDC Communications Corp., 10.50% due 12/01/2006 1,440,000
Printing--2.8% BB- Ba3 1,250,000 Primedia, Inc., 7.625% due 4/01/2008 1,131,250
-----------
2,571,250
====================================================================================================================================
Real Estate--1.6% BB- Ba3 1,500,000 Forest City Enterprises Inc., 8.50% due 3/15/2008 1,455,000
====================================================================================================================================
Recreation--0.8% B+ B1 725,000 Intrawest Corp., 9.75% due 8/15/2008 726,812
====================================================================================================================================
Shipping--0.5% BB Ba2 500,000 Stena AB, 10.50% due 12/15/2005 485,000
====================================================================================================================================
Specialty Retailing--0.8% B B2 900,000 Jo-Ann Stores Inc., 10.375% due 5/01/2007 738,000
====================================================================================================================================
Steel--0.8% NR* B2 750,000 CSN Iron SA, 9.125% due 6/01/2007 (f) 641,250
CC Caa3 500,000 Republic Technologies, 13.75% due 7/15/2009 92,500
-----------
733,750
====================================================================================================================================
Telecommunications--0.1% CCC Caa2 500,000 Dolphin Telecom PLC, 17.456%** due 6/01/2008 110,000
====================================================================================================================================
Telephony--10.5% NR* NR* 1,250,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 (f) 1,239,062
B- B3 1,000,000 Esprit Telecom Group PLC, 10.875% due 6/15/2008 490,000
B- B3 750,000 Fairpoint Communications, 12.50% due 5/01/2010 742,500
BB- Ba3 500,000 Flag Limited, 8.25% due 1/30/2008 442,500
B B2 750,000 Flag Telecom Holding Ltd., 11.625% due 3/30/2010 680,625
B- Caa1 1,500,000 GT Group Telecom, 13.25%** due 2/01/2010 (f) 772,500
L-3 Communications Corp.:
B B2 650,000 10.375% due 5/01/2007 663,000
B B2 1,000,000 8.50% due 5/15/2008 910,000
B B3 1,500,000 Level 3 Communications Inc., 12.667%** due 3/15/2010 851,250
Nextlink Communications Inc.:
B B2 1,250,000 12.50% due 4/15/2006 1,290,625
B B2 500,000 9% due 3/15/2008 447,500
B- B3 1,000,000 Tele1 Europe BV, 13% due 5/15/2009 920,000
-----------
9,449,562
====================================================================================================================================
Textiles--1.6% B B3 1,250,000 Polymer Group Inc., 8.75% due 3/01/2008 984,375
BB B1 500,000 Westpoint Stevens Inc., 7.875% due 6/15/2008 (d) 432,500
-----------
1,416,875
====================================================================================================================================
Transportation--8.3% D B3 1,500,000 American Reefer Co. Ltd., 10.25% due 3/01/2008 480,000
BB- NR* 1,250,000 Autopistas del Sol SA, 10.25% due 8/01/2009 (f) 950,000
BB- Ba3 2,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 1,895,000
BB- B1 1,250,000 Sea Containers Ltd., 12.50% due 12/01/2004 1,046,875
B+ B2 1,000,000 TFM, SA de CV, 11.939%** due 6/15/2009 780,000
</TABLE>
6 & 7
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Transportation B+ Ba3 $ 500,000 Transportacion Maritima Mexicana, SA de CV, 9.25%
(concluded) due 5/15/2003 $ 412,500
B- B2 1,521,000 Transtar Holdings LP, 13.375% due 12/15/2003 1,547,618
NR* NR* 539,255 Trism, Inc., 12% due 2/15/2005 (e) 388,264
------------
7,500,257
====================================================================================================================================
Utilities--4.0% NR* NR* 2,359,521 Tucson Electric & Power Co., 10.21% due 1/01/2009 (d)(e) 2,484,174
BB- Ba2 1,250,000 Western Resources Inc., 6.25% due 8/15/2003 1,108,318
------------
3,592,492
====================================================================================================================================
Wireless CCC Caa1 1,000,000 Airgate PCS Inc., 12.713%** due 10/01/2009 630,000
Communications-- Nextel Communications, Inc.:
Domestic--8.1% B B1 750,000 9.505%** due 10/31/2007 575,625
B B1 1,000,000 9.375% due 11/15/2009 980,000
CCC+ B3 1,000,000 Nextel Partners Inc., 12.576%** due 2/01/2009 695,000
D Caa3 175,000 Paging Network, Inc., 10.125% due 8/01/2007 (i) 57,094
B B3 1,100,000 Pinnacle Holdings Inc., 11.655%** due 3/15/2008 794,750
B- B3 2,000,000 Spectracite Holdings Inc., 12.875%** due 3/15/2010 1,130,000
B- B2 1,325,000 VoiceStream Wireless Company, 10.375% due 11/15/2009 1,431,000
B+ B1 1,000,000 Western Wireless Corp., 10.50% due 2/01/2007 1,031,250
------------
7,324,719
====================================================================================================================================
Wireless NR* NR* 1,000,000 Celcaribe SA, 14.50% due 3/15/2004 810,000
Communications-- B B3 2,070,000 Comunicacion Celular SA, 13.153%** due 3/01/2005 (f) 1,593,900
International--8.8% B- Caa1 1,750,000 McCaw International Ltd., 12.829%** due 4/15/2007 1,334,375
B- Caa1 2,750,000 Millicom International Cellular, 14.047%** due 6/01/2006 2,433,750
CCC+ Caa1 2,750,000 Telesystem International Wireless Inc., 17.143%**
due 6/30/2007 1,787,500
------------
7,959,525
====================================================================================================================================
Total Investments in Corporate Bonds
(Cost--$132,804,097)--126.2% 114,026,485
====================================================================================================================================
<CAPTION>
Shares
Held Stocks & Warrants
====================================================================================================================================
<C> <C> <S> <C>
Energy--1.0% 38,097 Forcenergy Inc. (i) 919,090
====================================================================================================================================
Entertainment--0.3% 17,770 On Command Corporation (i) 235,453
6,417 On Command Corporation (Warrants) (g) 16,845
------------
252,298
====================================================================================================================================
Gaming--0.0% 24,357 JCC Holding Company (i) 33,491
====================================================================================================================================
Steel--0.0% 500 Republic Technologies (Warrants) (g) 5
====================================================================================================================================
Supermarkets--0.0% 1,873 Grand Union Co. (Warrants) (g) 174
====================================================================================================================================
Telephony--0.7% 411 Intermedia Communications Inc. (Convertible Preferred)@ 267,150
11,430 McLeodUSA Incorporated (Class A) (i) 180,734
17,612 Tele1 Europe Holding AB (ADR) (h)(i) 214,646
------------
662,530
====================================================================================================================================
Transportation--0.4% 49,000 HMI (i) 278,663
34,153 TRISM, Inc. (i) 34,153
------------
312,816
====================================================================================================================================
Wireless 2,070 Comunicacion Celular SA (Warrants) (f)(g) 20,700
Communications--
International--0.0%
====================================================================================================================================
Total Investments in Stocks & Warrants
(Cost--$4,589,924)--2.4% 2,201,104
====================================================================================================================================
<CAPTION>
Face
Amount Short-Term Securities
====================================================================================================================================
<C> <C> <S> <C>
Commercial $ 268,000 General Motors Acceptance Corp., 6.69% due 9/01/2000 268,000
Paper***--0.3%
====================================================================================================================================
Total Investments in Short-Term Securities
(Cost--$268,000)--0.3% 268,000
====================================================================================================================================
Total Investments (Cost--$137,662,021)--128.9% 116,495,589
Liabilities in Excess of Other Assets--(28.9%) (26,121,482)
------------
Net Assets--100.0% $ 90,374,107
============
====================================================================================================================================
</TABLE>
* Not Rated.
** Represents a zero coupon or step bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
*** Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
@ Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(a) Each $1,000 face amount contains one warrant of Australis Media Ltd.
(b) Floating rate note.
(c) Represents an obligation by Jazz Casino Co. LLC to pay a semi-annual
amount to the Fund through 11/15/2009. The payments are based upon varying
interest rates and the amounts, which may be paid-in-kind, are contingent
upon the earnings before income taxes, depreciation and amortization of
Jazz Casino Co. LLC on a fiscal year basis.
(d) Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $3,938,000, representing 4.4% of
net assets.
--------------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------------
Jostens Inc.,
12.75% due 5/01/2010 5/05/2000 $ 960,049 $1,021,250
Tucson Electric & Power Co.,
10.21% due 1/01/2009 3/23/1994 2,312,331 2,484,174
Westpoint Stevens Inc.,
7.875% due 6/15/2008 8/24/2000 431,875 432,500
--------------------------------------------------------------------------------
Total $3,704,255 $3,937,924
========== ==========
--------------------------------------------------------------------------------
(e) Subject to principal paydowns.
(f) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(g) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number
of shares are subject to adjustment under certain conditions until the
expiration date.
(h) American Depositary Receipts (ADR).
(i) Non-income producing security.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
8 & 9
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of August 31, 2000
=================================================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$137,662,021) .............................. $ 116,495,589
Interest receivable ................................................................ 2,994,170
Prepaid expenses and other assets .................................................. 110,205
-------------
Total assets ....................................................................... 119,599,964
-------------
=================================================================================================================================
Liabilities: Loans .............................................................................. 28,100,000
Payables:
Custodian bank ................................................................... $ 820,731
Interest on loans ................................................................ 148,025
Investment adviser ............................................................... 39,534 1,008,290
-----------
Accrued expenses and other liabilities ............................................. 117,567
-------------
Total liabilities .................................................................. 29,225,857
-------------
=================================================================================================================================
Net Assets: Net assets ......................................................................... $ 90,374,107
=============
=================================================================================================================================
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized ........................ $ 930,379
Paid-in capital in excess of par ................................................... 128,391,116
Undistributed investment income--net ............................................... 430,192
Accumulated realized capital losses on investments--net ............................ (18,211,148)
Unrealized depreciation on investments--net ........................................ (21,166,432)
-------------
Net Assets--Equivalent to $9.71 per share based on 9,303,785 shares of capital stock
outstanding (market price--$9.75) .................................................. $ 90,374,107
=============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended August 31, 2000
======================================================================================================
<C> <S> <C> <C>
Investment Income: Interest and discount earned ........................ $ 14,346,002
Dividends ........................................... 102,373
Other ............................................... 57,778
------------
Total income ........................................ 14,506,153
------------
======================================================================================================
Expenses: Loan interest expense ............................... $2,112,038
Investment advisory fees ............................ 633,869
Professional fees ................................... 77,901
Accounting services ................................. 70,845
Borrowing costs ..................................... 54,160
Directors' fees and expenses ........................ 40,327
Transfer agent fees ................................. 33,080
Printing and shareholder reports .................... 27,472
Listing fees ........................................ 16,170
Custodian fees ...................................... 14,296
Pricing services .................................... 10,656
Other ............................................... 14,675
----------
Total expenses ...................................... 3,105,489
------------
Investment income--net .............................. 11,400,664
------------
======================================================================================================
Realized & Realized loss on investments--net ................... (5,935,812)
Unrealized Loss on Change in unrealized depreciation on
Investments--Net: investments--net .................................... (2,480,659)
------------
Net Increase in Net Assets Resulting from Operations $ 2,984,193
============
======================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year
Ended August 31,
------------------------------
Increase (Decrease) in Net Assets: 2000 1999
=======================================================================================================
<C> <S> <C> <C>
Operations: Investment income--net ............................... $ 11,400,664 $ 11,801,892
Realized loss on investments--net .................... (5,935,812) (4,578,158)
Change in unrealized depreciation on
investments--net ..................................... (2,480,659) (1,109,456)
------------- -------------
Net increase in net assets resulting from
operations ........................................... 2,984,193 6,114,278
------------- -------------
=======================================================================================================
Dividends to Dividends to shareholders from investment
Shareholders: income--net .......................................... (11,406,123) (12,384,283)
------------- -------------
=======================================================================================================
Capital Share Value of shares issued to Common Stock shareholders in
Transactions: reinvestment of dividends ............................ 153,330 2,353,724
------------- -------------
=======================================================================================================
Net Assets: Total decrease in net assets ......................... (8,268,600) (3,916,281)
Beginning of year .................................... 98,642,707 102,558,988
------------- -------------
End of year* ......................................... $ 90,374,107 $ 98,642,707
============= =============
=======================================================================================================
*Undistributed investment income--net ................. $ 430,192 $ 387,188
============= =============
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended August 31, 2000
===============================================================================================================
<C> <S> <C>
Cash Provided by Net increase in net assets resulting from operations .................. $ 2,984,193
Operating Activities: Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in receivables ............................................. (123,486)
Increase in other assets ............................................ (7,237)
Decrease in other liabilities ....................................... 626,923
Realized and unrealized loss on investments--net .................... 8,416,471
Amortization of discount ............................................ (2,648,998)
------------
Net cash provided by operating activities ............................. 9,247,866
------------
===============================================================================================================
Cash Provided by Proceeds from sales of long-term investments .......................... 69,893,609
Investing Activities: Purchases of long-term investments .................................... (61,384,914)
Purchases of short-term investments ................................... (56,742,132)
Proceeds from sales and maturities of short-term investments .......... 56,738,000
------------
Net cash provided by investing activities ............................. 8,504,563
------------
===============================================================================================================
Cash Used for Cash receipts from borrowings ......................................... 50,890,000
Financing Activities: Cash payments on borrowings ........................................... (57,390,000)
Dividends paid to shareholders ........................................ (11,448,994)
------------
Net cash used for financing activities ................................ (17,948,994)
------------
===============================================================================================================
Cash: Net decrease in cash .................................................. (196,565)
Cash at beginning of year ............................................. 196,565
------------
Cash at end of year ................................................... $ --
============
===============================================================================================================
Cash Flow Information: Cash paid for interest ................................................ $ 2,291,375
============
===============================================================================================================
Non-Cash Capital shares issued on reinvestment of dividends paid to
Financing Activities: shareholders .......................................................... $ 153,330
============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been
derived from information provided in the financial
statements. For the Year Ended August 31,
--------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000+ 1999+ 1998+ 1997+ 1996
===================================================================================================================================
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ................... $ 10.62 $ 11.30 $ 13.07 $ 12.56 $ 12.44
Operating -------- --------- --------- --------- ---------
Performance: Investment income--net ............................. 1.23 1.30 1.33 1.26 1.35
Realized and unrealized gain (loss) on
investments--net ................................... (.91) (.63) (1.77) .52 .15
-------- --------- --------- --------- ---------
Total from investment operations ..................... .32 .67 (.44) 1.78 1.50
-------- --------- --------- --------- ---------
Less dividends from investment income--net ........... (1.23) (1.35) (1.33) (1.27) (1.38)
-------- --------- --------- --------- ---------
Net asset value, end of year ......................... $ 9.71 $ 10.62 $ 11.30 $ 13.07 $ 12.56
======== ========= ========= ========= =========
Market price per share, end of year .................. $ 9.75 $ 10.4375 $ 11.125 $ 13.44 $ 13.00
======== ========= ========= ========= =========
===================================================================================================================================
Total Investment Based on net asset value per share ................... 4.22% 6.08% (4.10%) 14.91% 12.71%
Return:* ======== ========= ========= ========= =========
Based on market price per share ...................... 6.48% 5.90% (8.16%) 14.14% 20.94%
======== ========= ========= ========= =========
===================================================================================================================================
Ratios to Average Expenses, excluding interest expense ................. 1.05% 1.07% .89% .81% .81%
Net Assets: ======== ========= ========= ========= =========
Expenses ............................................. 3.29% 2.87% 2.06% 1.22% 1.65%
======== ========= ========= ========= =========
Investment income--net ............................... 12.07% 11.62% 10.35% 9.23% 9.15%
======== ========= ========= ========= =========
===================================================================================================================================
Leverage: Amount of borrowings outstanding, end of year
(in thousands) ....................................... $ 28,100 $ 34,600 $ 32,900 $ 13,000 $ 9,250
======== ========= ========= ========= =========
Average amount of borrowings outstanding during the
year (in thousands) .................................. $ 32,636 $ 34,078 $ 23,036 $ 8,433 $ 16,948
======== ========= ========= ========= =========
Average amount of borrowings outstanding per share
during the year ...................................... $ 3.51 $ 3.71 $ 2.57 $ .97 $ 1.98
======== ========= ========= ========= =========
===================================================================================================================================
Supplemental Net assets, end of year (in thousands) ............... $ 90,374 $ 98,643 $ 102,559 $ 115,903 $ 108,391
Data: ======== ========= ========= ========= =========
Portfolio turnover ................................... 49.18% 56.58% 45.73% 70.76% 69.75%
======== ========= ========= ========= =========
===================================================================================================================================
</TABLE>
+ Based on average shares outstanding.
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
See Notes to Financial Statements.
12 & 13
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Corporate High Yield Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, closed-end management
investment company. The Fund's financial statements are prepared in conformity
with accounting principles generally accepted in the United States of America,
which may require the use of management accruals and estimates. 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. Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of such exchanges.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. In the case of options traded in the over-the-counter
market, valuation is the last asked price (options written) or the last bid
price (options purchased). Obligations with remaining maturities of sixty days
or less are valued at amortized cost, which approximates market value, unless
this method no longer produces fair valuations. Rights or warrants to acquire
stock, or stock acquired pursuant to the exercise of a right or warrant, may be
valued taking into account various factors such as original cost to the Fund,
earnings and net worth of the issuer, market prices for securities of similar
issuers, assessment of the issuer's future prosperity, liquidation value or
third party transactions involving the issuer's securities. Securities and
assets for which there exist no price quotations or valuations and all other
assets 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. 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 recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Custodian bank--The Fund recorded an amount payable to the custodian bank
reflecting an overnight overdraft which resulted from an unprojected payment of
net investment income dividends.
(g) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, the current year's permanent
book/tax differences of $48,463 have been reclassified between accumulated net
realized capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .50% of the Fund's average weekly net assets plus the proceeds
of any outstanding principal borrowed.
During the year ended August 31, 2000, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, $2,066 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
year ended August 31, 2000 were $61,003,404 and $69,893,609, respectively.
Net realized losses for the year ended August 31, 2000 and net unrealized losses
as of August 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments................ $(5,935,812) $(21,166,432)
----------- ------------
Total ............................... $(5,935,812) $(21,166,432)
=========== ============
--------------------------------------------------------------------------------
As of August 31, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $21,687,136, of which $3,017,628 related to appreciated
securities and $24,704,764 related to depreciated securities. The aggregate cost
of investments at August 31, 2000 for Federal income tax purposes was
$138,182,725.
14 & 15
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
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 years ended August 31, 2000 and August
31, 1999 increased by 15,791 and 211,019, respectively, as a result of dividend
reinvestment.
5. Short-Term Borrowings:
On January 26, 2000, the Fund entered into a one-year credit agreement with
State Street Bank and Trust Company and Bank of America, N.A. The agreement is a
$50,000,000 credit facility bearing interest at the Federal Funds Rate plus .50%
and/or LIBOR plus .50%.
On July 6, 2000, the Fund entered into a one-year $50,000,000 revolving credit
and security agreement with Citibank, N.A. and other lenders (the "Lenders").
This agreement replaced the agreement the Fund had entered into on January 26,
2000. The Fund may borrow money (i) through a line of credit from certain
Lenders at the Eurodollar rate plus .75%, or the highest of the Federal Funds
rate plus .50%, a base rate as determined by Citibank, N.A. and/or the latest
three-week moving average of secondary market morning offering rates in the
United States for three-month certificates of deposit of major United States
money market banks plus .50%, or (ii) through the issuance of commercial paper
notes by certain Lenders at rates of interest equivalent to the weighted average
of the per annum rates paid or payable by such Lenders in respect of those
commercial paper notes.
For the year ended August 31, 2000, the average amount borrowed was
approximately $32,636,000 and the daily weighted average interest rate was
6.45%. For the year ended August 31, 2000, facility and commitment fees
aggregated approximately $54,000.
6. Capital Loss Carryforward:
At August 31, 2000, the Fund had a net capital loss carry forward of
approximately $12,131,000, of which $2,626,000 expires in 2003, $3,371,000
expires in 2004, $1,021,000 expires in 2005, $2,777,000 expires in 2007 and
$2,336,000 expires in 2008. This amount will be available to offset like amounts
of any future taxable gains.
7. Subsequent Event:
On September 7, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.102898 per share,
payable on September 29, 2000 to shareholders of record as of September 18,
2000.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, Corporate High Yield Fund II, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of Corporate High Yield Fund II, Inc. as
of August 31, 2000, the related statements of operations for the year then
ended, changes in net assets for each of the years in the two-year period then
ended and cash flows for the year then ended, and the financial highlights for
each of the years in the five-year period then ended. These financial statements
and the financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at August 31, 2000, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Corporate High Yield
Fund II, Inc. as of August 31, 2000, the results of its operations, the changes
in its net assets, its cash flows, and the financial highlights for the
respective stated periods in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
October 9, 2000
16 & 17
<PAGE>
Corporate High Yield Fund II, Inc., August 31, 2000
PORTFOLIO INFORMATION (unaudited)
<TABLE>
<CAPTION>
Percent of
As of August 31, 2000 Long-Term Investments
===========================================================================================================================
<C> <S> <C> <C>
Ten Largest Nextel Communications, Nextel has a network to provide digital wireless
Holdings Inc. communications services that ultimately will have
a nationwide footprint. Services include digital
cellular, paging and digital two-way radio. The
company has service in more than 225 cities, with
service to more than 85% of the US population. 2.5%
-------------------------------------------------------------------------------------------------------------
Adelphia Communications Adelphia is a cable television operator, with
Corporation systems in suburban areas of large- and
medium-sized cities in the United States. The
company also owns a competitive telecommunications
provider with operations in the eastern United
States. 2.1
-------------------------------------------------------------------------------------------------------------
Tucson Electric & Power Co. This electric utility serves Tucson, Arizona, and
surrounding areas. Our bonds are secured lease
obligation bonds on the company's Springerville
coal-fired power generation plant. 2.1
-------------------------------------------------------------------------------------------------------------
Millicom International Millicom International develops and operates
Cellular cellular telephone systems worldwide. The company
has interest in 33 cellular systems in 20
countries, primarily in emerging markets in Asia,
Latin America, Europe and Africa. 2.1
-------------------------------------------------------------------------------------------------------------
HMH Properties, Inc. HMH, a wholly-owned subsidiary of Host Marriott
Corporation, owns or holds controlling interests
in 69 full-service hotels, comprising the majority
of Host Marriott's lodging properties. The
properties are generally operated under the
Marriott and Ritz-Carlton brand names. Host
Marriott manages most of the properties for fees
based on revenues or operating profit. 1.9
-------------------------------------------------------------------------------------------------------------
Lyondell Chemical Lyondell is a global commodity chemical company.
Company The company is the world's largest producer of
propylene oxide and produces a variety of
derivative chemicals based on propylene oxide
Styrene monomer and tertiary butyl alcohol are
also important products. Lyondell's chemicals have
such end uses as flexible foam for automotive
seating and furniture, antifreeze and coolants,
personal care products, coatings, adhesives,
sealants, resins and solvents. 1.8
-------------------------------------------------------------------------------------------------------------
RBF Finance Company R&B Falcon (the parent company of RBF Finance)
owns and operates the world's largest fleet of
marine drilling rigs. The company operates in most
of the world's major offshore hydrocarbon-
producing regions and in all water depths. The RBF
notes are guaranteed by R&B Falcon, as well as
secured by first-priority liens on certain new
rigs and related long-term contracts. 1.7
-------------------------------------------------------------------------------------------------------------
Eletson Holdings, Inc. A Greek shipping company, Eletson owns and
operates one of the world's largest and most
modern fleets of medium-size double-hulled product
tankers. 1.6
-------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Kaiser Aluminum & Chemical Corp., an affiliate of
Chemical Corp. Maxxam Inc., is one of the world's leading
producers of aluminum. The company mines and
refines bauxite into alumina, produces aluminum
from alumina and manufactures fabricated aluminum
products. 1.5
-------------------------------------------------------------------------------------------------------------
Telesystem International The company is a global wireless
Wireless Inc. telecommunications company that develops,
acquires, owns and operates wireless
communications companies in developing markets
throughout the world. Operations are in Romania,
Brazil, India and China. The company also offers
specialized mobile radio and paging services. 1.5
-------------------------------------------------------------------------------------------------------------
</TABLE>
Portfolio Profile
The quality ratings* of securities in the Fund as of August 31, 2000 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Long-Term Investments
--------------------------------------------------------------------------------
BBB/Baa .................................................. 1.3%
BB/Ba .................................................... 29.2
B/B ...................................................... 59.3
CCC/Caa or lower ......................................... 9.4
NR (Not Rated) ........................................... 0.8
--------------------------------------------------------------------------------
* In cases where bonds are rated differently by Standard & Poor's Corp. and
Moody's Investors Service, Inc., bonds are categorized according to the
higher of the two ratings.
--------------------------------------------------------------------------------
Percent of
Foreign Holdings Long-Term Investments
--------------------------------------------------------------------------------
Total Foreign Holdings ..................................... 32.2%
Emerging Markets Holdings .................................. 10.6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Average Portfolio Maturity ................................. 6.0 Years
--------------------------------------------------------------------------------
Percent of
Five Largest Foreign Countries* Long-Term Investments
--------------------------------------------------------------------------------
Canada ................................................................. 7.3%
United Kingdom ......................................................... 4.8
Brazil ................................................................. 2.9
Argentina .............................................................. 2.6
Mexico ................................................................. 2.2
--------------------------------------------------------------------------------
* All holdings are denominated in US dollars.
--------------------------------------------------------------------------------
Percent of
Five Largest Industries Total Assets
--------------------------------------------------------------------------------
Telephony .............................................................. 8.5%
Health Services ........................................................ 7.4
Wireless Communications--International ................................. 6.7
Cable--International ................................................... 6.6
Transportation ......................................................... 6.5
--------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Elizabeth M. Phillips, Vice President
Donald C. Burke, Vice President and Treasurer
Bradley J. Lucido, Secretary
Custodian & Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
KYT
18 & 19
<PAGE>
Corporate High Yield Fund II, Inc. seeks to provide shareholders with as high a
level of current income as is consistent with reasonable risk, as determined by
the Fund's investment adviser, by investing principally in fixed-income
securities which are rated in the lower rating categories of the established
rating services (Baa or lower by Moody's Investors Service, Inc. or BBB or lower
by Standard & Poor's Corporation) or are unrated securities of comparable
quality.
This report, including the financial information herein, is transmitted to
shareholders of Corporate High Yield Fund II, Inc. for their information. It is
not a prospectus. 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--8/00
[LOGO] Printed on post-consumer recycled paper
