CORPORATE
HIGH YIELD
FUND III, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
May 31, 2000
<PAGE>
CORPORATE HIGH YIELD FUND III, INC.
The Benefits and Risks of Leveraging
Corporate High Yield Fund III, Inc. utilizes leveraging through borrowings or
issuance of short-term debt securities or shares of Preferred Stock. The concept
of leveraging is based on the premise that the cost of assets to be obtained
from leverage will be based on short-term interest rates, which normally will be
lower than the return earned by the Fund on its longer-term portfolio
investments. Since the total assets of the Fund (including the assets obtained
from leverage) are invested in higher-yielding portfolio investments, the Fund's
Common Stock shareholders are the beneficiaries of the incremental yield.
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.
Officers and Directors
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Elizabeth M. Phillips, Vice President
Donald C. Burke, Vice President and Treasurer
William E. Zitelli, Secretary
Custodian and Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
CYE
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
DEAR SHAREHOLDER
High-Yield Market Overview
During the six months ended May 31, 2000, the high-yield market suffered from a
bear market psychology. Contributing factors to the malaise were interest rate
pressure, a flagging stock market, weak technicals, limited liquidity and weak
investment performance. The high-yield market delivered negative returns in four
of the six months ended May 31, 2000, and a 1.84% loss for the period, as
measured by the unmanaged benchmark CS First Boston Global High Yield Index.
To some degree, the high-yield market has reflected equity markets. The
high-yield market has experienced a wide dichotomy between the haves and the
have-nots that pushed up prices of selected bonds in popular sectors such as
communications, while leaving bonds in most sectors to languish in both price
and market interest. The high-yield market was also pressured by the March slump
in Internet stocks. Investors became concerned that equity markets would not be
available to fund the ongoing build-out plans of the fast-growing communications
companies that have bonds outstanding in the high-yield market. The resulting
price declines particularly hurt bonds of the weaker companies in the
communications sector. However, more liquid issues of better-quality companies
also suffered in the sell-off, as these represent easy sources of cash in a
sagging market.
Beyond the communications sector, equity market volatility has focused attention
on the ability of highly leveraged companies to raise needed capital. In recent
years, the equity market has been a significant source of capital for high-yield
companies, which tapped the equity market to fund both debt reduction and
business expansion. With less access to the equity markets and increasingly
conservative lending restrictions by banks, leveraged companies face greater
challenges to meet corporate liquidity needs.
Although the high-yield market remains in the doldrums, we remain confident that
the high-yield market represents value for those with a long-term time horizon.
At 714 basis points (7.14%), the yield spread or difference between yields of US
Treasury bonds and high-yield bonds remains at historically wide levels. It
appears to us that investors are discounting a default rate well in excess of
the current experience. As a result, investors are being paid well for the
incremental risk of investing in this market. Furthermore, absolute yields are
attractive, with the CS First Boston Global High Yield Index yield at 13.56%.
While there is no clear near-term catalyst for improvement in the high-yield
market, the eventual stabilization of interest rates should provide price
support, as could more settled conditions in equity markets.
Fund Performance
For the year ended May 31, 2000, the total investment return on the Fund's
Common Stock was -6.06%, based on a change in the per share net asset value from
$12.98 to $10.65, and assuming reinvestment of $1.491 per share income
dividends. For the six months ended May 31, 2000, total investment return for
the Fund was -3.78%, based on a change in the per share net asset value from
$11.89 to $10.65, and assuming reinvestment of $.740 per share income dividends.
During this period, the net annualized yield of the Fund's Common Stock was
14.02%. Fund performance was weak, reflecting a sell-off in high-yield markets
and emerging markets in May. Leverage also contributed to the Fund's
underperformance, particularly relative to the benchmark CS First Boston Global
High Yield Index. (For a complete explanation of the benefits and risks of
leveraging, see page 1 of this report to shareholders.) Several positions
suffered from the market trend to severely punish earnings disappointments.
Market concerns in many cases have been exacerbated by the potential for
liquidity crises should banks restrict borrowing because of earnings shortfalls.
We will continue to evaluate whether the value of each company exceeds market
value of outstanding debt, and the likelihood of recovery in the business. In
general, we have opted to hold our positions in such cases. Prices for our
emerging markets holdings fell, reflecting fundamental concern about the impact
of higher interest rates and unfavorable technicals as a result of hedge fund
and high-yield selling pressure in that asset class.
Leverage Strategy
The Fund was on average about 26% leveraged during the six-month period ended
May 31, 2000. Thus, the Fund borrowed the equivalent of 26% of total assets
invested, earning incremental yield on the investments we made with the borrowed
funds. On May 31, 2000, the Fund was 26.7% leveraged, having borrowed $137.4
million at a borrowing cost of 7.3125%. Our leverage hurt performance in this
period, as is typical when bond prices fall. Given our view that the high-yield
market represents value over the long term, we expect to maintain leverage in a
range near current levels, with moderate variations depending on market
conditions.
Investment Strategy
Within the context of ongoing market illiquidity and caution among high-yield
market investors, we attempted to strengthen our position in better
credit-quality names, to take advantage of growth sectors in the market and to
avoid credit problems in our larger holdings. 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 continue to evaluate our positions relative to valuations throughout the
market and to monitor operating trends of individual companies. To this end, we
sold our positions in Cumulus Media, Inc. during the period ended May 31, 2000.
While Cumulus Media's radio properties had continued to grow nicely, the bonds
and preferred stock in our positions appeared fully valued relative to the risk
profile of the company. This move proved correct as the bonds have since dropped
significantly. For a slightly better yield, we replaced Cumulus Media with
better-rated bonds of Global Crossing Holding Limited. Global Crossing is a
worldwide telecommunications provider, specializing in data communications and
primarily serving as a carrier's carrier. We believe growth prospects for the
company are excellent given the ever-increasing demand for communications
capacity and the competitive benefits of the company's state-of-the-art
worldwide fiber optic network.
In better-quality securities, we added to our holdings in HMH Properties, Inc.,
whose bonds are rated Ba2/BB. HMH Properties owns positions in a portfolio of
Marriott and Ritz Carlton hotels. We view HMH Properties as a well-managed
company with relatively predictable earnings growth.
We continue to review our communications holdings in light of equity market
volatility and the potential for companies in that sector to be unable to fund
their growth plans. We recognize that this sector has come under pressure
because of increasing concerns about adequate funding. However, we believe that
the companies represented in our Fund have favorable market positions and good
track records, which represent strategic value that will attract capital. Most
of the Fund's holdings are either well funded, with adequate cash holdings to
fund current plans, or have solid equity sponsorship that will be able to meet
any cash shortfalls.
In Conclusion
We thank you for your investment in Corporate High Yield Fund III, 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
June 23, 2000
2 & 3
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Rating Rating Amount Corporate Bonds Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Automotive--0.4% NR* NR* $ 5,000,000 Breed Technologies Inc., 9.25% due 4/15/2008 (c) $ 37,500
BB+ Ba2 2,000,000 Federal-Mogul Corporation, 7.375% due 1/15/2006 1,432,784
-----------
1,470,284
====================================================================================================================================
Broadcasting/Radio NR* NR* 5,000,000 Acme Intermediate Holdings/Finance, 12.28%** due 9/30/2005 3,325,000
& Television--3.5% BB- Ba3 5,000,000 Antenna TV SA, 9% due 8/01/2007 4,400,000
B+ B2 7,000,000 Globo Comunicacoes e Participacoes, Ltd., 10.625% due
12/05/2008 (e) 5,363,750
-----------
13,088,750
====================================================================================================================================
Building BB Ba3 4,750,000 Building Materials Corporation, 8% due 12/01/2008 3,936,562
Materials--1.0%
====================================================================================================================================
Cable--1.2% B+ B2 5,500,000 Charter Communications Holdings LLC, 8.625% due 4/01/2009 4,592,500
====================================================================================================================================
Cable-- BB B1 6,500,000 Cablevision SA, 13.75% due 5/01/2009 5,557,500
International--7.1% B- B3 1,500,000 Diamond Cable Communications PLC, 13.25% due 9/30/2004 1,578,750
B- B3 4,000,000 Diamond Holdings PLC, 9.125% due 2/01/2008 3,680,000
BB+ Ba1 2,750,000 Rogers Cablesystems Ltd., 10% due 12/01/2007 (e) 2,777,500
D Caa3 4,050,000 Supercanal Holdings SA, 11.50% due 5/15/2005 (c)(e) 1,863,000
B+ B1 5,000,000 TeleWest Communications PLC, 11.001%** due 10/01/2007 4,725,000
B- B3 5,750,000 United International Holdings, 10.757%** due 2/15/2008 (b) 3,450,000
B B2 6,875,000 United Pan-Europe Communications, 13.512%** due 2/01/2010 (e) 3,042,187
-----------
26,673,937
====================================================================================================================================
Chemicals--7.7% BBB- Baa3 5,250,000 Equistar Chemicals LP, 8.50% due 2/15/2004 5,098,711
NR* B2 3,000,000 Huntsman Corporation, 9.50% due 7/01/2007 (e) 2,670,000
B+ B3 7,500,000 Huntsman ICI Holdings, 12.384%** due 12/31/2009 2,287,500
BB Ba3 8,750,000 Lyondell Chemical Company, 9.625% due 5/01/2007 8,465,625
B+ B2 4,250,000 Octel Developments PLC, 10% due 5/01/2006 3,931,250
Sterling Chemicals Inc.:
BB- B3 3,250,000 12.375% due 7/15/2006 3,298,750
B Caa3 3,675,000 11.75% due 8/15/2006 2,976,750
-----------
28,728,586
====================================================================================================================================
Communications-- B+ B2 9,700,000 Orion Network Systems, Inc., 15.781%** due 1/15/2007 3,298,000
2.1% B- B3 7,000,000 Satelites Mexicanos SA, 10.125% due 11/01/2004 4,523,750
-----------
7,821,750
====================================================================================================================================
Computer Services/ BB- Ba3 5,250,000 Amkor Technologies Inc., 9.25% due 5/01/2006 5,092,500
Electronics--5.3% CCC+ Caa3 7,250,000 MCMS Inc., 9.75% due 3/01/2008 3,878,750
B B2 4,225,000 SCG Holdings Corporation, 12% due 8/01/2009 4,478,500
B B2 7,500,000 Zilog Inc., 9.50% due 3/01/2005 6,525,000
-----------
19,974,750
====================================================================================================================================
Conglomerates--1.1% B- B3 5,000,000 Eagle-Picher Industries, 9.375% due 3/01/2008 4,225,000
====================================================================================================================================
Consumer Products-- B- B3 4,250,000 Albecca Inc., 10.75% due 8/15/2008 3,485,000
5.2% B- B2 3,250,000 Chattem, Inc., 8.875% due 4/01/2008 2,754,375
B B3 8,500,000 Corning Consumer Products, 9.625% due 5/01/2008 5,780,000
B B3 4,000,000 Jostens Inc., 12.75% due 5/01/2010 (h) 3,920,000
CCC+ Caa1 6,500,000 Syratech Corp., 11% due 4/15/2007 3,705,000
-----------
19,644,375
====================================================================================================================================
Energy--5.4% CCC- Caa3 2,100,000 Belden & Blake Corp., 9.875% due 6/15/2007 1,386,000
CCC B3 5,750,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 4,765,312
B+ B1 5,000,000 Parker Drilling Co., 9.75% due 11/15/2006 4,637,500
BB- B1 5,000,000 Tesoro Petroleum Corp., 9% due 7/01/2008 4,700,000
B- B3 2,750,000 United Refining Co., 10.75% due 6/15/2007 1,670,625
CCC- Caa3 3,750,000 Wiser Oil Company, 9.50% due 5/15/2007 2,981,250
-----------
20,140,687
====================================================================================================================================
Entertainment--3.7% CCC+ Caa1 7,000,000 AMF Bowling Worldwide Inc., 14.444%** due 3/15/2006 1,610,000
B+ B1 5,800,000 Intrawest Corp., 9.75% due 8/15/2008 5,568,000
B- B3 5,000,000 Premier Parks Inc., 9.25% due 4/01/2006 4,625,000
B- Caa2 4,750,000 Regal Cinemas Inc., 9.50% due 6/01/2008 1,923,750
-----------
13,726,750
====================================================================================================================================
Financial Services-- CCC- Caa3 5,000,000 Amresco Inc., 9.875% due 3/15/2005 2,350,000
7.4% BB Ba3 4,250,000 Port Arthur Finance Corporation, 12.50% due 1/15/2009 4,090,625
BB- Ba3 8,000,000 RBF Finance Company, 11% due 3/15/2006 8,500,000
BB+ Ba3 8,500,000 Reliance Group Holdings, Inc., 9.75% due 11/15/2003 6,800,000
BB+ Ba3 4,000,000 Sovereign Bancorp, 10.50% due 11/15/2006 3,940,000
C NR* 5,000,000 Veritas Capital Trust, 10% due 1/01/2028 1,975,000
-----------
27,655,625
====================================================================================================================================
Food & Beverage-- CCC+ Caa1 5,000,000 Aurora Foods Inc., 8.75% due 7/01/2008 2,450,000
0.6%
====================================================================================================================================
Gaming--2.2% CCC+ Caa3 9,000,000 Venetian Casino/LV Sands, 14.25% due 11/15/2005 8,100,000
====================================================================================================================================
Health Services-- B- B3 2,000,000 ALARIS Medical Systems, Inc., 9.75% due 12/01/2006 1,480,000
7.8% BB+ Ba2 2,500,000 Columbia HCA/Healthcare Corp., 6.41% due 6/15/2000 2,498,375
CCC+ B3 6,000,000 Extendicare Health Services, 9.35% due 12/15/2007 2,220,000
B+ ba3 2,000,000 Fresenius Medical Capital Trust I, 9% due 12/01/2006 1,845,000
BB Ba3 5,750,000 ICN Pharmaceutical Inc., 8.75% due 11/15/2008 (e) 5,376,250
CCC+ B3 8,750,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 6,518,750
B- Caa1 7,500,000 Magellan Health Services, 9% due 2/15/2008 2,625,000
D C 5,250,000 Mariner Post--Acute Network, 9.50% due 11/01/2007 (c) 45,938
B+ Ba3 7,000,000 Quorum Health Group Inc., 8.75% due 11/01/2005 6,510,000
-----------
29,119,313
====================================================================================================================================
</TABLE>
4 & 5
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Rating Rating Amount Corporate Bonds Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Hotels & BB Ba2 $10,000,000 HMH Properties, Inc., 7.875% due 8/01/2008 $ 8,550,000
Motels--2.6% D Ca 7,000,000 Signature Resorts, Inc., 9.75% due 10/01/2007 1,050,000
------------
9,600,000
====================================================================================================================================
Independent Power BB Ba3 3,500,000 Midland Funding II, 13.25% due 7/23/2006 (g) 4,071,410
Producers--1.1%
====================================================================================================================================
Industrial Services-- B B3 6,000,000 Neff Corp., 10.25% due 6/01/2008 3,900,000
1.0%
====================================================================================================================================
Internet Transport-- PSINet Inc.:
1.6% B- B3 5,000,000 11.50% due 11/01/2008 4,550,000
B- B3 1,750,000 11% due 8/01/2009 1,575,000
------------
6,125,000
====================================================================================================================================
Metals & Mining-- BB Ba2 5,000,000 Great Central Mines Ltd., 8.875% due 4/01/2008 4,475,000
5.8% CCC+ B3 7,000,000 Kaiser Aluminum & Chemical Corp., 12.75% due 2/01/2003 6,510,000
CCC+ Caa2 5,500,000 Metal Management Inc., 10% due 5/15/2008 3,630,000
B B3 5,000,000 Ormet Corporation, 11% due 8/15/2008 (e) 4,600,000
B- Caa1 5,000,000 Simcala Inc., 9.625% due 4/15/2006 2,600,000
------------
21,815,000
====================================================================================================================================
Packaging-- B B3 4,000,000 Huntsman Packaging Corporation, 13% due 6/01/2010 (e) 3,930,000
1.0%
====================================================================================================================================
Paper & Forest CCC+ B3 3,750,000 APP China Group Ltd., 14% due 3/15/2010 (e) 2,400,000
Products--6.0% CCC+ B3 1,000,000 APP International Finance, 11.75% due 10/01/2005 640,000
B B2 3,700,000 Ainsworth Lumber Company, 12.50% due 7/15/2007 (d) 3,801,750
B Caa1 9,000,000 Doman Industries Limited, 8.75% due 3/15/2004 7,425,000
CCC+ B3 6,000,000 Pindo Deli Financial Mauritius, 10.75% due 10/01/2007 3,240,000
CCC+ Caa1 5,500,000 Repap New Brunswick, 10.625% due 4/15/2005 4,895,000
------------
22,401,750
====================================================================================================================================
Product Distribution-- CCC- Ca 5,500,000 US Office Products Co., 9.75% due 6/15/2008 715,000
0.2%
====================================================================================================================================
Publishing & B B2 7,000,000 MDC Communications Corp., 10.50% due 12/01/2006 6,510,000
Printing--2.2% BB- Ba3 2,000,000 Primedia, Inc., 7.625% due 4/01/2008 1,790,000
------------
8,300,000
====================================================================================================================================
Real Estate-- BB- Ba3 8,250,000 Forest City Enterprises Inc., 8.50% due 3/15/2008 7,321,875
1.9%
====================================================================================================================================
Specialty Retailing-- B B2 6,000,000 Jo-Ann Stores Inc., 10.375% due 5/01/2007 5,460,000
1.5%
====================================================================================================================================
Steel--1.1% NR* B2 5,000,000 CSN Iron SA, 9.125% due 6/01/2007 (e) 3,750,000
CC Caa3 2,750,000 Republic Technologies, 13.75% due 7/15/2009 (Convertible) (a) 295,625
------------
4,045,625
====================================================================================================================================
Telephony--11.8% B- B3 4,250,000 Esprit Telecom Group PLC, 10.875% due 6/15/2008 3,357,500
B- B3 4,250,000 Fairpoint Communications, 12.50% due 5/01/2010 4,271,250
BB- Ba3 2,750,000 Flag Limited, 8.25% due 1/30/2008 2,365,000
B B2 5,500,000 Flag Telecom Holding Ltd., 11.625% due 3/30/2010 (e) 5,060,000
CCC+ Caa1 7,000,000 GT Group Telecom, 13.25%** due 2/01/2010 (e) 3,640,000
NR* NR* 8,500,000 Global Crossing Holding Limited, 9.50% due 11/15/2009 8,053,750
B B3 7,500,000 Level 3 Communications Inc., 12.667%** due 3/15/2010 (e) 3,900,000
Nextlink Communications Inc.:
B B2 2,000,000 12.50% due 4/15/2006 2,070,000
B B2 5,000,000 9% due 3/15/2008 4,450,000
B B2 2,000,000 10.75% due 6/01/2009 1,915,000
B- B3 5,500,000 Tele1 Europe BV, 13% due 5/15/2009 5,225,000
------------
44,307,500
====================================================================================================================================
Textiles--1.0% B B2 4,750,000 Polymer Group Inc., 8.75% due 3/01/2008 3,800,000
====================================================================================================================================
Transportation--9.3% B- B3 6,500,000 American Reefer Co. Ltd., 10.25% due 3/01/2008 3,558,750
BB- NR* 6,000,000 Autopistas del Sol SA, 10.25% due 8/01/2009 (e) 4,380,000
BB- Ba3 8,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 7,360,000
BB- B1 5,350,000 Sea Containers Ltd., 12.50% due 12/01/2004 3,852,000
B+ B2 6,000,000 TFM, SA de CV, 11.896%** due 6/15/2009 3,780,000
BB- Ba3 5,000,000 Transportacion Maritima Mexicana, SA de CV, 10% due 11/15/2006 3,850,000
B- B2 7,000,000 Transtar Holdings LP, 13.375% due 12/15/2003 7,070,000
NR* NR* 1,739,534 Trism, Inc., 12% due 2/15/2005 1,087,209
------------
34,937,959
====================================================================================================================================
Utilities--2.9% BB Ba3 6,750,000 Azurix Corporation, 10.375% due 2/15/2007 (e) 6,277,500
B+ B2 5,000,000 Espirito Santo--Escelsa, 10% due 7/15/2007 3,600,000
B+ NR* 3,000,000 Inversora de Electrica, 9% due 9/16/2004 (e) 1,050,000
------------
10,927,500
====================================================================================================================================
Wireless CCC Caa1 3,750,000 Airgate PCS Inc., 12.713%** due 10/01/2009 2,118,750
Communications-- B B1 6,000,000 Nextel Communications, Inc., 9.375% due 11/15/2009 5,640,000
6.4% D Caa3 2,750,000 Paging Network, Inc., 10.125% due 8/01/2007 (c) 880,000
B B3 8,375,000 Pinnacle Holdings Inc., 10%** due 3/15/2008 5,360,000
B- B3 9,500,000 Spectrasite Holdings Inc., 12.875%** due 3/15/2010 (e) 4,845,000
B- B2 5,250,000 VoiceStream Wireless, 10.375% due 11/15/2009 5,381,250
------------
24,225,000
====================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Rating Rating Amount Corporate Bonds Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Wireless B B1 $13,000,000 CTI Holdings SA, 11.625%** due 4/15/2008 7,540,000
Communications-- B B3 8,475,000 Comunicacion Celular SA, 13.653%** due 3/01/2005 (e) 5,254,500
International--10.2% CCC+ Caa1 2,750,000 Dolphin Telecom PLC, 17.456%** due 6/01/2008 907,500
B- Caa1 8,250,000 McCaw International Ltd., 12.603%** due 4/15/2007 5,857,500
B- Caa1 12,000,000 Millicom International Cellular, 13.861%** due 6/01/2006 10,200,000
Telesystem International Wireless Inc.:
CCC+ Caa1 6,250,000 17.359%** due 6/30/2007 4,062,500
CCC+ Caa1 8,000,000 10.683%** due 11/01/2007 4,480,000
-------------
38,302,000
====================================================================================================================================
Total Investments in Corporate Bonds (Cost--$594,116,930)--129.3% 485,534,488
====================================================================================================================================
Shares
Held Common Stocks
====================================================================================================================================
Energy--1.6% 281,334 Forcenergy Inc. (c) 6,171,765
====================================================================================================================================
Telephony--0.6% 48,003 McLeodUSA Incorporated (Class A) (c) 960,054
96,869 Tele1 Europe Holding AB (ADR) (c)(i) 1,114,000
-------------
2,074,054
====================================================================================================================================
Transportation--0.3% 212,333 HMI (c) 1,220,915
110,170 Trism, Inc. (c) 57,839
-------------
1,278,754
====================================================================================================================================
Total Investments in Common Stocks (Cost--$5,933,593)--2.5% 9,524,573
====================================================================================================================================
Preferred Stocks & Warrants
====================================================================================================================================
Product Distribution-- 60,617 Nebco Evans Holding Co. (d) 7,577
0.0%
====================================================================================================================================
Steel--0.0% 2,750 Republic Technologies (Warrants) (f) 28
====================================================================================================================================
Wireless 5,002 Rural Cellular Corp. (Series B) (d) 4,689,375
Communications--
1.3%
====================================================================================================================================
Total Investments in Preferred Stocks & Warrants
(Cost--$10,862,892)--1.3% 4,696,980
====================================================================================================================================
Face
Amount Short-Term Securities
====================================================================================================================================
Commercial $ 326,000 General Motors Acceptance Corp., 6.81% due 6/01/2000 326,000
Paper***--0.1%
====================================================================================================================================
Total Investments in Short-Term Securities
(Cost--$326,000)--0.1% 326,000
====================================================================================================================================
Total Investments (Cost--$611,239,415)--133.2% 500,082,041
Liabilities in Excess of Other Assets--(33.2%) (124,616,868)
-------------
Net Assets--100.0% $ 375,465,173
=============
====================================================================================================================================
</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.
(a) Each $1,000 face amount contains one warrant of Republic Technologies.
(b) Each $1,000 face amount contains one warrant of United International
Holdings.
(c) Non-income producing security.
(d) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(f) 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.
(g) Subject to principal paydowns.
(h) Restricted securities as to resale. The value of the Fund's investments in
restricted securities was $3,920,000, representing 1.0% of net assets.
--------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------
Jostens Inc., 12.75% due 5/01/2010 5/05/2000 $3,838,173 $3,920,000
---------- ----------
--------------------------------------------------------------------------
Total $3,838,173 $3,920,000
========== ==========
--------------------------------------------------------------------------
(i) American Depositary Receipts (ADR).
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
8 & 9
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of May 31, 2000
==================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$611,239,415) ....................... $500,082,041
Cash ........................................................................ 14,234
Receivables:
Interest .................................................................. $12,304,356
Securities sold ........................................................... 2,701,300 15,005,656
-----------
Prepaid expenses ............................................................ 3,305
------------
Total assets ................................................................ 515,105,236
------------
==================================================================================================================================
Liabilities: Loans ....................................................................... 137,400,000
Payables:
Dividends to shareholders ................................................. 873,924
Interest on loans ......................................................... 789,770
Investment adviser ........................................................ 203,833
Securities purchased ...................................................... 58,070
Commitment fees ........................................................... 19,010 1,944,607
-----------
Accrued expenses and other liabilities ...................................... 295,456
------------
Total liabilities ........................................................... 139,640,063
------------
==================================================================================================================================
Net Assets: Net assets .................................................................. $375,465,173
============
==================================================================================================================================
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized ................. $ 3,526,004
Paid-in capital in excess of par ............................................ 524,140,504
Undistributed investment income--net ........................................ 4,474,231
Accumulated realized capital losses on investments--net ..................... (44,482,759)
Accumulated distributions in excess of realized capital gains on
investments--net .......................................................... (1,035,433)
Unrealized depreciation on investments--net ................................. (111,157,374)
------------
Total--Equivalent to $10.65 per share based on 35,260,043 shares of
capital stock outstanding (market price $10.1875) ......................... $375,465,173
============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended May 31, 2000
==================================================================================================================================
<S> <C> <C> <C>
Investment Income: Interest and discount earned ................................................ $ 63,434,923
Dividends ................................................................... 829,235
Other ....................................................................... 142,077
------------
Total income ................................................................ 64,406,235
------------
==================================================================================================================================
Expenses: Loan interest expense ....................................................... $ 8,898,929
Investment advisory fees .................................................... 3,406,200
Borrowing costs ............................................................. 231,933
Accounting services ......................................................... 90,683
Professional fees ........................................................... 84,074
Transfer agent fees ......................................................... 75,382
Listing fees ................................................................ 52,383
Custodian fees .............................................................. 43,090
Directors' fees and expenses ................................................ 41,474
Printing and shareholder reports ............................................ 33,429
Pricing services ............................................................ 10,960
Other ....................................................................... 31,693
-----------
Total expenses .............................................................. 13,000,230
------------
Investment income--net ...................................................... 51,406,005
------------
==================================================================================================================================
Realized & Realized loss on investments--net ........................................... (18,948,171)
Unrealized Loss on Change in unrealized depreciation on investments--net ....................... (62,063,303)
Investments--Net: ------------
Net Decrease in Net Assets Resulting from Operations ........................ $(29,605,469)
============
==================================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended May 31,
--------------------------------
Increase (Decrease) in Net Assets: 2000 1999
=================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ............................................ $ 51,406,005 $ 51,459,837
Realized loss on investments--net ................................. (18,948,171) (25,413,003)
Change in unrealized depreciation on investments--net ............. (62,063,303) (44,004,192)
------------- -------------
Net decrease in net assets resulting from operations .............. (29,605,469) (17,957,358)
------------- -------------
=================================================================================================================================
Dividends & Investment income--net ............................................ (52,551,007) (51,124,504)
Distributions to In excess of realized gain on investments--net .................... -- (1,035,433)
Shareholders: ------------- -------------
Net decrease in net assets resulting from dividends
and distributions to shareholders ............................... (52,551,007) (52,159,937)
------------- -------------
=================================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions: of dividends and distributions .................................. 2,400,682 1,397,095
Offering costs resulting from issuance of Common Stock ............ 42,995 40,731
------------- -------------
Net increase in net assets derived from capital stock transactions 2,443,677 1,437,826
------------- -------------
=================================================================================================================================
Net Assets: Total decrease in net assets ...................................... (79,712,799) (68,679,469)
Beginning of year ................................................. 455,177,972 523,857,441
------------- -------------
End of year* ...................................................... $ 375,465,173 $ 455,177,972
============= =============
=================================================================================================================================
* Undistributed investment income--net .............................. $ 4,474,231 $ 5,220,164
============= =============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended May 31, 2000
=================================================================================================================================
<S> <C> <C> <C>
Cash Provided by Net decrease in net assets resulting from operations .............. $(29,605,469)
Operating Activities: Adjustments to reconcile net decrease in net assets resulting from
operations to net cash provided by operating activities: ..........
Decrease in receivables ......................................... 1,691,418
Decrease in other assets ........................................ 42,827
Decrease in other liabilities ................................... (3,478,283)
Realized and unrealized loss on investments--net ................ 81,011,474
Amortization of discount ........................................ (11,866,426)
------------
Net cash provided by operating activities ......................... 37,795,541
------------
=================================================================================================================================
Cash Provided by Proceeds from sales of long-term investments ...................... 288,235,355
Investing Activities: Purchases of long-term investments ................................ (257,359,855)
Purchases of short-term investments ............................... (69,647,795)
Proceeds from sales and maturities of short-term investments ...... 69,686,000
------------
Net cash provided by investing activities ......................... 30,913,705
------------
=================================================================================================================================
Cash Used for Cash receipts from borrowings ..................................... 205,600,000
Financing Activities: Cash payments on borrowings ....................................... (223,900,000)
Dividends paid to shareholders .................................... (50,438,007)
Offering costs .................................................... 42,995
------------
Net cash used for financing activities ............................ (68,695,012)
------------
=================================================================================================================================
Cash: Net increase in cash .............................................. 14,234
Cash at beginning of year ......................................... --
------------
Cash at end of year ............................................... $ 14,234
============
=================================================================================================================================
Cash Flow Cash paid for interest ............................................ $ 8,845,066
Information: ============
=================================================================================================================================
Non-Cash Financing Reinvestment of dividends to shareholders ......................... $ 2,400,682
Activities: ============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
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 May 31, For the Period
--------------------------- Jan. 30, 1998+
Increase (Decrease) in Net Asset Value: 2000** 1999 to May 31, 1998
==================================================================================================================================
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ................. $ 12.98 $ 14.99 $ 15.00
Operating --------- -------- --------
Performance: Investment income--net ............................. 1.46 1.47 .42
Realized and unrealized loss on investments--net ... (2.30) (1.99) (.11)
--------- -------- --------
Total from investment operations ..................... (.84) (.52) .31
--------- -------- --------
Less dividends and distributions:
Investment income--net ............................. (1.49) (1.46) (.30)
In excess of realized gain on investments--net ..... -- (.03) --
--------- -------- --------
Total dividends and distributions .................... (1.49) (1.49) (.30)
--------- -------- --------
Capital charge resulting from issuance of Common Stock --++ --++ (.02)
--------- -------- --------
Net asset value, end of period ....................... $ 10.65 $ 12.98 $ 14.99
========= ======== ========
Market price per share, end of period ................ $ 10.1875 $12.8125 $14.1875
========= ======== ========
==================================================================================================================================
Total Investment Based on net asset value per share ................... (6.06%) (2.73%) 2.00%+++
Return:*** ========= ======== ========
Based on market price per share ...................... (8.96%) 1.45% (3.46%)+++
========= ======== ========
==================================================================================================================================
Ratios to Average Expenses, excluding interest expense ................. .97% .85% --
Net Assets: ========= ======== ========
Expenses, net of reimbursement ....................... 3.07% 2.28% .10%*
========= ======== ========
Expenses ............................................. 3.07% 2.28% .69%*
========= ======== ========
Investment income--net ............................... 12.13% 10.58% 8.46%*
========= ======== ========
==================================================================================================================================
Leverage: Amount of borrowings (in thousands) .................. $ 137,400 $155,700 --
========= ======== ========
Average amount of borrowings outstanding during
the period (in thousands) ......................... $ 146,410 $126,034 --
========= ======== ========
Average amount of borrowings outstanding per share
during the period ................................. $ 4.16 $ 3.60 --
========= ======== ========
==================================================================================================================================
Supplemental Net assets, end of period (in thousands) ............. $ 375,465 $455,178 $523,857
Data: ========= ======== ========
Portfolio turnover ................................... 45.40% 46.86% 16.79%
========= ======== ========
==================================================================================================================================
</TABLE>
+ Commencement of operations.
++ Amount is less than $.01 per share.
+++ Aggregate total investment return.
* Annualized.
** 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. The Fund's
Investment Adviser voluntarily waived a portion of its
management fee. Without such waiver, the Fund's performance
would have been lower.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Corporate High Yield Fund III, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with 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 CYE. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities are valued on the basis of
prices furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders. In
certain circumstances, portfolio securities are valued at the last sale price on
the exchange that is the primary market for such securities, or the last quoted
bid price for those securities for which the over-the-counter market is the
primary market or for listed securities in which there were no sales during the
day. The value of interest rate swaps, caps and floors is determined in
accordance with a formula and then confirmed periodically by obtaining a bank
quotation. Options written or purchased are valued at the last sale price in the
case of exchange-traded options. In the case of options traded in the
over-the-counter market, valuation is the last asked price (options written) or
the last bid price (options purchased). Obligations with remaining maturities of
sixty days or less are valued at amortized cost, which approximates market
value, unless this method no longer produces fair valuations. Rights or warrants
to acquire stock, or stock acquired pursuant to the exercise of a right or
warrant, may be valued taking into account various factors such as original cost
to the Fund, earnings and net worth of the issuer, market prices for securities
of similar issuers, assessment of the issuer's future prosperity, liquidation
value or third party transactions involving the issuer's securities. Securities
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
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).
14 & 15
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
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) Organization and offering expenses--In accordance with Statement of Position
98-5, unamortized organization expenses of $13,265 were expensed during the year
ended May 31, 2000. This is considered to be a change in accounting principle
and had no material impact on the operations of the Fund. Direct expenses
relating to the public offering of the Fund's Common Stock were charged to
capital at the time of issuance of the shares.
(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. Distributions in excess of realized capital gains are due
primarily to post-October losses.
(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, current year's permanent
book/tax differences of $399,069 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 .60% of the Fund's average weekly net assets plus the proceeds
of any outstanding principal borrowed.
For the year ended May 31, 2000, the Fund paid Merrill Lynch Security Pricing
Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated,
$1,907 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 May 31, 2000 were $252,139,519 and $290,936,655, respectively.
Net realized losses for the year ended May 31, 2000 and net unrealized losses as
of May 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments .............. $ (18,948,171) $(111,157,374)
------------- -------------
Total .............................. $ (18,948,171) $(111,157,374)
============= =============
--------------------------------------------------------------------------------
As of May 31, 2000, net unrealized depreciation for Federal income tax purposes
aggregated $112,030,258, of which $9,552,660 related to appreciated securities
and $121,582,918 related to depreciated securities. The aggregate cost of
investments at May 31, 2000 for Federal income tax purposes was $612,112,299.
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 May 31, 2000 and May 31,
1999 increased by 190,343 and 113,033, respectively, as a result of dividend
reinvestment.
5. Short-Term Borrowings:
On June 9, 1999, the Fund extended its one-year credit agreement with State
Street Bank and Trust Company, Fleet National Bank and certain other
institutions party thereto. The agreement is for a $250,000,000 credit facility
bearing interest at the Federal Funds rate plus .50% and/or LIBOR plus .50%. For
the year ended May 31, 2000, the average amount borrowed was approximately
$146,410,000 and the daily weighted average interest rate was 6.06%. For the
year ended May 31, 2000, facility and commitment fees aggregated approximately
$232,000.
On June 7, 2000, the Fund extended its credit agreement until July 5, 2000. On
July 6, 2000, the Fund entered into a one-year financing agreement with
Citibank.
6. Capital Loss Carryforward:
At May 31, 2000, the Fund had a net capital loss carryforward of approximately
$28,374,000, of which $6,420,000 expires in 2007 and $21,954,000 expires in
2008. This amount will be available to offset like amounts of any future taxable
gains.
7. Subsequent Event:
On June 7, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.126210 per share,
payable on June 30, 2000 to shareholders of record as of June 19, 2000.
16 & 17
<PAGE>
Corporate High Yield Fund III, Inc., May 31, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Corporate High Yield Fund III, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of Corporate High Yield Fund III, Inc. as
of May 31, 2000, the related statements of operations and cash flows for the
year then ended, changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
two-year period then ended and for the period January 30, 1998 (commencement of
operations) to May 31, 1998. 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 May 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 III, Inc. as of May 31, 2000, the results of its operations, the changes in
its net assets, and the financial highlights for the respective stated periods
in accordance with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 10, 2000
PORTFOLIO INFORMATION (unaudited)
<TABLE>
<CAPTION>
Percent of
As of May 31, 2000 Long-Term Investments
====================================================================================================================================
<S> <C> <C> <C>
Ten Largest Holdings Nextel Communications, Inc. Nextel offers digital and analog wireless communications services
throughout the United States. The company's digital service covers
near one-half of the total US population and, once completed, will
enable Nextel to offer nationwide digital wireless service. Our
holdings include bonds of 100%-owned McCaw International. 2.3%
---------------------------------------------------------------------------------------------------------
Millicom International Millicom International develops and operates cellular telephone
Cellular systems worldwide. The company has interest in 33 cellular systems
in 20 countries, primarily in emerging markets in Asia, Latin
America, Europe and Africa. 2.0
---------------------------------------------------------------------------------------------------------
HMH Properties, Inc. HMH, a wholly-owned subsidiary of Host Marriott Corporation, owns or
holds controlling interests in 69 full-service 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. 1.7
---------------------------------------------------------------------------------------------------------
Telesystem International The company is a global wireless telecommunications company, which
Wireless Inc. 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. 1.7
---------------------------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------------------------
Lyondell Chemical Company Lyondell is a global commodity chemical 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. 1.7
---------------------------------------------------------------------------------------------------------
Nextlink Communications Nextlink provides local, long distance and enhanced telephone
Inc. communications services to commercial customers. The company
operates over 23 facilities-based networks throughout the United
States. 1.7
---------------------------------------------------------------------------------------------------------
Venetian Casino/LV Sands This newly opened casino/resort on the Las Vegas Strip has an old
Venice theme and decor and targets the convention market. 1.6
---------------------------------------------------------------------------------------------------------
Global Crossing This provider of global telecommunications service has a global
Holding Limited network that is based on Internet protocol and focused on data
transport. The network includes both undersea and land-based digital
fiber optic cable systems. Global Crossing operates as a carrier's
carrier, offering its services to licensed providers of
international telecommunications service. 1.6
---------------------------------------------------------------------------------------------------------
CTI Holdings SA CTI is a cellular telephone company in Argentina. Its service
territory covers the interior of Argentina. CTI is 58% owned by GTE. 1.5
</TABLE>
Portfolio Profile
The quality ratings* of securities in the Fund as of May 31, 2000 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Long-Term Investments
--------------------------------------------------------------------------------
BBB/Baa ........................................................ 3.3%
BB/Ba .......................................................... 28.3
B/B ............................................................ 58.7
CCC/Caa or Lower ............................................... 8.1
NR (Not Rated) ................................................. 1.6
--------------------------------------------------------------------------------
* 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 ......................................... 35.2%
Emerging Market Holdings ....................................... 13.2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Average Portfolio Maturity 6.4 Years
--------------------------------------------------------------------------------
Percent of
Five Largest Foreign Countries* Long-Term Investments
--------------------------------------------------------------------------------
Canada ......................................................... 8.6%
United Kingdom ................................................. 4.4
Argentina ...................................................... 4.1
Brazil ......................................................... 2.5
Mexico ......................................................... 2.4
--------------------------------------------------------------------------------
* All holdings are denominated in US dollars.
--------------------------------------------------------------------------------
Percent of
Top Five Industries Total Assets
--------------------------------------------------------------------------------
Telephony ...................................................... 9.0%
Wireless Communications--International ......................... 7.4
Transportation ................................................. 7.0
Health Services ................................................ 5.7
Wireless Communications ........................................ 5.6
--------------------------------------------------------------------------------
18 & 19
<PAGE>
Corporate High Yield Fund III, Inc. seeks to provide shareholders with current
income by investing primarily in a diversified portfolio of fixed-income
securities that 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 III, Inc. for their information. It is
not a prospectus. 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. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
Corporate High
Yield Fund III, Inc.
Box 9011
Princeton, NJ
08543-9011 #COYIII--5/00
[RECYCLE LOGO] Printed on post-consumer recycled paper
