MERRILL LYNCH
U.S. HIGH YIELD
FUND, INC.
FUND LOGO
Semi-Annual Report
September 30, 2000
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
U.S. High Yield Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH U.S. HIGH YIELD FUND, INC.
Officers and
Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Aldona Schwartz, Vice President
Donald C. Burke, Vice President and Treasurer
Bradley J. Lucido, Secretary
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<TABLE>
Proxy
Results
<CAPTION>
During the six-month period ended September 30, 2000, Merrill Lynch
U.S. High Yield Fund, Inc.'s shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
July 25, 2000. The description of each proposal and number of shares
voted are as follows:
Shares Voted
For
<S> <S> <C>
1. To elect the Fund's Terry K. Glenn 73,243,652
Board of Directors: Ronald W. Forbes 73,202,453
Cynthia A. Montgomery 73,240,023
Charles C. Reilly 73,188,059
Kevin A. Ryan 73,216,820
Roscoe S. Suddarth 73,225,603
Richard R. West 73,232,763
Arthur Zeikel 73,193,412
Edward D. Zinbarg 73,220,188
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte &
Touche LLP as the Fund's independent
auditors for the current fiscal year. 71,519,208 501,910 2,958,226
3. To convert the Fund to "master/feeder" structure. 67,457,381 2,439,732 5,082,231
4. To approve proposed Investment Advisory and
Administration Agreements for the Fund. 68,390,457 1,726,950 4,861,937
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
DEAR SHAREHOLDER
The Investment Environment
The six-month period ended September 30, 2000 provided uninspiring
returns in most financial markets. The high-yield sector was no
exception with the unmanaged benchmark Credit Suisse First Boston
(CSFB) Global High Yield Index returning +1.14% for the same period.
Merrill Lynch U.S. High Yield Fund, Inc. modestly underperformed the
Index with total returns of -0.80%, -1.18%, -1.20% and -0.92% for
its Class A, Class B, Class C and Class D Shares, respectively, for
the same six-month period. (Results shown do not include sales
charges and would be lower if sales charges were included. Complete
performance information can be found on pages 6 and 7 of this report
to shareholders.)
The period included a 0.50% increase in the Federal Funds rate in
mid-May, the last in a series of tightening moves by the Federal
Reserve Board that has increased the Federal Funds rate to 6.50%.
These moves appear to be having the effect on the economy that the
Federal Reserve Board desires as various indicators of broad
economic behavior have shown some signs of slowing. Oil prices and
their negative effect on the economy were prominently featured in
the news. With the unsettlement in the Middle East and a
presidential election campaign in the United States, it is not
surprising to us that investors lacked conviction. As a result, the
high-yield market drifted. New issuance was quite low as high
interest rates on high-yield new issues priced companies out of the
market and forced reliance on other financial sources.
The high-yield market has been strained by a combination of
technical and fundamental factors. Of the two, the technical factors
have probably had the greatest effect. High-yield funds have
experienced outflows all year. Through September, net outflows were
$4.5 billion. Dealer market making, which has been limited since the
upheavals of 1998, seems to have become even more constrained
following the recent news that Morgan Stanley Dean Witter has
sustained large trading losses on high-yield bond inventories.
Furthermore, investors who focus on distressed issues appear much
less involved this year than in the past, perhaps focusing more of
their attention on fallen equities. The confluence of these three
factors has resulted in illiquidity and lower bond prices than would
otherwise be the case.
The fundamental picture is a mixed one. The bad news is that Moody's
Investors Service's trailing 12-month default rate through September
was 5.13%, which is well above the long-term average of 3.4%.
Further evidence of credit deterioration is reflected in the
upgrade/downgrade ratio. The rating firm KDP Investment Advisors has
upgraded issues 215 times in the 33 months from January 1998--
September 2000 compared with 294 downgrades. The good news is that
the default rate peaked slightly above 6% in the autumn of 1999 and
has been declining since then. We are not comfortable with
forecasting future default rates. Forecasting models have not
generally been reliable in the past. We also doubt that currently
depressed prices are a reliable indicator or discounter of future
defaults. While we are concerned about credit quality in select
industries such as telecommunications, it is difficult to imagine
default rates similar to the 10% annualized levels in 1990 and 1991.
At that time, the default problem stemmed largely from overleveraged
buyouts coupled with the impact of a recession. The 12-month moving
average in July 1991 actually peaked at an astounding 13.1%.
At this time, valuation appears exceptional to us. At September 30,
2000, the CSFB Global High Yield Index reflected an average price of
$81.00 and a yield to maturity slightly above 14.2%. The yield
spread of the Index relative to Treasury bonds of similar maturity
was 8.3%. The norm for much of the 1990s was 5%--5.50% and the all-
time peak was slightly over 10%. We believe that these levels offer
the long-term investor an outstanding buying opportunity.
Portfolio Strategy
At September 30, 2000, the Fund was fully invested with an average
maturity of 6.6 years. The quality structure, as measured by Moody's
Investors Service and Standard & Poor's, was modestly below that of
the CSFB Global High Yield Index. The Portfolio's overweights by
industry at September 30, 2000 were:
* Health Services--Portfolio weighting 10.1% compared to 3.8% for
the Index. We are quite bullish on the earnings outlook for acute
and extended care hospitals because of increased Medicare
reimbursement approved by Congress.
* Wireless Communications--Portfolio weighting 11.9% compared to
8.3% for the Index. This sector includes cellular telephone issuers
and tower companies that own the transmission towers that carry the
cellular/PCS signal. We expect the rapid growth in this industry to
continue. As the industry is consolidating, it is possible that one
or more of these companies could be acquired by an integrated
telecommunications company with an investment-grade rating.
* Energy--Portfolio weighting 8.3% compared to 6.7% for the Index.
High oil and gas prices have created strong cash flows and improved
credit quality significantly this year.
* Cable--Portfolio weighting 11.1% compared to 9.2% for the Index.
The revenues and cash flow have tended to be highly stable in good
times and bad. Future profitability is enhanced by the fact that in
addition to being the medium through which TV signals are passed,
new uses for cable include telephony, Internet signal transmission,
and two-way services such as movies on demand.
At September 30, 2000, our major underweights were:
* Telecommunications--Portfolio weighting 8.8% compared to 12.1% for
the Index. The sector includes competitive local exchange carriers'
Internet companies, and fiber and long distance. Many of these
companies are young and generate insufficient cash flow to support
debt levels. While many will be successful, it is difficult
discerning the winners from the losers at this time. We have focused
on only the companies that have sufficient equity sponsorship, asset
quality, or operating history to support debt.
* Financial--Portfolio weighting 0.4% compared to 4.5% for the
Index. Financial service companies generally require financial
strength to remain viable when problems develop. By definition, high-
yield issues do not meet this criterion.
In the current illiquid market, bonds can occasionally decline to
levels well below their asset value. We have begun to focus on
opportunities of this kind. Examples include Vlasic Foods
International Inc., a troubled food company supported by strong
asset values, and Westpoint Stevens Inc., the dominant sheet and
towel producer in the United States. An earnings disappointment that
we expect will be temporary caused this company's bonds to drop more
in price than we thought justified.
In Conclusion
We appreciate your ongoing investment in Merrill Lynch U.S. High
Yield Fund, Inc., and we look forward to assisting you with your
financial needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Senior Vice President and
Portfolio Manager
November 10, 2000
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
PORTFOLIO INFORMATION
<CAPTION>
Percent of
As of September 30, 2000 Net Assets
Ten Largest
Corporate Holdings
<S> <S> <C>
Nextel Nextel is the largest specialized mobile radio (SMR) and enhanced specialized 3.2%
Communications, mobile radio (ESMR) provider in the United States, with licenses covering 98%
Inc.* of the US population. While Nextel's SMR system is virtually nationwide, the company
is still building out a national ESMR system. Through its 100%-owned subsidiary,
Nextel International Inc., Nextel is also building networks in Latin America and Asia.
USAir Inc. USAir Inc., the primary operating subsidiary of US Airways Group, Inc., is the 2.6
sixth-largest domestic air carrier, as ranked by revenue passenger miles flown.
The company dominates East Coast airports from New England to Florida with its fleet
of 383 jets, and provides regularly scheduled service at 107 airports, including
airports in Canada, Mexico, France, Germany, Italy, Spain, the United Kingdom and
the Caribbean. Its principal hubs are located at major airports in Charlotte,
Philadelphia and Pittsburgh. The company's more than 2,000 daily flights transported
56 million passengers in 1999.
UnitedGlobalCom UnitedGlobalCom (formerly known as United International Holdings) is a global broadband 2.6
Inc. communications provider of video, voice and data services with operations in
various countries around the world. The company serves video subscribers, telephony
access lines, and high-speed broadband accounts. United Global Communications also
provides television programming services to subscribers worldwide.
R&B Falcon Formed through a merger of Reading & Bates Company and Falcon Drilling, R&B Falcon 2.4
Corporation* operates the world's largest fleet of marine-based drilling rigs, servicing the
international oil and gas industry. Its fleet includes 135 marine-based drilling
units, including the industry's largest fleets of barge and jackup rigs.
Impsat Corp. Impsat provides telecommunications services throughout North America and South America 2.4
and is one of the largest providers of data transmission services in these regions.
Millicom Millicom International Cellular develops and operates cellular telephone systems 2.3
International worldwide. The company has interests in 31 operations in 19 countries, with
Cellular combined population under license of approximately 47.5 million people.
PharMerica, Inc. PharMerica provides pharmacy products and services. The company provides its services to 2.0
patients in skilled nursing facilities, assisted living facilities, residential and
independent living communities, specialty hospitals, and the home setting.
Supercanal Supercanal is the third-largest cable TV provider in Argentina. It has a well- 1.8
Holdings SA positioned operation and almost no competition throughout its service territory
with good demand prospects.
Echostar Echostar Communications offers DBS services to approximately 4.3 million subscribers 1.8
Communications with its state-of-the-art DISH Network. The company also designs, manufactures and
distributes DBS receiver equipment and set-top boxes.
Telesystem The company is a global wireless telecommunications company, which develops, acquires, 1.8
International owns and operates wireless communications companies in developing markets throughout
Wireless Inc.* the world. The company also offers specialized mobile radio and paging services.
*Includes combined holdings.
</TABLE>
Portfolio Profile
The quality ratings* of securities in the Trust as of September 30,
2000 were as follows:
Percent of
S&P Rating/Moody's Rating Long-Term Investments
BBB/Baa 1.5%
BB/Ba 23.7
B/B 65.2
CCC/Caa 7.3
CC/Ca 1.0
NR (Not Rated) 1.3
Percent of
Five Largest Industries Net Assets
Health Services 10.1%
Energy 8.3
Wireless Communications--International 6.2
Wireless Communications--Domestic 5.7
Cable--International 5.6
*In cases when bonds are rated differently by Standard & Poor's
Corporation and Moody's Investors Service, Inc., bonds are
categorized according to the higher of the two ratings.
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
PERFORMANCE DATA
DEAR SHAREHOLDER
About Fund Performance
Investors are able to purchase shares of the Fund through
the Merrill Lynch Select Pricing SM System, which offers
four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These classes of shares automatically
convert to Class D Shares after approximately 10 years. (There is no
initial sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the payable date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders. The Fund's Investment Adviser voluntarily waived a
portion of its management fee. Without such waiver, the Fund's
performance would have been lower.
<TABLE>
Recent
Performance
Results
<CAPTION>
6 Month 12 Month Since Inception Standardized
As of September 30, 2000 Total Return Total Return Total Return 30-day Yield
<S> <C> <C> <C> <C>
ML U.S. High Yield Fund, Inc. Class A Shares* -0.80% +0.07% -0.31% 12.99%
ML U.S. High Yield Fund, Inc. Class B Shares* -1.18 -0.70 -2.13 12.72
ML U.S. High Yield Fund, Inc. Class C Shares* -1.20 -0.75 -2.25 12.66
ML U.S. High Yield Fund, Inc. Class D Shares* -0.92 -0.19 -0.91 12.73
Merrill Lynch High Yield USCorporates, Cash Pay Index** +1.99 +1.23 +2.05 --
CSFirst Boston Global High Yield Index ** +1.14 +1.92 -0.06 --
Ten-Year US Treasury Securities*** +3.42 +4.83 +8.42 --
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The
Fund's inception date is 5/01/98.
**Unmanaged. These market-weighted Indexes mirror the high-yield
debt market of securities rated BBB or lower. Since inception total
return for Merrill Lynch High Yield US Corporates, Cash Pay Index is
from 5/01/98. Since inception total return for CS First Boston
Global High Yield Index is from 4/30/98.
***Since inception total return is from 4/30/98.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 9/30/00 +0.07% -3.94%
Inception (5/01/98)
through 9/30/00 -0.13 -1.80
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 9/30/00 -0.70% -4.21%
Inception (5/01/98)
through 9/30/00 -0.89 -1.52
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 9/30/00 -0.75% -1.62%
Inception (5/01/98)
through 9/30/00 -0.94 -0.94
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
One Year Ended 9/30/00 -0.19% -4.18%
Inception (5/01/98)
through 9/30/00 -0.38 -2.05
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
MERRILL LYNCH
U.S. HIGH YIELD
FUND, INC. As of September 30, 2000
<S> <S> <C> <C>
Assets: Investment in Master U.S. High Yield Trust, at value
(identified cost--$687,923,555) $ 559,082,140
Prepaid registration fees and other assets 89,109
--------------
Total assets 559,171,249
--------------
Liabilities: Payables:
Dividends to shareholders $ 1,684,456
Distributor 334,737
Administrator 105,981 2,125,174
--------------
Accrued expenses and other liabilities 501,083
--------------
Total liabilities 2,626,257
--------------
Net Assets: Net assets $ 556,544,992
==============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 147,376
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 5,275,386
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 1,013,664
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 764,173
Paid-in capital in excess of par 694,472,440
Accumulated distributions in excess of investment income--net (698,000)
Accumulated realized capital losses on investments from
the Trust--net (8,965,841)
Accumulated distributions in excess of realized capital
gains on investments from the Trust--net (6,622,791)
Unrealized depreciation on investments from the Trust--net (128,841,415)
--------------
Net assets $ 556,544,992
==============
Net Asset Class A--Based on net assets of $11,389,366 and 1,473,763
Value: shares outstanding $ 7.73
==============
Class B--Based on net assets of $407,748,557 and 52,753,856
shares outstanding $ 7.73
==============
Class C--Based on net assets of $78,344,537 and 10,136,645
shares outstanding $ 7.73
==============
Class D--Based on net assets of $59,062,532 and 7,641,729
shares outstanding $ 7.73
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
MERRILL LYNCH
U.S. HIGH YIELD
FUND, INC. For the Six Months Ended September 30, 2000++
<S> <S> <C> <C>
Investment Income: Interest and discount earned $ 28,747,353
Dividends 1,784,413
Investment income allocated from the Trust 6,004,502
Expenses allocated from the Trust (223,309)
--------------
Total income and net investment income from the Trust 36,312,959
--------------
Expenses: Account maintenance and distribution fees--Class B $ 1,617,006
Investment advisory fees 1,470,326
Account maintenance and distribution fees--Class C 336,570
Transfer agent fees--Class B 233,459
Administration fee 121,785
Account maintenance fees--Class D 76,348
Transfer agent fees--Class C 45,964
Registration fees 43,808
Transfer agent fees--Class D 29,699
Directors' fees and expenses 22,290
Custodian fees 12,607
Transfer agent fees--Class A 5,376
Professional fees 4,792
Pricing fees 4,453
--------------
Total expenses 4,024,483
--------------
Investment income--net 32,288,476
--------------
Realized & Realized loss from:
Unrealized Investments--net (291,519)
Loss from The Trust--net (2,744,566) (3,036,085)
Investments and -------------- --------------
The Trust--Net: Change in unrealized depreciation from:
Investments--net 91,680,700
The Trust--net (128,841,415) (37,160,715)
-------------- --------------
Net Decrease in Net Assets Resulting from Operations $ (7,908,324)
==============
<FN>
++On September 1, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust, a
mutual fund that has the same investment objective as the Fund. All
investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
MERRILL LYNCH For the Six For the
U.S. HIGH YIELD Months Ended Year Ended
FUND, INC. Increase (Decrease) in Net Assets: Sept. 30, 2000++ March 31, 2000
<S> <S> <C> <C>
Operations: Investment income--net $ 32,288,476 $ 67,003,822
Realized loss from investments and the Trust--net (3,036,085) (6,976,470)
Change in unrealized depreciation from investments and the
Trust--net (37,160,715) (79,226,434)
-------------- --------------
Net decrease in net assets resulting from operations (7,908,324) (19,199,082)
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (649,720) (1,236,053)
Shareholders: Class B (23,566,019) (48,253,891)
Class C (4,576,415) (10,633,947)
Class D (3,496,322) (6,879,931)
In excess of investment income--net:
Class A -- (13,853)
Class B -- (540,789)
Class C -- (119,176)
Class D -- (77,105)
Realized gain investments from the Trust--net:
Class A -- (109,227)
Class B -- (4,854,944)
Class C -- (1,024,292)
Class D -- (634,328)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (32,288,476) (74,377,536)
-------------- --------------
Capital Stock Net increase (decrease) in net assets derived from capital
Transactions: share transactions (39,797,831) 21,577,499
-------------- --------------
Net Assets: Total decrease in net assets (79,994,631) (71,999,119)
Beginning of period 636,539,623 708,538,742
-------------- --------------
End of period $ 556,544,992 $ 636,539,623
============== ==============
++On September 1, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust, a
mutual fund that has the same investment objective as the Fund. All
investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the For the For the
The following per share data and ratios have been derived Six Months Year Period
MERRILL LYNCH from information provided in the financial statements. Ended Ended May 1, 1998++
U.S. HIGH YIELD Sept. 30, March 31, to March 31,
FUND, INC. Increase (Decrease) in Net Asset Value: 2000+++++ 2000 1999
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.26 $ 9.42 $ 10.00
Operating -------- -------- --------
Performance: Investment income--net .46 .90 .79
Realized and unrealized loss from investments
and the Trust--net (.53) (1.07) (.58)
-------- -------- --------
Total from investment operations (.07) (.17) .21
-------- -------- --------
Less dividends and distributions:
Investment income--net (.46) (.90) (.79)
Realized gain from investments--net -- (.01) --
In excess on realized gain from
investments--net -- (.08) --
-------- -------- --------
Total dividends and distributions (.46) (.99) (.79)
-------- -------- --------
Net asset value, end of period $ 7.73 $ 8.26 $ 9.42
======== ======== ========
Total Investment Based on net asset value per share (0.80%)+++ (1.97%) 2.51%+++
Return:** ======== ======== ========
Ratios to Average Expenses, net of reimbursement++++ .67%* .81% .52%*
Net Assets: ======== ======== ========
Expenses++++ .67%* .81% .76%*
======== ======== ========
Investment income--net 11.70%* 9.97% 9.39%*
======== ======== ========
Supplemental Data: Net assets, end of period (in thousands) $ 11,389 $ 11,427 $ 12,864
======== ======== ========
Portfolio turnover -- 59.25% 49.40%
======== ======== ========
</TABLE>
<TABLE>
Class B
For the For the For the
The following per share data and ratios have been derived Six Months Year Period
MERRILL LYNCH from information provided in the financial statements. Ended Ended May 1, 1998++
U.S. HIGH YIELD Sept. 30, March 31, to March 31,
FUND, INC. Increase (Decrease) in Net Asset Value: 2000+++++ 2000 1999
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.26 $ 9.42 $ 10.00
Operating -------- -------- --------
Performance: Investment income--net .43 .83 .73
Realized and unrealized loss from investments and
the Trust--net (.53) (1.07) (.58)
-------- -------- --------
Total from investment operations (.10) (.24) .15
-------- -------- --------
Less dividends and distributions:
Investment income--net (.43) (.83) (.73)
Realized gain from investments--net -- (.01) --
In excess on realized gain from
investments--net -- (.08) --
-------- -------- --------
Total dividends and distributions (.43) (.92) (.73)
-------- -------- --------
Net asset value, end of period $ 7.73 $ 8.26 $ 9.42
======== ======== ========
Total Investment Based on net asset value per share (1.18%)+++ (2.72%) 1.80%+++
Return:** ======== ======== ========
Ratios to Average Expenses, net of reimbursement++++ 1.44%* 1.57% 1.27%*
Net Assets: ======== ======== ========
Expenses++++ 1.44%* 1.57% 1.52%*
======== ======== ========
Investment income--net 10.93%* 9.24% 8.61%*
======== ======== ========
Supplemental Data: Net assets, end of period (in thousands) $407,749 $468,705 $502,377
======== ======== ========
Portfolio turnover -- 59.25% 49.40%
======== ======== ========
<CAPTION>
Class C
For the For the For the
The following per share data and ratios have been derived Six Months Year Period
MERRILL LYNCH from information provided in the financial statements. Ended Ended May 1, 1998++
U.S. HIGH YIELD Sept. 30, March 31, to March 31,
FUND, INC. Increase (Decrease) in Net Asset Value: 2000+++++ 2000 1999
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.26 $ 9.42 $ 10.00
Operating -------- -------- --------
Performance: Investment income--net .43 .83 .72
Realized and unrealized loss from investments and
the Trust--net (.53) (1.07) (.58)
-------- -------- --------
Total from investment operations (.10) (.24) .14
-------- -------- --------
Less dividends and distributions:
Investment income--net (.43) (.83) (.72)
Realized gain from investments--net -- (.01) --
In excess on realized gain from
investments--net -- (.08) --
-------- -------- --------
Total dividends and distributions (.43) (.92) (.72)
-------- -------- --------
Net asset value, end of period $ 7.73 $ 8.26 $ 9.42
======== ======== ========
Total Investment Based on net asset value per share (1.20%)+++ (2.76%) 1.75%+++
Return:** ======== ======== ========
Ratios to Average Expenses, net of reimbursement++++ 1.49%* 1.62% 1.31%*
Net Assets: ======== ======== ========
Expenses++++ 1.49%* 1.62% 1.57%*
======== ======== ========
Investment income--net 10.88%* 9.17% 8.53%*
======== ======== ========
Supplemental Data: Net assets, end of period (in thousands) $ 78,345 $ 93,985 $119,281
======== ======== ========
Portfolio turnover -- 59.25% 49.40%
======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++On September 1, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust, a
mutual fund that has the same investment objective as the Fund. All
investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D
For the For the For the
The following per share data and ratios have been derived Six Months Year Period
MERRILL LYNCH from information provided in the financial statements. Ended Ended May 1, 1998++
U.S. HIGH YIELD Sept. 30, March 31, to March 31,
FUND, INC. Increase (Decrease) in Net Asset Value: 2000+++++ 2000 1999
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 8.26 $ 9.42 $ 10.00
Operating -------- -------- --------
Performance: Investment income--net .45 .88 .77
Realized and unrealized loss from investments
and the Trust--net (.53) (1.07) (.58)
-------- -------- --------
Total from investment operations (.08) (.19) .19
-------- -------- --------
Less dividends and distributions:
Investment income--net (.45) (.88) (.77)
Realized gain from investments--net -- (.01) --
In excess on realized gain from
investments--net -- (.08) --
-------- -------- --------
Total dividends and distributions (.45) (.97) (.77)
-------- -------- --------
Net asset value, end of period $ 7.73 $ 8.26 $ 9.42
======== ======== ========
Total Investment Based on net asset value per share (.92%)+++ (2.22%) 2.28%+++
Return:** ======== ======== ========
Ratios to Average Expenses, net of reimbursement++++ .92%* 1.06% .75%*
Net Assets: ======== ======== ========
Expenses++++ .92%* 1.06% 1.01%*
======== ======== ========
Investment income--net 11.45%* 9.73% 9.10%*
======== ======== ========
Supplemental Data: Net assets, end of period (in thousands) $ 59,062 $ 62,423 $ 74,017
======== ======== ========
Portfolio turnover -- 59.25% 49.40%
======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Includes the Fund's share of the Trust's allocated expenses.
+++Aggregate total investment return.
+++++On September 1, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Trust, a
mutual fund that has the same investment objective as the Fund. All
investments will be made at the Trust level. This structure is
sometimes called a "master/feeder" structure.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
MERRILL LYNCH
U.S. HIGH YIELD
FUND, INC.
1. Significant Accounting Policies:
Merrill Lynch U.S. High Yield Fund (the "Fund") (formerly Merrill
Lynch Corporate High Yield Fund, Inc.) is registered under the
Investment Company Act of 1940 as a diversified, open-end investment
company. On September 1, 2000, the Fund converted from a stand-alone
investment company to a "feeder" fund that seeks to achieve its
investment objective by investing all of its assets in the Master
U.S. High Yield Trust (the "Trust"), a mutual fund that has the same
investment objective as the Fund. All investments will be made at
the Trust level. This structure is sometimes called a "master/
feeder" structure. The value of the Fund's investment in the
Trust reflects the Fund's proportionate interest in the net assets
of the Trust. The performance of the Fund is directly affected by
the performance of the Trust. The financial statements of the Trust,
including the Schedule of Investments, are included elsewhere in
this report and should be read in conjunction with the Fund's
financial statements. 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. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal, recurring nature. The Fund
offers four classes of shares under the Merrill Lynch Select
PricingSM System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject
to a contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Valuation of securities is discussed
in Note 1a of the Trust's Notes to Financial Statements, which are
included elsewhere in this report.
(b) Income--The Fund's net investment income consists of the Fund's
pro rata share of the net investment income of the Trust, less all
actual and accrued expenses of the Fund determined in
conformity with accounting principles generally accepted in the
United States of America.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no Federal income tax
provision is required.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions--Dividends from net investment
income are declared daily and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions of
capital gains are recorded on the ex-dividend dates.
(f) Investment transactions--Investment transactions are accounted
for on a trade date basis.
2. Transactions with Affiliates:
The Fund has entered into an Administrative Services Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), a wholly-owned subsidiary of
Merrill Lynch & Co., Incorporated ("ML & Co."), which is the limited
partner. The Fund pays a monthly fee at an annual rate of .25% of
the Fund's average daily net assets for the performance of
administrative services (other than investment advice and related
portfolio activities) necessary for the operation of the Fund.
The Fund has also entered into a Distribution Agreement and
Distribution Plans with FAM Distributors, Inc. ("FAMD" or the
"Distributor"), a wholly-owned subsidiary of Merrill Lynch Group,
Inc. Pursuant to the Distribution Plans adopted by the Fund in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
the Fund pays the Distributor ongoing account maintenance and
distribution fees. The fees are accrued daily and paid monthly at
annual rates based upon the average daily net assets of the shares
of the Fund as follows:
Account
Maintenance Distribution
Fee Fee
Class B .25% .50%
Class C .25% .55%
Class D .25% --
Pursuant to a subagreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended September 30, 2000, FAMD earned
underwriting discounts and MLPF&S earned dealer concessions on sales
of the Fund's Class A and Class D Shares as follows:
FAMD MLPF&S
Class A $ 9 $ 107
Class D $1,808 $17,774
For the six months ended September 30, 2000, MLPF&S received
contingent deferred sales charges of $809,892 and $12,801 relating
to transactions in Class B and Class C Shares of the Fund,
respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $4 relating to transactions subject to front-end sales
charge waivers in Class AShares.
During the six months ended September 30, 2000, the Fund paid
Merrill Lynch Security Pricing Service, an affiliate of MLPF&S,
$1,007 for security price quotations to compute the net asset value
of the Fund.
Financial Data Services, Inc. ("FDS"), an indirect wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, FAMD, FDS, and/or ML & Co.
3. Investments:
Increases and decreases in the Fund's investment in the Trust for
the period September 1, 2000 to September 30, 2000 were $699,880,789
and $13,641,986, respectively.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(39,797,831) and $21,577,499 for the six months
ended September 30, 2000 and for the year ended March 31, 2000,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended September 30, 2000 Shares Amount
Shares sold 321,832 $ 2,545,674
Shares issued to shareholders in
reinvestment of dividends 39,567 313,460
---------- -------------
Total issued 361,399 2,859,134
Shares redeemed (270,602) (2,151,090)
---------- -------------
Net increase 90,797 $ 708,044
========== =============
Class A Shares for the Year Dollar
Ended March 31, 2000 Shares Amount
Shares sold 869,095 $ 7,757,049
Shares issued to shareholders in
reinvestment of dividends and
distributions 93,454 829,898
---------- -------------
Total issued 962,549 8,586,947
Shares redeemed (945,932) (8,349,835)
---------- -------------
Net increase 16,617 $ 237,112
========== =============
Class B Shares for the Six Months Dollar
Ended September 30, 2000 Shares Amount
Shares sold 4,128,660 $ 32,756,216
Shares issued to shareholders in
reinvestment of dividends 1,173,741 9,300,739
---------- -------------
Total issued 5,302,401 42,056,955
Automatic conversion of shares (37,114) (295,549)
Shares redeemed (9,229,875) (73,192,600)
---------- -------------
Net decrease (3,964,588) $ (31,431,194)
========== =============
Class B Shares for the Year Dollar
Ended March 31, 2000 Shares Amount
Shares sold 20,150,141 $ 181,713,205
Shares issued to shareholders in
reinvestment of dividends and
distributions 2,718,121 24,046,667
---------- -------------
Total issued 22,868,262 205,759,872
Automatic conversion of shares (83,586) (739,770)
Shares redeemed (19,417,530) (170,922,374)
---------- -------------
Net increase 3,367,146 $ 34,097,728
========== =============
Class C Shares for the Six Months Dollar
Ended September 30, 2000 Shares Amount
Shares sold 797,773 $ 6,332,302
Shares issued to shareholders in
reinvestment of dividends 265,204 2,101,691
---------- -------------
Total issued 1,062,977 8,433,993
Shares redeemed (2,300,253) (18,258,915)
---------- -------------
Net decrease (1,237,276) $ (9,824,922)
========== =============
Class C Shares for the Year Dollar
Ended March 31, 2000 Shares Amount
Shares sold 4,710,900 $ 42,619,654
Shares issued to shareholders in
reinvestment of dividends and
distributions 692,998 6,142,451
---------- -------------
Total issued 5,403,898 48,762,105
Shares redeemed (6,697,876) (59,083,125)
---------- -------------
Net decrease (1,293,978) $ (10,321,020)
========== =============
Class D Shares for the Six Months Dollar
Ended September 30, 2000 Shares Amount
Shares sold 1,382,349 $ 10,947,497
Automatic conversion of shares 37,114 295,549
Shares issued to shareholders in
reinvestment of dividends 224,692 1,780,223
---------- -------------
Total issued 1,644,155 13,023,269
Shares redeemed (1,556,330) (12,273,028)
---------- -------------
Net increase 87,825 $ 750,241
========== =============
Class D Shares for the Year Dollar
Ended March 31, 2000 Shares Amount
Shares sold 4,076,100 $ 36,441,804
Automatic conversion of shares 83,587 739,770
Shares issued to shareholders in
reinvestment of dividends and
distributions 374,255 3,308,410
---------- -------------
Total issued 4,533,942 40,489,984
Shares redeemed (4,840,299) (42,926,305)
---------- -------------
Net decrease (306,357) $ (2,436,321)
========== =============
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Master U.S. High Yield Trust
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds Value
<S> <S> <S> <C> <S> <C>
Aerospace & B- B3 $ 10,000,000 Fairchild Corporation, 10.75% due 4/15/2009 $ 8,150,000
Defense--3.7% B B2 10,000,000 Hexcel Corporation, 9.75% due 1/15/2009 9,350,000
NR* Ca 5,000,000 Kitty Hawk, Inc., 9.95% due 11/15/2004 (e) 2,900,000
------------
20,400,000
Airlines--2.6% USAir Inc.:
CCC+ B3 10,150,000 9.625% due 2/01/2001 10,115,470
BB- Ba3 5,000,000 10.375% due 3/01/2013 4,547,380
------------
14,662,850
Automotive BB Ba2 10,000,000 Federal-Mogul Corporation, 7.375% due 1/15/2006 3,950,000
--1.2% B- B3 5,000,000 Venture Holdings Trust, 12% due 6/01/2009 2,775,000
------------
6,725,000
Broadcasting B- B2 4,000,000 Emmis Communications Corporation, 8.125% due 3/15/2009 3,820,000
--Radio & B- B2 5,000,000 LIN Television Corporation, 8.375% due 3/01/2008 4,775,000
Television B- B3 2,975,000 Salem Communications Corp., 9.50% due 10/01/2007 2,930,375
--2.1% ------------
11,525,375
Cable-- B+ B2 4,500,000 Century Communications Corporation, 9.75% due 2/15/2002 4,522,500
Domestic--5.2% Charter Communications Holdings:
B+ B2 7,000,000 8.625% due 4/01/2009 6,317,500
B+ B2 3,000,000 10% due 4/01/2009 2,951,250
B B3 10,000,000 Echostar Broadband Corporation, 10.375% due 10/01/2007(d) 10,000,000
B+ B2 5,000,000 Olympus Communications LP/Capital Corp., 10.625% due
11/15/2006 5,000,000
------------
28,791,250
Cable-- B B2 5,000,000 NTL Communications Corp., 12.375%** due 10/01/2008 3,125,000
International D Caa3 25,000,000 Supercanal Holdings SA, 11.50%** due 5/15/2005(d)(e) 10,156,250
--5.6% B- B3 21,000,000 UnitedGlobalCom, Inc., 12.64%** due 2/15/2008 (b) 14,490,000
B B2 8,000,000 United Pan-Europe Communications, 13.466%** due 2/01/2005 3,660,000
------------
31,431,250
Capital CCC+ B3 8,000,000 Trench Electric & Trench Inc., 10.25% due 12/15/2007 5,000,000
Goods--0.9%
Chemicals--2.5% BB- Ba3 5,000,000 ISP Holdings Inc., 9.75% due 2/15/2002 4,500,000
B+ B2 10,000,000 Lyondell Chemical Company, 10.875% due 5/01/2009 9,712,500
------------
14,212,500
Child Care B- B3 5,000,000 Kindercare Learning Centers, Inc., 9.50% due 2/15/2009 4,650,000
--0.8%
Communications B B3 17,215,000 Impsat Corp., 12.375% due 6/15/2008 13,470,737
--3.5% B+ B2 17,000,000 Orion Network Systems, Inc., 16.429%** due 1/15/2007 5,865,000
------------
19,335,737
Computer BB- Ba3 5,000,000 Amkor Technologies Inc., 9.25% due 5/01/2006 4,987,500
Services/ CCC B3 5,000,000 Dictaphone Corp., 11.75% due 8/01/2005 4,725,000
Electronics
--1.7%
9,712,500
Conglomerates B- B3 10,000,000 Eagle-Picher Industries, 9.375% due 3/01/2008 8,250,000
--1.5%
Consumer B B3 10,000,000 Corning Consumer Products, 9.625% due 5/01/2008 3,350,000
Products--0.6%
Consumer CCC+ Caa2 9,360,000 AP Holdings Inc., 14.85%** due 3/15/2008 982,800
Services-- B- Caa1 15,000,000 Protection One Alarm Monitoring, 8.125% due 1/15/2009(d) 8,325,000
1.7% ------------
9,307,800
Energy--6.9% B B3 1,250,000 Benton Oil and Gas Co., 11.625% due 5/01/2003 881,250
BB- Ba3 7,000,000 Ocean Energy Inc., 8.375% due 7/01/2008 7,035,000
CCC B3 10,500,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 9,502,500
B+ B1 6,000,000 Parker Drilling Co., 9.75% due 11/15/2006 6,015,000
BB- Ba3 5,000,000 R&B Falcon Corporation, 11.375% due 3/15/2009 5,781,250
BB- B1 5,000,000 Tesoro Petroleum Corp., 9% due 7/01/2008 4,912,500
B- B3 7,000,000 United Refining Co., 10.75% due 6/15/2007 4,655,000
------------
38,782,500
Entertainment CC Ca 10,000,000 Regal Cinemas Inc., 9.50% due 6/01/2008 1,250,000
--0.2%
Financial CCC- Caa3 5,000,000 Amresco Inc., 9.875% due 3/15/2005 2,225,000
Services--0.4%
Food & Beverage Chiquita Brands International Inc.:
--1.6% B- B3 2,000,000 7% due 3/28/2001 1,760,000
B B1 5,000,000 9.125% due 3/01/2004 3,675,000
CCC Caa1 6,000,000 Vlasic Foods International Inc., 10.25% due 7/01/2009 3,390,000
------------
8,825,000
Gaming--2.7% BB+ Ba2 5,000,000 Harrah's Operating Co. Inc., 7.875% due 12/15/2005 4,825,000
BB+ Ba2 5,000,000 Park Place Entertainment, 7.875% due 12/15/2005 4,831,250
B- Caa1 5,000,000 Venetian Casino/LV Sands, 12.25% due 11/15/2004 5,150,000
------------
14,806,250
Health B- Caa1 10,500,000 ALARIS Medical Inc., 14.993%** due 8/01/2008 2,782,500
Services--10.1% B+ B1 5,000,000 Beverly Enterprises Inc., 9% due 2/15/2006 4,725,000
BB+ Ba2 5,000,000 Columbia/HCA Healthcare Corp., 7.25% due 5/20/2008 4,653,855
CCC+ B3 15,000,000 Extendicare Health Services, 9.35% due 12/15/2007 8,475,000
B+ Ba3 5,000,000 Fresenius Medical Capital Trust II, 7.875% due 2/01/2008 4,737,500
BBB- Ba1 3,750,000 HEALTHSOUTH Corp., 7% due 6/15/2008 3,183,499
BB Ba3 5,000,000 ICN Pharmaceutical Inc., 8.75% due 11/15/2008(d) 5,012,500
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Master U.S. High Yield Trust (continued)
S&P Moody's Face
INDUSTRIES Ratings Ratings Amount Corporate Bonds Value
<S> <S> <S> <C> <S> <C>
Health B- Caa1 $10,000,000 Magellan Health Services, 9% due 2/15/2008 $ 6,700,000
Services D C 7,000,000 Mariner Post--Acute Network, 9.50% due 11/01/2007(e) 175,000
(concluded) B+ B3 15,000,000 PharMerica, Inc., 8.375% due 4/01/2008 11,325,000
BB+ Ba1 5,000,000 Tenet Healthcare Corporation, 7.625% due 6/01/2008 4,725,000
------------
56,494,854
Hotels--2.3% BB Ba2 3,000,000 Felcor Lodging LP, 9.50% due 9/15/2008 (d) 2,992,500
BB Ba2 10,000,000 Host Marriott LP, 8.375% due 2/15/2006 9,650,000
------------
12,642,500
Independent B+ Ba3 10,000,000 The AES Corporation, 8.375% due 8/15/2007 9,525,000
Power
Producers--1.7%
Industrial B- B3 8,000,000 Neff Corp., 10.25% due 6/01/2008 3,640,000
Services-- CCC+ Caa1 2,000,000 Thermadyne Holdings Corp., 12.50%** due 6/01/2008 710,000
1.6% CCC+ B3 6,000,000 Thermadyne Manufacturing, 9.875% due 6/01/2008 4,657,500
------------
9,007,500
Internet B- B3 5,000,000 PSINet Inc., 11% due 8/01/2009 3,275,000
Transport--
0.6%
Metals & CC C 17,500,000 AEI Resources Inc., 11.50% due 12/15/2006(d) 1,137,500
Mining--1.9% BB B3 4,000,000 Asarco Inc., 8.50% due 5/01/2025 2,799,080
CCC+ B3 5,000,000 Kaiser Aluminum & Chemical Corp., 12.75% due 2/01/2003 4,625,000
B B3 2,000,000 Ormet Corporation, 11% due 8/15/2008(d) 1,870,000
------------
10,431,580
Packaging NR* NR* 3,250,000 Huntsman Packaging Corporation, 13% due 6/01/2010(d) 2,925,000
--2.3% Owens-Illinois Inc.:
BB+ Ba1 3,000,000 7.85% due 5/15/2004 2,694,957
BB+ Ba1 3,000,000 7.15% due 5/15/2005 2,559,759
B- B3 5,000,000 Tekni-Plex Inc., 12.75% due 6/15/2010(d) 4,950,000
------------
13,129,716
Paper & Forest Doman Industries Limited:
Products--1.2% B Caa1 5,000,000 8.75% due 3/15/2004 3,375,000
B Caa1 5,000,000 9.25% due 11/15/2007 3,125,000
------------
6,500,000
Product NR* Caa3 8,500,000 Ameriserve Food Distributors, 8.875% due 10/15/2006 (e) 340,000
Distribution NR* C 5,000,000 Nebco Evans Holding Co., 16.34%** due 7/15/2007 (e) 31,250
--0.4% CCC- Ca 10,350,000 US Office Products Co., 9.75% due 6/15/2008 1,914,750
------------
2,286,000
Publishing & BB- Ba3 5,000,000 Primedia, Inc., 7.625% due 4/01/2008 4,550,000
Printing--1.6% BBB- Baa3 5,000,000 World Color Press Inc., 7.75% due 2/15/2009 4,669,585
------------
9,219,585
Real BB- Ba3 4,875,000 Forest City Enterprises Inc., 8.50% due 3/15/2008 4,704,375
Estate--0.8%
Steel--2.4% CC Caa3 15,000,000 Republic Technologies, 13.75% due 7/15/2009(a) 2,775,000
B+ B2 5,000,000 WCI Steel Inc., 10% due 12/01/2004 4,450,000
B B2 7,500,000 Weirton Steel Corp., 11.375% due 7/01/2004 6,225,000
------------
13,450,000
Telephony B- B3 6,000,000 CFW Communications Company, 13% due 8/15/2010 5,610,000
--4.5% B B2 5,000,000 Intermedia Communications Inc., 8.60% due 6/01/2008 4,825,000
B+ B2 5,000,000 Metromedia Fiber Network, 10% due 12/15/2009 4,700,000
B B2 5,000,000 Nextlink Communications Inc., 10.75% due 6/01/2009 4,650,000
B B2 6,000,000 Time-Warner Telecom LLC, 9.75% due 7/15/2008 5,490,000
------------
25,275,000
Textiles--2.1% B Ca 10,000,000 Galey & Lord, Inc., 9.125% due 3/01/2008 6,400,000
Westpoint Stevens Inc.:
BB B1 3,500,000 7.875% due 6/15/2005 3,045,000
BB B1 3,000,000 7.875% due 6/15/2008(g) 2,490,000
------------
11,935,000
Transportation BB- NR* 4,000,000 Autopistas del Sol SA, 10.25% due 8/01/2009(d) 2,930,000
--0.5%
Utilities BB- Ba2 10,000,000 Western Resources Inc., 6.875% due 8/01/2004 9,003,940
--1.6%
Waste BB- Ba3 10,000,000 Allied Waste North America, 7.375% due 1/01/2004 9,350,000
Management
--1.7%
Wireless CCC Caa1 5,000,000 Airgate PCS Inc., 12.837%** due 10/01/2004 3,037,500
Communi- CCC+ B3 5,200,000 Nextel Partners Inc., 12.927%** due 2/01/2009 3,679,000
cations-- NR* NR* 5,000,000 SBA Communications Corp., 13.76%** due 3/01/2003 3,725,000
Domestic--2.8% B- B3 10,000,000 Spectracite Holdings Inc., 12.875%** due 3/15/2005 5,200,000
------------
15,641,500
Wireless CCC Caa2 10,000,000 Dolphin Telecom PLC, 17.059%** due 6/01/2003 2,050,000
Communications B- Caa1 15,000,000 Millicom International Cellular S.A., 16.028%** due
--International 6/01/2006 12,975,000
--6.2% B- Caa1 10,000,000 Nextel International Inc., 12.75% due 8/01/2010 9,825,000
Telesystem International Wireless Inc.:
CCC+ Caa1 7,000,000 14.26%** due 6/30/2007 4,375,000
CCC+ Caa1 10,000,000 14.014%** due 11/01/2007 5,450,000
------------
34,675,000
Total Investments in Corporate Bonds--(Cost--
$633,354,817)--91.7% 512,719,562
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Master U.S. High Yield Trust (concluded)
Shares
INDUSTRIES Held Common Stocks Value
<S> <C> <S> <C>
Transportation 204,166 HMI (e) $ 1,569,424
--0.3%
Wireless 497,541 Metrocall, Inc. (e) 1,500,397
Communications--
Domestic--0.3%
Total Investments in Common Stocks--(Cost--
$9,874,372)--0.6% 3,069,821
Preferred Stocks & Warrants
Energy--1.4% 6,077 R&B Falcon Corporation 7,793,752
Product 6,208 Nebco Evans Holding Co. (c) 2,328
Distribution--0.0%
Publishing & 50,000 Primedia, Inc. (Series H) 4,212,500
Printing--0.8%
Steel--0.0% 7,000 Republic Technologies (Warrants)(f) 70
Wireless 3,811 Crown Castle International Corporation (Preferred)(c) 3,858,638
Communications 7,626 Nextel Communications, Inc. (Series D)(c) 8,102,625
--Domestic 3,216 Rural Cellular Corp. (Series B)(c) 2,902,440
--2.6% ------------
14,863,703
Total Investments in Preferred Stocks & Warrants
(Cost--$28,275,734)--4.8% 26,872,353
Face
Amount Short-Term Securities
Commercial $ 3,409,000 General Motors Acceptance Corp., 6.75% due 10/02/2000 3,409,000
Paper***--0.6%
Total Investments in Short-Term Securities (Cost--
$3,409,000)--0.6% 3,409,000
Total Investments (Cost--$674,913,923)--97.7% 546,070,736
Other Assets Less Liabilities--2.3% 13,110,109
------------
Net Assets--100.0% $559,180,845
============
*Not Rated.
**Represents a zero coupon or step bond; the interest rate shown
reflects the effective yield at the time of purchase by the Trust.
***Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Trust.
(a)Each $1,000 face amount contains one warrant of Republic
Technology.
(b)Each $1,000 face amount contains one warrant of United
International Holdings, Inc.
(c)Represents a pay-in-kind security which may pay
interest/dividends in additional face/shares.
(d)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(e)Non-income producing security.
(f)Warrants entitle the Trust 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)Restricted securities as to resale. The value of the Trust's
investment in restricted securities was approximately $2,500,000,
representing 0.4% of net assets.
Acquisition
Issue Dates Cost Value
Westpoint Stevens Inc., 8/24/2000--
7.875% due 6/15/2008 9/28/2000 $ 2,559,375 $ 2,490,000
----------- -----------
Total $ 2,559,375 $ 2,490,000
=========== ===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
MASTER U.S. HIGH
YIELD TRUST As of September 30, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$674,913,923) $ 546,070,736
Cash 626,883
Receivables:
Interest $ 13,976,155
Securities sold 3,574,893
Contributions 524,688
Dividends 224,227 18,299,963
--------------
Prepaid expenses and other assets 53,407
--------------
Total assets 565,050,989
--------------
Liabilities: Payables:
Securities purchased 3,826,658
Withdrawals 1,865,521
Investment adviser 149,365
Reorganization costs 28,000 5,869,544
--------------
Accrued expenses and other liabilities 600
--------------
Total liabilities 5,870,144
--------------
Net Assets: Net assets $ 559,180,845
==============
Net Assets Partners' capital $ 688,024,032
Consist of: Unrealized depreciation on investments--net (128,843,187)
--------------
Net assets $ 559,180,845
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
MASTER U.S. HIGH
YIELDTRUST For the Period September 1, 2000++ to September 30, 2000
<S> <S> <C> <C>
Investment Interest and discount earned $ 5,897,607
Income: Dividends 107,813
--------------
Total income 6,005,420
--------------
Expenses: Investment advisory fees $ 171,598
Reorganization costs 28,000
Accounting services 13,143
Custodian fees 3,770
Professional fees 2,343
Offering costs 1,698
Pricing fees 729
Trustees' fees and expenses 655
Other 1,408
--------------
Total expenses 223,344
--------------
Investment income--net 5,782,076
--------------
Realized & Realized loss from investments--net (2,935,653)
Unrealized Loss on Unrealized depreciation on investments--net (128,843,187)
Investments--Net --------------
Net Decrease in Net Assets Resulting from Operations $(125,996,764)
==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
MASTER U.S. HIGH September 1, 2000++
YIELDTRUST Increase (Decrease) in Net Assets: to September 30, 2000
<S> <S> <C>
Operations: Investment income--net $ 5,782,076
Realized loss on investments--net (2,935,653)
Unrealized depreciation on investments--net (128,843,187)
--------------
Net decrease in net assets resulting from operations (125,996,764)
==============
Net Capital Increase in net assets derived from net capital contributions 685,077,509
Contributions: --------------
Net Assets: Total increase in net assets 559,080,745
Beginning of period 100,100
--------------
End of period $ 559,180,845
==============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the Period
MASTER U.S. HIGH September 1, 2000++
YIELD TRUST to September 30, 2000
<S> <S> <C>
Ratios to Average Expenses .46%*
Net Assets: ========
Investment income--net 11.79%*
========
Supplemental Data: Net assets, end of period (in thousands) $559,181
========
Portfolio turnover 5.70%
========
*Annualized.
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S. High Yield Fund, Inc., September 30, 2000
NOTES TO FINANCIAL STATEMENTS
MASTER U.S.HIGH
YIELD TRUST
1. Significant Accounting Policies:
Master U.S. High Yield Trust (the "Trust") is registered under the
Investment Company Act of 1940 and is organized as a Delaware
business trust. The Trust'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. These unaudited financial statements reflect
all adjustments, which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal, recurring nature. The
following is a summary of significant accounting policies followed
by the Trust.
(a) Valuation of investments--Portfolio securities that are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued, or lacking
any sales, at the mean between closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the
mean of the most recent bid and asked prices as obtained from one or
more dealers that make markets in the securities. Portfolio
securities that are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market, and it is expected that for debt securities
this ordinarily will be the over-the-counter market. Short-term
securities are valued at amortized cost, which approximates market
value. 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).
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their closing price at the close of such
exchanges. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good
faith by or under the direction of the Board of Directors of the
Trust, including valuations furnished by a pricing service retained
by the Trust which may use a matrix system for valuations.
(b) Derivative financial instruments--The Trust may engage in
various portfolio investment strategies to increase or decrease the
level of risk to which the Trust 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.
* Financial futures contracts--The Trust 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 Trust
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Trust 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 Trust as unrealized gains or losses. When
the contract is closed, the Trust records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
* Options--The Trust is authorized to purchase and write call and
put options. When the Trust writes an option, an amount equal to the
premium received by the Trust 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 Trust enters into a closing transaction), the Trust
realizes a gain or loss on the option to the extent of the premiums
received or paid (or loss or gain to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--The Trust is classified as a partnership for
Federal income tax purposes. As a partnership for Federal income tax
purposes, the Trust will not incur Federal income tax liability.
Items of partnership income, gain, loss and deduction will pass
through to investors as partners in the Trust. 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.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Trust 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 Trust's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Trust. For such
services, the Trust pays a monthly fee at an annual rate of .35% of
the average daily value of the Trust's net assets.
In addition, MLPF&S received $9,375 in commissions on the execution
of portfolio security transactions for the Trust for the period
September 1, 2000 to September 30, 2000.
Accounting services are provided to the Trust by FAM at cost.
Certain officers and/or trustees of the Trust 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 period September 1, 2000 to September 30, 2000 were
$35,733,795 and $34,629,125, respectively.
Net realized losses for the period September 1, 2000 to September
30, 2000 and net unrealized losses as of September 30, 2000 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $ (2,935,653) $ (128,843,187)
------------- --------------
Total $ (2,935,653) $ (128,843,187)
============= ==============
As of September 30, 2000, net unrealized depreciation for Federal
income tax purposes aggregated $128,843,187, of which $9,982,777
related to appreciated securities and $138,825,964 related to
depreciated securities. At September 30, 2000, the aggregate cost of
investments for Federal income tax purposes was $674,913,923.
4. Short-Term Borrowings:
On September 1, 2000, the Trust became party to a $1,000,000,000
credit agreement dated as of December 3, 1999 among certain other
funds managed by FAMand its affiliates, Bank of America, N.A. and
certain other lenders. The Trust may borrow under the credit
agreement to fund shareholder redemptions and for other lawful
purposes other than for leverage. The Trust may borrow up to the
maximum amount allowable under the Trust's current prospectus and
statement of additional information, subject to various other legal,
regulatory or contractual limits. The Trust pays a commitment fee of
.09% per annum based on the Trust's pro rata share of the unused
portion of the facility. Amounts borrowed under the facility bear
interest at a rate equal to, at each fund's election, the Federal
Funds rate plus .50% or a base rate as determined by Bank of
America, N.A. The Trust did not borrow under the facility during the
period September 1, 2000 to September 30, 2000.
