CORPORATE
HIGH YIELD
FUND, INC.
FUND LOGO
Annual Report
May 31, 1995
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Harry Woolf, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
Vincent T. Lathbury III, Vice President
Elizabeth M. Phillips, Vice President
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
COY
This report, including the financial information herein, is
transmitted to the shareholders of Corporate High Yield Fund, Inc.
for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock to provide Common Stock shareholders with a potentially
higher rate of return. Leverage creates risk for Common Stock
shareholders, including the likelihood of greater volatility of net
asset value and market price of Common Stock shares, and the risk
that fluctuations in short-term interest rates may reduce the Common
Stock's yield.
Corporate High
Yield Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
CORPORATE HIGH YIELD FUND, INC.
The Benefits and
Risks of
Leveraging
Corporate High Yield Fund, Inc. has the ability to utilize leverage
through borrowings or issuance of short-term debt securities or
shares of Preferred Stock. The concept of leveraging is based on the
premise that the cost of assets to be obtained from leverage will be
based on short-term interest rates, which normally will be lower
than the return earned by the Fund on its longer-term portfolio
investments. Since the total assets of the Fund (including the
assets obtained from leverage) are invested in higher-yielding
portfolio investments, the Fund's Common Stock shareholders are the
beneficiaries of the incremental yield.
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.
DEAR SHAREHOLDER
During the six months ended May 31, 1995, the high-yield market
strengthened substantially. An improved Treasury market, better
technicals and strong earnings reports pushed up high-yield bond
prices. Other favorable events for high-yield bonds included public
stock offerings, mergers and announcements of equity investments
that should bolster the financial condition of several high-yield
issuers. For the six months ended May 31, 1995, the total return of
the unmanaged Merrill Lynch High Yield Master Index was +13.2%.
Despite market strength in the May quarter, high-yield bonds
underperformed both the ten-year Treasury note and the Standard &
Poor's 500, which returned +15.3% and +19.1%, respectively. High-
yield bonds lagged the May rally that pushed the ten-year Treasury
note down to near 6.3% at May 31, 1995 from 7.1% at April 30, 1995,
causing spreads over Treasury securities to widen significantly.
<PAGE>
Sectors in the high-yield market with the best performance over the
past six months included airlines, food and beverage, and gaming.
These sectors underperformed in 1994's bear market. Improved returns
for these sectors reflect both a more optimistic fundamental
environment, especially for airlines and gaming, and a shift toward
more defensive sectors such as food and beverage. Cyclical sectors,
such as paper, surged early in 1995, then lost momentum in the face
of mounting evidence of an economic slowdown.
In the short-term, we believe the outlook for high-yield bonds is
encouraging. The slowing economy and low inflation have contributed
to a favorable interest rate environment which may continue beyond
the next three months, and which could result in lower short-term
interest rates. In addition, we believe that corporate profits could
still show increases, particularly in such cyclical industries as
coated paper which only began its recovery cycle in late 1994.
Initial public offerings and equity infusions may also continue to
provide credit support. Still, the economic slowdown may lead to
some earnings disappointments and falling bond prices for specific
issuers. We also believe that defaults and credit problems will rise
in 1995, but be moderate by historic standards. Widening yield
spreads made high-yield bonds more attractive relative to Treasury
issues. This should result in continued cash flows into the high-
yield market, which combined with moderate new-issue supply will
provide support for high-yield bonds. However, the long-term
economic outlook appears to be less certain. Robust economic growth
later in 1995 could change our outlook for a benign interest rate
environment, pushing bond yields up and weakening the high-yield
market.
Fund Performance
For the six-month period ended May 31, 1995, total investment return
on the Fund's Common Stock was +17.06%, based on a change in the per
share net asset value from $12.23 to $13.35, and assuming
reinvestment of $0.882 per share income dividends. During the same
period, the net annualized yield of the Fund's Common Stock was
13.16%. Throughout the six-month period, the Fund was, on average,
26% leveraged. On May 31, 1995, the Fund was 14% leveraged, having
borrowed $46 million of the $50 million of credit available at an
average borrowing cost of 7.07%.
<PAGE>
Corporate High Yield Fund, Inc. was well-positioned for the
improvement in the high-yield market as the Fund was somewhat
overweighted in sectors that performed strongly in the past six
months. Outperforming sectors in the portfolio included airlines,
broadcasting/cable, casinos and utilities. The airline segment
benefited from stronger earnings, but especially from USAir Inc.'s
agreement with its unions on wage and work rule concessions. USAir
has been one of the portfolio's larger holdings, and we took
advantage of the rally to sell our position in USAir unsecured
bonds. However, we still have sizable USAir exposure in the form of
equipment trust certificates backed by modern aircraft. Broadcast-
ing/cable rebounded in response to investors' reassessment
of asset values in cable television competitors American
Telecasting, Inc. and EchoStar Communications Corp. The Fund's
casino holdings are weighted toward Atlantic City casinos, which
rebounded as Pennsylvania elections appear to have diminished the
imminent threat of gaming in Philadelphia. Underperforming sectors
included home builders and building products & materials where
concern about a cyclical earnings decline held down high-yield bond
prices.
Company-specific events aided bond prices of several portfolio
issuers. Both Nextel Communications Inc. and Fresh Del Monte Produce
N.V. bond prices surged on news of actual or potential equity
investment. Continental Medsystem Inc. bonds rallied in response to
news that the company would merge with more conservatively
capitalized Horizon Healthcare. American Standard, Inc., Fort Howard
and The Katz Corporation bonds also were buoyed by their initial
public stock offerings.
The Fund also benefited from its modest investment in emerging
markets bonds. The Fund currently holds 4% of total assets in bonds
of Argentine issuers, primarily strongly positioned and well-
capitalized corporate issuers. Many of these positions were
established in early 1995, near the trough for prices of Argentine
issuers, and the bonds rebounded sharply on favorable economic news
from Argentina and other Latin American countries.
Portfolio Strategy
In March and April, high-yield bonds reached historically tight
spreads compared to Treasury issues. At this point, we took
advantage of the relatively high valuations of high-yield bonds and
began to sell into the rally and to deleverage significantly.
Leverage was reduced from 31% at November 30, 1994 to 14% by May 31,
1995. Given the current favorable high-yield environment and the
recent wider yield spreads of the market relative to Treasury
securities, we may increase leverage modestly. However, given our
concerns about the long-term fundamentals of the fixed-income
markets, we will be cautious in our use of leverage. However, less
leverage will likely reduce the Fund's dividend yield from previous
levels. (See page 1 of this report to shareholders for a complete
explanation of the benefits and risks of leveraging.)
<PAGE>
Positions sold during the six months ended May 31, 1995 were
generally in lower-yielding bonds that traded to unusually tight
spreads over Treasury securities, including ADT Operations, Inc.,
Gulf Canada Resource Ltd., John Q. Hammons Hotel and National
Medical Enterprises. We also sold positions in bonds where we saw
potential for earnings disappointments, including Pacific Lumber
Co., Stone Container Corp. and Nortek, Inc. Our investment focus is
on higher-yielding bonds with stable or improving earnings prospects
and either substantial appreciation potential or a high coupon to
enhance current yield. Among the Fund's purchases were Kaiser
Aluminum & Chemical Corp., 12.75% due 2003, S.D. Warren Co., 12% due
2004, and Argentine issuers including Telecom Argentina and
Telefonica de Argentina, two telephone companies, and Yacimientos
Petroliferos Fiscales S.A., a major international oil producer.
Bonds sold yielded on average 10.9%, while positions purchased on
average yielded 11.9%. The average rating of purchases and sales was
B+. Therefore, we improved the portfolio's yield without a
deterioration in average credit rating. The average portfolio
maturity at May 31, 1995 was 8.6 years. At the end of the May
period, major industries represented in the portfolio as a
percentage of total high-yield investments included: communications,
9.8%; energy, 9.8%; hotels and casinos, 8.4%; utilities, 7%; and
airlines, 5.7%.
In Conclusion
We thank you for your investment in Corporate High Yield Fund, Inc.,
and we look forward to assisting you with your financial goals in
the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
(Elizabeth M. Phillips)
Elizabeth M. Phillips
Vice President and Portfolio Manager
<PAGE>
July 5, 1995
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Airlines--6.3% BB+ Baa3 $ 7,250,000 Delta Air Lines Inc., 10.06% due 1/02/2016 $ 7,322,500 $ 7,904,457
BB+ Baa2 4,000,000 United Airlines, Inc., 9.21% due 1/21/2017 4,067,280 4,090,800
USAir Inc.:
B+ B2 3,276,302 11.20% due 3/19/2005 2,883,146 3,162,942
B+ B2 1,000,000 10.375% due 3/01/2013 955,000 950,000
B+ B2 368,000 Series A, 10.33% due 6/27/2002 386,113 350,785
BB B2 740,000 Series C, 10.33% due 6/27/2002 776,423 705,383
BB B2 892,000 Series D, 10.33% due 6/27/2002 935,904 850,272
------------ ------------
17,326,366 18,014,639
Automobiles B B3 2,000,000 SPX, Inc., 11.75% due 6/01/2002 2,000,000 2,130,000
- --0.7%
Broadcasting & B B3 5,000,000 Katz Corporation (The), 12.75% due 11/15/2002 5,418,750 5,262,500
Publishing--2.9% B+ B2 3,000,000 Sinclair Broadcast Group, Inc., 10% due
12/15/2003 2,805,000 2,970,000
------------ ------------
8,223,750 8,232,500
Broadcasting/ B- Caa 9,145,000 American Telecasting, Inc., 12.50%* due
Cable--4.3% 6/15/2004 5,602,740 5,395,550
CCC B3 3,922,000 Australis Media Ltd., 14%* due 5/15/2003 2,005,640 2,000,220
B- Caa 9,312,000 EchoStar Communications Corp., 12.875%*
due 6/01/2004 5,651,236 4,935,360
------------ ------------
13,259,616 12,331,130
Building B Ba3 5,000,000 Inter-City Products Corp., 9.75% due
Products & 3/01/2000 4,836,250 4,587,500
Materials--1.6%
<PAGE>
Capital Goods-- Sequa Corp.:
1.7% BB B2 2,000,000 9.625% due 10/15/1999 2,055,000 2,015,000
B+ B3 3,000,000 9.375% due 12/15/2003 2,941,250 2,850,000
------------ ------------
4,996,250 4,865,000
Chemicals--2.1% B Ba3 8,680,000 G-I Holdings Inc., 11.38%* due 10/01/1998 6,001,125 5,902,400
Communications B- B3 5,000,000 Dial Page, Inc., 12.25% due 2/15/2000 5,400,000 5,187,500
- --10.8% CCC+ Caa 7,784,000 Horizon Cellular Telephone Co., 11.375%*
due 10/01/2000 6,011,212 6,149,360
CCC- B3 4,000,000 Nextel Communications Inc., 9.75%* due
8/15/2004 2,378,876 1,980,000
B- B3 9,285,000 Pan Am Sat L.P., 11.29%* due 8/01/2003 6,560,979 6,592,350
BB- Ba3 5,000,000 Rogers Communications Inc., 10.875% due
4/15/2004 5,015,625 5,112,500
B+ B3 9,160,000 Videotron Holdings PLC, 12%* due 7/01/2004 5,516,743 5,862,400
------------ ------------
30,883,435 30,884,110
Conglomerates-- B+ B1 5,000,000 Coltec Industries, Inc., 10.25% due 4/01/2002 5,325,000 5,150,000
1.8%
Consumer B B 3,750,000 Coleman Holdings, Inc., 10.79%* due
Products--3.7% 5/27/1998 2,744,620 2,775,000
B- Caa 5,000,000 ++Polymer Group Inc., 12.75% due 7/15/2002 4,938,750 5,075,000
B- B3 2,000,000 ++Selmer Company, Inc., 11% due 5/15/2005 2,000,000 1,990,000
BB- B1 750,000 Tarkett International, 9% due 3/01/2002 686,250 735,000
------------ ------------
10,369,620 10,575,000
Containers--2.9% B- Caa 7,000,000 Ivex Packaging Corp., 11.92%* due 3/15/2005 4,135,274 3,850,000
B- B3 5,000,000 Silgan Holdings, Inc., 12.122%* due
12/15/2002 4,501,549 4,550,000
------------ ------------
8,636,823 8,400,000
Cosmetics--1.0% Revlon Consumer Products Corp.:
B+ B2 1,500,000 9.50% due 6/01/1999 1,364,341 1,477,500
B B2 1,500,000 9.375% due 4/01/2001 1,359,830 1,447,500
------------ ------------
2,724,171 2,925,000
<PAGE>
Energy--10.7% B+ B1 11,500,000 Clark R&M Holdings, Inc., 10.54%* due
2/15/2000 7,087,015 7,158,750
NR+++ NR+++ 6,500,000 Consolidated Hydro Inc., 11.798%* due
7/15/2003 4,545,147 3,965,000
BB B1 5,000,000 Gulf Canada Resource Ltd., 9% due 8/15/1999 4,950,000 5,050,000
BB+ Ba3 4,000,000 Maxus Energy Corp., 11.50% due 11/15/2015 4,257,500 3,940,000
B- Caa 3,000,000 Transamerican Refining Corporation, 16.50%
due 2/15/2002 2,997,937 3,195,000
BB- B1 5,000,000 TransTexas Gas Corp., 10.50% due 9/01/2000 5,000,000 5,387,500
BB- B1 2,500,000 Yacimientos Petroliferos Fiscales S.A.
(Sponsored)(ADR), 8% due 2/15/2004 (b) 1,697,500 2,100,000
------------ ------------
30,535,099 30,796,250
Entertainment-- B Caa 6,000,000 Marvel Holdings, Inc., 9.125% due 2/15/1998 5,310,000 5,580,000
2.6% CCC+ B2 6,985,000 SPI Holdings, Inc., 11.50%* due 10/01/1996 6,015,705 1,955,800
------------ ------------
11,325,705 7,535,800
Financial BB- B1 5,000,000 Reliance Group Holdings Inc., 9.75% due
Services--1.7% 11/15/2003 5,008,750 4,862,500
Food & B B3 3,000,000 Chiquita Brands International Inc., 11.50%
Beverage--4.8% due 6/01/2001 3,180,000 3,105,000
B B2 4,000,000 Coca-Cola Bottling Group, 9% due 11/15/2003 4,000,000 3,910,000
B B3 2,500,000 Curtice-Burns Foods, Inc., 12.25% due
2/01/2005 2,500,000 2,668,750
B B3 5,000,000 Fresh Del Monte Produce, 10% due 5/01/2003 4,801,875 4,250,000
------------ ------------
14,481,875 13,933,750
Foreign BB- B1 2,000,000 Republic of Argentina, 8.375% due
Government 12/20/2003 1,325,000 1,525,000
Obligations--0.5%
Health B+ B1 5,000,000 Continental Medsystem Inc., 10.375% due
Services-- 4/01/2003 5,063,750 5,125,000
1.8%
Home Builders-- B- B2 5,000,000 Baldwin Homes Company, 10.375% due 8/01/2003 5,010,000 3,200,000
2.0% NR+++ NR+++ 3,000,000 Greystone Homes, Inc., 10.75% due 3/01/2004 3,000,000 2,700,000
------------ ------------
8,010,000 5,900,000
<PAGE>
Hotels--3.3% BB- B1 5,000,000 ++HMH Properties Inc., 9.50% due 5/15/2005 4,817,026 4,900,000
BB- B1 4,512,000 Host Marriott Corp., 10.375% due 6/15/2011 4,495,541 4,557,120
------------ ------------
9,312,567 9,457,120
Hotels & BB B1 5,500,000 Bally's Park Place, Inc., 9.25% due
Casinos--9.2% 3/15/2004 5,003,750 5,032,500
B+ B2 6,000,000 Greate Bay Property Funding Corp., 10.875%
due 1/15/2004 5,930,000 5,250,000
B+ B1 5,000,000 Harrah's Jazz Company, 14.25% due 11/15/2001 5,000,000 5,500,000
B B2 5,000,000 Showboat, Inc., 13% due 8/01/2009 4,917,500 5,250,000
B+ B3 6,000,000 Trump Plaza Funding, Inc., 10.875% due
6/15/2001 5,953,750 5,430,000
------------ ------------
26,805,000 26,462,500
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Industrial B B2 $ 1,500,000 Affinity Group, Inc., 11.50% due 10/15/2003 $ 1,462,500 $ 1,500,000
Services--0.8% B- B3 750,000 Day International Corp., 11.125% due 6/01/2005 750,000 750,000
------------ ------------
2,212,500 2,250,000
Metals & B- B2 4,200,000 Kaiser Aluminum & Chemical Corp., 12.75%
Mining--3.3% due 2/01/2003 4,389,000 4,525,500
B- B3 8,000,000 Maxxam Group, Inc., 12.25%* due 8/01/2003 5,487,144 4,960,000
------------ ------------
9,876,144 9,485,500
Paper--5.4% B+ B2 4,000,000 Container Corporation of America, 9.75%
due 4/01/2003 4,080,000 4,050,000
BB- Ba3 2,000,000 Repap New Brunswick, Inc., 9.875% due
7/15/2000 2,000,000 2,030,000
BB- B1 3,000,000 Repap Wisconsin, Inc., 9.25% due 2/01/2002 2,638,750 2,947,500
B B1 2,000,000 Riverwood International Corp., 11.25%
due 6/15/2002 2,182,500 2,200,000
B+ B1 4,000,000 ++S.D. Warren Co., 12% due 12/15/2004 4,000,000 4,380,000
------------ ------------
14,901,250 15,607,500
<PAGE>
Pollution B B3 4,000,000 Mid-American Waste Systems, Inc., 12.25%
Control--1.4% due 2/15/2003 4,000,000 4,120,000
Restaurants-- CCC+ B2 6,000,000 Flagstar Corp., 11.375% due 9/15/2003 6,225,000 4,620,000
1.6%
Retail B- B3 5,000,000 Pamida Holdings Inc., 11.75% due 3/15/2003 4,978,750 4,750,000
Specialty--3.0% B- B3 4,000,000 Specialty Retailers, Inc., 11% due 8/15/2003 4,000,000 3,780,000
------------ ------------
8,978,750 8,530,000
Supermarkets-- B B1 1,000,000 Food 4 Less Supermarkets, Inc., 10.45%
2.6% due 4/15/2000 1,006,250 1,000,000
Grand Union Co. (c):
D B3 1,000,000 11.25% due 7/15/2000 1,051,250 1,115,000
D Caa 4,000,000 12.25% due 7/15/2002 4,152,500 1,200,000
B B2 4,000,000 Ralph's Grocery Co., 9% due 4/01/2003 3,941,250 4,070,000
------------ ------------
10,151,250 7,385,000
Steel--0.7% B B1 2,000,000 ++Gulf States Steel Acquisition Corp.,
13.50% due 4/15/2003 2,000,000 2,040,000
Telecommunica- BB- B1 3,000,000 Telecom Argentina STET S.A., 8.375% due
tions--3.0% 10/18/2000 2,345,000 2,625,000
Telefonica de Argentina S.A.:
NR+++ B1 1,000,000 8.375% due 10/01/2000 780,000 885,000
BB- B1 5,000,000 11.875% due 11/01/2004 4,900,400 5,025,000
------------ ------------
8,025,400 8,535,000
Textiles--0.7% B+ B3 2,000,000 Westpoint Stevens Inc., 9.375% due 12/15/2005 1,981,250 1,960,000
Transportation BB- Ba2 3,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 3,045,000 2,910,000
Services--2.4% B+ Ba3 4,150,000 Viking Star Shipping Co., Inc., 9.625% due
7/15/2003 3,849,500 4,025,500
------------ ------------
6,894,500 6,935,500
<PAGE>
Utilities--7.7% B+ B1 2,954,000 Beaver Valley Funding, 9% due 6/01/2017 2,281,160 2,466,590
CTC Mansfield Funding:
BB+ Ba1 2,000,000 10.25% due 3/30/2003 1,855,625 1,995,000
BB+ Ba1 3,000,000 11.125% due 9/30/2016 3,213,750 3,052,500
BB Ba3 4,581,094 Midland Cogeneration Venture Limited
Partnership, 10.33% due 7/23/2002** 4,489,472 4,729,980
B B1 4,000,000 Texas-New Mexico Power Co., 10.75% due
9/15/2003 4,085,000 4,280,000
NR+++ NR+++ 1,000,000 Transportadora de Gas Del Sur S.A., 7.75%
due 12/23/1998 867,500 866,875
NR+++ NR+++ 5,106,532 ++Tucson Electric & Power Co., 10.21% due
1/01/2009 4,798,575 4,757,194
------------ ------------
21,591,082 22,148,139
Total Investments in
Corporate Bonds--109.0% 323,287,278 313,211,838
Shares Held Preferred Stock & Warrants
Broadcasting & 95,665 K-III Communications Corp. 2,606,871 2,511,206
Publishing--0.9%
Broadcasting/ 45,725 American Telecasting, Inc. (Warrants)(a) -- 137,175
Cable--0.1%
Energy--0.0% 16,835 Transamerican Refining Corporation
(Warrants)(a) 40,388 54,714
Total Investments in Preferred Stock &
Warrants--1.0% 2,647,259 2,703,095
Face Amount Short-Term Securities
Commercial $ 553,000 General Electric Capital Corp., 6.13% due
Paper***--0.2% 6/01/1995 553,000 553,000
Total Investments in Short-Term
Securities--0.2% 553,000 553,000
Total Investments--110.2% $326,487,537 316,467,933
============
Liabilities in Excess of Other Assets--(10.2%) (29,182,463)
------------
Net Assets--100.0% $287,285,470
============
<PAGE>
<FN>
*Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase.
**Subject to principal paydowns.
***Commercial Paper is traded on a discount basis; the interest
rates shown are the discount rates paid at the time of purchase by
the Fund.
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock/face amount of bonds. The purchase price and
number of shares/face amount are subject to adjustment under certain
conditions until the expiration date.
(b)American Depositary Receipt (ADR).
(c)Non-income producing security.
+++Not Rated.
++Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $23,142,000,
representing 8.1% of net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Gulf States Steel Acquisition
Corp., 13.50% due 4/15/2003 4/12/1995 $ 2,000,000 $ 2,040,000
HMH Properties Inc.,
9.50% due 5/15/2005 5/18/1995 4,817,026 4,900,000
Polymer Group Inc.,
12.75% due 7/15/2002 6/17/1994-11/16/1994 4,938,750 5,075,000
S.D. Warren Co., 12%
due 12/15/2004 12/13/1994 4,000,000 4,380,000
Selmer Company, Inc.,
11% due 5/15/2005 5/18/1995 2,000,000 1,990,000
Tucson Electric & Power
Co., 10.21% due 1/01/2009 6/25/1993-7/28/1993 4,798,575 4,757,194
Total $22,554,351 $23,142,194
=========== ===========
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of May 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$326,487,537) (Note 1a) $316,467,933
Cash 984
Receivables:
Securities sold $ 10,917,069
Interest 7,109,910 18,026,979
------------
Deferred organization expenses (Note 1e) 52,694
Prepaid expenses and other assets 45,407
------------
Total assets 334,593,997
------------
Liabilities: Loans (Note 5) 46,000,000
Payables:
Securities purchased 750,000
Interest on loans (Note 5) 277,627
Investment adviser (Note 2) 144,343
Commitment fees 31,507 1,203,477
------------
Accrued expenses and other liabilities 105,050
------------
Total liabilities 47,308,527
------------
Net Assets: Net assets $287,285,470
------------
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized $ 2,151,552
Paid-in capital in excess of par 301,278,626
Undistributed investment income--net 2,668,306
Accumulated realized capital losses on investments--net (Note 6) (8,793,410)
Unrealized depreciation on investments--net (10,019,604)
------------
Total--Equivalent to $13.35 per share based on 21,515,524 shares
of capital stock outstanding (market price $13.625) $287,285,470
============
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 1995
<S> <S> <C>
Investment Income Interest and discount earned $ 42,765,131
(Note 1d): Dividends 275,037
Other 492,500
------------
Total income 43,532,668
------------
<PAGE>
Expenses: Loan interest expense (Note 5) 6,936,260
Investment advisory fees (Note 2) 1,875,854
Borrowing costs (Note 5) 284,524
Professional fees 108,312
Transfer agent fees 74,131
Accounting services (Note 2) 70,807
Printing and shareholder reports 55,709
Directors' fees and expenses 45,283
Custodian fees 24,751
Amortization of organization expenses (Note 1e) 17,188
Pricing services 5,155
Listing fees 250
Other 43,778
------------
Total expenses 9,542,002
------------
Investment income--net 33,990,666
------------
Realized & Unreal- Realized loss on investments--net (9,784,578)
ized Gain Change in unrealized depreciation on investments--net 13,263,210
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 37,469,298
- --Net (Notes ============
1b, 1d & 3):
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the For the Period
Year June 25,
Ended 1993++ to
Increase (Decrease) in Net Assets: May 31, 1995 May 31, 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 33,990,666 $ 25,918,019
Realized gain (loss) on investments--net (9,784,578) 1,062,381
Change in unrealized depreciation on investments--net 13,263,210 (23,282,814)
------------ ------------
Net increase in net assets resulting from operations 37,469,298 3,697,586
------------ ------------
Dividends to Investment income--net (33,990,929) (23,320,663)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends to
shareholders (33,990,929) (23,320,663)
------------ ------------
<PAGE>
Common Stock Net proceeds from issuance of Common Stock -- 279,956,250
Transactions Offering costs resulting from the issuance of Common Stock 3,582 (372,991)
(Note 4): Value of shares issued to Common Stock shareholders in
reinvestment of dividends and distributions 11,066,549 12,676,783
------------ ------------
Net increase in net assets derived from capital stock
transactions 11,070,131 292,260,042
------------ ------------
Net Assets: Total increase in net assets 14,548,500 272,636,965
Beginning of period 272,736,970 100,005
------------ ------------
End of period* $287,285,470 $272,736,970
============ ============
<FN>
*Undistributed investment income--net (Note 1g) $ 2,668,306 $ 2,597,356
============ ============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
For the Year Ended May 31, 1995
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 37,469,298
Operating Adjustments to reconcile net increase (decrease) in net assets resulting
Activities: from operations to net cash provided by operating activities:
Decrease in receivables 2,550,018
Decrease in other assets 101,434
Decrease in other liabilities (44,586)
Realized and unrealized gain on investments--net (3,478,632)
Amortization of discount (10,381,877)
------------
Net cash provided by operating activities 26,215,655
------------
Cash Provided Proceeds from sales of long-term investments 250,930,270
by Investing Purchases of long-term investments (177,562,527)
Activities: Purchases of short-term investments (608,353,617)
Proceeds from sales and maturities of short-term investments 609,692,000
------------
Net cash provided by investing activities 74,706,126
------------
<PAGE>
Cash Used for Short-term borrowings--net (78,000,000)
Financing Dividends paid to shareholders (22,924,379)
Activities: Other 3,582
------------
Net cash used for financing activities (100,920,797)
------------
Cash: Net increase in cash 984
Cash at beginning of year --
------------
Cash at end of year $ 984
============
Cash Flow Cash paid for interest $ 6,924,053
Information: ============
Non-Cash Reinvestment of dividends paid to shareholders $ 11,066,549
Financing ============
Activities:
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. For the June 25,
Year Ended 1993++ to
Increase (Decrease) in Net Asset Value: May 31, 1995++++ May 31, 1994
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 13.21 $ 14.18
Operating ------------ ------------
Performance: Investment income--net 1.62 1.30
Realized and unrealized gain (loss) on investments--net .14 (1.10)
------------ ------------
Total from investment operations 1.76 .20
------------ ------------
Less dividends from investment income--net (1.62) (1.17)
------------ ------------
Net asset value, end of period $ 13.35 $ 13.21
============ ============
Market price per share, end of period $ 13.625 $ 13.875
============ ============
Total Investment Based on market price per share 11.65% .36%+++
Return:** ============ ============
Based on net asset value per share 14.92% 1.08%+++
============ ============
<PAGE>
Ratios to Average Expenses, excluding interest expense .69% .68%*
Net Assets ============ ============
(Excluding Expenses 2.53% 1.76%*
Outstanding Loan): ============ ============
Investment income--net 9.03% 7.55%*
============ ============
Supplemental Net assets, end of period (in thousands) $ 287,285 $ 272,737
Data: ============ ============
Portfolio turnover 45.73% 45.82%
============ ============
<FN>
*Annualized
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Corporate High Yield Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, closed-end
management investment company. 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 COY.
<PAGE>
(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. In
certain circumstances, portfolio securities are valued at the last
sale price on the exchange that is the primary market for such
securities, or the last quoted bid price for those securities for
which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day. The
value of interest rate swaps, caps, and floors is determined in
accordance with a formula and then confirmed periodically by
obtaining a bank quotation. Positions in options are valued at the
last sale price on the market where any such option is principally
traded. Obligations with remaining maturities of sixty days or less
are valued at amortized cost unless this method no longer produces
fair valuations. Securities for which there exist no price
quotations or valuations and all other assets are valued at fair
value as determined in good faith by or on behalf of the Board of
Directors of the Fund.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
FINANCIAL INFORMATION (concluded)
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
<PAGE>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Interest rate transactions--The Fund is authorized to enter into
interest rate swaps and purchase or sell interest rate caps and
floors. 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) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
<PAGE>
(g) Reclassification--Generally accepted accounting principles
require that certain differences between accumulated net realized
capital losses for financial reporting purposes, if permanent, be
reclassified to undistributed net investment income. Accordingly,
current year's permanent book/tax differences of $71,213 have been
reclassified from accumulated net realized capital losses to
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 perform the investment advisory
function. For such services the Fund pays a monthly fee at an annual
rate of 0.50% of the Fund's average weekly net assets plus the
proceeds of any outstanding borrowings used for leverage.
For the year ended May 31, 1995, Merrill Lynch Security Pricing
Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), provided 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, MLPF&S and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended May 31, 1995 were $166,938,248 and $251,539,788,
respectively.
Net realized and unrealized losses as of May 31, 1995 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $(9,784,578) $(10,019,604)
----------- ------------
Total $(9,784,578) $(10,019,604)
=========== ============
<PAGE>
As of May 31, 1995, net unrealized depreciation for Federal income
tax purposes aggregated $10,251,896, of which $7,897,212 related to
appreciated securities and $18,149,108 related to depreciated
securities. The aggregate cost of investments at May 31, 1995 for
Federal income tax purposes was $326,719,829.
4. Common Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of Common Stock,
par value $.10 per share. For the year ended May 31, 1995, shares
issued and outstanding increased by 871,826 to 21,515,524 as a
result of dividend reinvestment. At May 31, 1995, total paid-in
capital amounted to $303,430,178.
5. Short-Term Borrowings:
On August 26, 1994, the Fund entered into a one-year loan commitment
in the amount of $150,000,000. For this commitment, the Fund pays
one quarter of 1%. For the year ended May 31, 1995, the maximum
amount borrowed was $129,000,000, the average amount borrowed was
$107,934,247 and the daily weighted average interest rate was 6.39%.
For the year ended May 31, 1995, facility and commitment fees
aggregated $284,524.
6. Capital Loss Carryforward:
At May 31, 1995, the Fund had a capital loss carryforward of
approximately $4,386,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
7. Subsequent Event:
On June 12, 1995, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.120707 per share, payable on June 30, 1995 to shareholders of
record as of June 23, 1995.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Corporate High Yield Fund, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of Corporate
High Yield Fund, Inc. as of May 31, 1995, the related statements of
operations for the year then ended, changes in net assets for the
year then ended and the period June 25, 1993 (commencement of
operations) to May 31, 1994, and cash flows for the year then ended,
and the financial highlights for the year then ended and for the
period June 25, 1993 (commencement of operations) to May 31, 1994.
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.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. 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,
1995 by correspondence with the custodian and brokers. 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, Inc. as of May 31, 1995, the results of
its operations, the changes in its net assets, its cash flows, and
the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 5, 1995
</AUDIT-REPORT>
PORTFOLIO INFORMATION (unaudited)
<TABLE>
Ten Largest
Holdings
<CAPTION>
Percent of
Net Assets
<S> <S> <C>
Delta Air Lines Inc. Delta is the third largest US airline with major hubs in Atlanta, Cincinnati,
10.06% 1/02/2016 Salt Lake City, Dallas and Frankfurt. Our investment is in equipment trust
certificates secured by aircraft. 2.8%
Clark R&M Holdings, Inc. Clark Oil is an independent refiner and marketer of petroleum products in the
10.54% 2/15/2000 Midwest. The company operates gas stations under the Clark name. 2.5
Pan Am Sat L.P. Pan Am Sat operates two communications satellites that service the Americas,
11.29% 8/01/2003 especially Latin America, and the Far East. Additional satellites are scheduled
for launch in 1995 and 1996. 2.3
<PAGE>
Horizon Cellular Horizon owns and operates cellular telephone systems, primarily in rural and
Telephone Co. suburban areas (RSAs) clustered in the Mid-Atlantic, Kentucky and Georgia.
11.375% 10/01/2000 2.2
USAir Inc. USAir is the sixth largest US airline with major hubs in Pittsburgh, Charlotte,
10.33% 6/27/2002 Philadelphia and Baltimore. Our investment is in equipment trust certificates
11.20% 3/19/2005 secured by modern, saleable aircrafts.
10.375% 3/01/2013 2.1
Telefonica de Argentina Telefonica de Argentina provides monopoly telephone service to the southern
11.875% 11/01/2004 half of Argentina, including about half the Buenos Aires metropolitan area
8.375% 10/01/2000 where nearly one third of Argentina's population is located. 2.1
G-I Holdings This holding company indirectly owns all common stock of GAF Buildings Materials
11.38% 10/01/1998 Corp. and nearly 81% of NYSE-listed International Specialty Products. These
companies are leading manufacturers of residential roofing materials and
specialty chemical products. 2.1
Videotron Holdings PLC Videotron is a start-up cable TV/telephone company operating primarily in London.
12% 7/01/2004 After a recent initial public stock offering, the company remains 56% owned by
Le Group Videotron Ltee of Canada and 26% by a partnership between Bell Canada
International and Cable and Wireless PLC. 2.1
Marvel Holdings, Inc. Marvel is a holding company that controls 80% of Marvel Entertainment. Marvel
9.125% 2/15/1998 Entertainment is the largest publisher of comic books, including Spider-Man
and X-Men, and a leading marketer of sports picture cards under the Fleer trade name. 2.0
Harrah's Jazz Company Harrah's Jazz has an exclusive license to develop, own and operate the sole
14.25% 11/15/2001 land-based casino in New Orleans. The company currently operates a temporary
casino while the permanent facility is being built. Harrah's is one-third
owned by Promus. 1.9
</TABLE>
Quality
Ratings
The quality ratings of securities in the Fund as of May 31, 1995
were as follows:
Percent of
Rating Net Assets
B 56.0%
BB 29.9
CCC 7.1
NR (Not Rated) 4.5
<PAGE>
PER SHARE INFORMATION (unaudited)
<TABLE>
Per Share
Selected Quarterly
Financial Data*
<CAPTION>
Net Realized Unrealized Dividends
Investment Gains Gains Net Investment
For the Period Income (Losses) (Losses) Income
<S> <C> <C> <C> <C>
June 25, 1993++ to August 31, 1993 $.16 -- $ (.03) --
September 1, 1993 to November 30, 1993 .37 $(.01) .28 $.39
December 1, 1993 to February 28, 1994 .38 .10 .18 .40
March 1, 1994 to May 31, 1994 .39 (.05) (1.57) .38
June 1, 1994 to August 31, 1994 .38 (.09) (.22) .38
September 1, 1994 to November 30, 1994 .36 (.20) (.60) .36
December 1, 1994 to February 28, 1995 .49 (.04) .50 .50
March 1, 1995 to May 31, 1995 .39 (.13) .92 .38
<CAPTION>
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
June 25, 1993++ to August 31, 1993 $14.28 $14.15 $15.125 $15.00 923
September 1, 1993 to November 30, 1993 14.58 14.07 15.375 14.75 2,156
December 1, 1993 to February 28, 1994 15.06 14.58 15.625 14.75 1,705
March 1, 1994 to May 31, 1994 14.58 13.17 14.25 12.50 1,588
June 1, 1994 to August 31, 1994 13.45 12.83 14.125 12.625 1,570
September 1, 1994 to November 30, 1994 12.94 12.23 13.50 11.00 2,712
December 1, 1994 to February 28, 1995 12.55 11.86 13.00 11.375 2,147
March 1, 1995 to May 31, 1995 13.50 12.45 13.875 12.375 2,124
<FN>
*Calculations are based upon shares of Common Stock outstanding at
the end of each period.
**As reported in the consolidated transaction reporting system.
***In thousands.
++Commencement of Operations.
</TABLE>
