CORPORATE
HIGH YIELD
FUND, INC.
FUND LOGO
Annual Report
May 31, 1996
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
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
Ira P. Shapiro, 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. Statements and other information herein are as dated
and are subject to change.
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.
Quality Ratings
(unaudited)
The quality ratings of securities in the Fund as of May 31, 1996
were as follows:
<PAGE>
Percent of
Rating Net Assets
B 52%
BB 26
CCC 4
D 3
NR(Not Rated) 15
DEAR SHAREHOLDER
High-Yield Market Overview
High-yield bonds proved to be a good fixed-income choice over the
last year. The high-yield market, as measured by the unmanaged
Merrill Lynch High Yield Master Index, returned +9.5% for the year
ended May 31, 1996 and +3.9% during the six-month period ended May
31, 1996. This compares to the total returns of +1.6% and -4.6%,
respectively, for ten-year US Treasury notes. Strong earnings
fundamentals, moderate default levels, high coupon income and good
technical support from cash inflows to the high-yield market buoyed
prices for high-yield bonds in the past year. Although there were
periods when high-yield bonds tracked other types of bonds quite
closely, the importance of earnings and credit risk perception led
high-yield bonds to offer very different returns than other fixed-
income investments over the past year. The table below reflects the
correlation of investment returns of US Treasury notes with other
financial asset categories from 1980 to 1995. A perfect correlation
would be 1.0, and no correlation in returns would be 0.
Correlation with US Treasury Notes
High-Yield Index 0.60 Somewhat correlated
S&P 500 0.29 Minimally correlated
High Quality
Corporate
Bond Index 0.93 Highly correlated
Mortgage Index 0.91 Highly correlated
<PAGE>
We believe that high-yield bond market returns will continue to
diverge from other fixed-income investments over the next few
months. However, we expect the high-yield bond market to reverse its
favorable trend and underperform US Treasury securities over the
upcoming six-month period. When high-yield bonds reacted only
modestly to the major drop in Government and high-grade bond prices
since February, yield spreads tightened substantially. The yield
spread between ten-year US Treasury securities and the unmanaged
Merrill Lynch Master Index at December 31, 1995 was 400 basis points
(4%) as compared to only 307 basis points at May 31, 1996.
Historically, high-yield investors required a larger spread to
compensate for the greater credit risk of high-yield securities.
Although high-yield fundamentals remain sound, we expect spreads to
widen, causing underperformance in the high-yield market.
Furthermore, with fixed-income markets in a nervous transition
period while investors evaluate the potential for strong economic
growth in the second half of the year, we believe there is room for
further downside in fixed-income investments.
Fund Performance
For the year ended May 31, 1996, total investment return on the
Fund's Common Stock was +14.15%, based on a change in the per share
net asset value from $13.35 to $13.68, and assuming reinvestment of
$1.463 per share income dividends. For the six months ended May 31,
1996, total investment return for the Fund was +7.90%. During the
same period, the net annualized yield of the Fund's Common Stock was
10.71%.
Our shift toward B-rated credits over the past year paid off during
the May period. During the six-month period ended May 31, 1996, BB-
rated bonds significantly underperformed B-rated bonds in the high-
yield market, with BB-rated bonds posting a loss during the past
three months. Our allocation to B-rated bonds during the fiscal year
changed from November 30, 1995, 55.1% to May 31, 1996, 52%. This
shift toward lower-rated bonds reflected our belief that BB-rated
issuers were somewhat overvalued in 1995 because of their close link
with high-grade bonds and US Treasury securities. The first quarter
of 1996 correction brings them into a more appropriate valuation
relationship relative to B-rated bonds.
Another positive contributor to the Fund's performance during both
the past six months and the past year is our relative overweighting
in zero coupon bonds, which have meaningfully outperformed the high-
yield market as a whole. As of May 31, 1996, zero coupon bonds
totaled 22% of total long-term investments. In part this reflects
the high earnings trajectory of many emerging communications
companies that issue non-cash-paying high-yield bonds for financing
growth. However, the performance also reflects solid earnings growth
in companies such as Revlon, Coleman Holdings, Inc., Silgan
Holdings, Inc. (a bottle and can producer) and G-I Holdings Inc.
(owner of the GAF residential roofing business and of publicly
traded International Specialty Chemicals). The Fund has holdings of
both types, with the latter having considerably less volatility and
credit risk than is typically associated with zero coupon bonds.
<PAGE>
Leverage Strategy
For the six months ended May 31, 1996, the Fund was on average 14.2%
leveraged. In other words, the Fund borrowed the equivalent of 14.2%
of its total assets. On May 31, 1996, the Fund was 15.3% leveraged,
having borrowed $54 million of the $150 million credit line
available at an average borrowing cost of 5.94%. This represents a
decrease in borrowing from the 20% leverage of the Fund six months
ago on November 30, 1995. Our reduced leverage position reflects our
caution about the direction of high-yield bond prices. At this time
our borrowings are primarily invested in bonds that we believe have
limited downside risk from adverse interest rate moves or from
earnings disappointments. While such bonds generally have limited
upside as well, we enhanced the yield of the portfolio by earning
the modest spread between our borrowing cost and the yield on our
investments. Given our cautious view on the market and barring a
dramatic market move in one direction or the other, we expect to
maintain or reduce leverage in the coming months. (For a complete
explanation of the benefits and risks of leveraging, see page 1 of
this report to shareholders.)
Fund Strategy and Portfolio
Characteristics
Given our cautious stance on the high-yield market, we intend to
continue to seek bonds that provide a modest income pick up for
limited risk. We will also selectively participate in attractively
priced new issues and comb the market for attractively valued
situations. However, at this time, we do not expect major shifts in
the composition of the portfolio based on our market outlook.
At the end of the May period, major industries represented in the
portfolio as a percentage of total high-yield investments included:
communications, 12.1%; energy, 11.6%; utilities, 8.5%; paper, 5.9%
and consumer products, 5.9%. The average portfolio maturity at May
31, 1996 was 5 years, 11 months.
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
<PAGE>
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
(Elizabeth M. Phillips)
Elizabeth M. Phillips
Vice President and Portfolio Manager
July 1, 1996
<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--1.8% USAir Inc.:
BB B1 $ 2,771,366 11.20% due 3/19/2005** $ 2,438,802 $ 2,673,204
BB- B1 1,000,000 10.375% due 3/01/2013 955,000 980,000
BB+ Ba2 368,000 Series A, 10.33% due 6/27/2002 386,113 344,194
BB+ Ba2 740,000 Series C, 10.33% due 6/27/2002 776,423 692,129
BB+ Ba2 892,000 Series D, 10.33% due 6/27/2002 935,904 834,297
------------ ------------
5,492,242 5,523,824
Automobiles-- B B3 2,000,000 SPX, Inc., 11.75% due 6/01/2002 2,000,000 2,140,000
0.7%
<PAGE>
Broadcasting & BB Ba3 3,750,000 ++Grupo Televisa S.A., 11.375% due
Publishing-- 5/15/2003 3,750,000 3,787,500
4.4% B B3 5,000,000 Katz Corporation (The), 12.75%
due 11/15/2002 5,418,750 5,500,000
NR+++ NR+++ 3,904,346 SCI Television Inc., 7.50% due
6/30/1998 3,909,226 3,865,303
------------ ------------
13,077,976 13,152,803
Broadcasting/ CCC+ Caa 7,838,099 American Telecasting, Inc., 14.50%*
Cable--4.7% due 6/15/2004 5,367,909 5,682,622
CCC B3 3,922,000 Australis Media Ltd., 14%* due
5/15/2003 (d) 2,297,917 2,451,250
BB- B3 1,500,000 CAI Wireless Systems Inc., 12.25%
due 9/15/2002 1,500,000 1,575,000
B+ B3 6,160,000 Videotron Holdings PLC, 11.125%* due
7/01/2004 4,166,734 4,620,000
------------ ------------
13,332,560 14,328,872
Building BB B1 1,500,000 Building Materials Corporation,
Materials-- 11.065%* due 7/01/2004 1,103,983 1,117,500
1.9% B Caa 5,000,000 Inter-City Products Corp., 9.75% due
3/01/2000 4,836,250 4,600,000
------------ ------------
5,940,233 5,717,500
Chemicals-- B+ Ba3 3,050,000 G-I Holdings Inc., 11.375%* due
2.2% 10/01/1998 2,356,796 2,447,625
B- B3 2,573,000 Indspec Chemical Corp., 9.26%* due
12/01/2003 2,221,171 2,187,050
BB- B1 2,000,000 Veridian Inc., 9.75% due 4/01/2003 1,942,500 2,080,000
------------ ------------
6,520,467 6,714,675
Communications CCC+ B3 6,750,000 Cellular Communications, Inc., 11.89%*
- --13.7% due 8/15/2000 4,154,416 4,117,500
B+ B3 6,208,000 Comunicacion Celular, 13.154%* due
11/15/2003 3,518,134 3,911,040
NR+++ NR+++ 6,312,000 EchoStar Communications Corp., 13.615%*
due 6/01/2004 4,132,903 4,765,560
CCC+ B3 4,000,000 Nextel Communications Inc., 9.75%* due
8/15/2004 2,672,270 2,430,000
NR+++ NR+++ 3,750,000 ++Nextlink Communications, 12.50% due
4/15/2006 3,750,000 3,778,125
B- B3 9,285,000 PanAmSat L.P., 11.375%* due 8/01/2003 7,398,277 7,961,888
BB- B2 5,000,000 Rogers Communications Inc., 10.875%
due 4/15/2004 5,015,625 5,125,000
BB- B1 4,000,000 Telecom Argentina STET S.A., 8.375%
due 10/18/2000 3,213,050 3,880,000
BB- B1 5,000,000 Telefonica de Argentina S.A., 11.875%
due 11/01/2004 4,900,400 5,418,750
------------ ------------
38,755,075 41,387,863
<PAGE>
Conglomerates-- BB- B1 5,000,000 Coltec Industries, Inc., 10.25% due
3.4% 4/01/2002 5,325,000 5,150,000
Sequa Corp.:
BB B2 2,000,000 9.625% due 10/15/1999 2,055,000 1,980,000
B+ B3 3,000,000 9.375% due 12/15/2003 2,941,250 2,880,000
------------ ------------
10,321,250 10,010,000
Consumer B+ B3 3,000,000 Cabot Safety Corp., 12.50% due
Products-- 7/15/2005 3,000,000 3,360,000
6.8% B NR+++ 5,000,000 Coleman Holdings, Inc., 10.70%* due
5/27/1998 4,070,069 4,200,000
B- Caa 3,334,000 Polymer Group Inc., 12.25% due
7/15/2002 3,272,750 3,617,390
Revlon Consumer Products Corp.:
B B2 1,500,000 9.50% due 6/01/1999 1,369,579 1,507,500
B B2 1,500,000 9.375% due 4/01/2001 1,363,160 1,485,000
B- B3 3,500,000 Revlon Worldwide Corp., 12.59%* due
3/15/1998 2,814,195 2,870,000
B- B3 2,250,000 Samsonite Corporation, 11.125% due
7/15/2005 2,175,938 2,295,000
BBB B1 750,000 Tarkett International, 9% due 3/01/2002 686,250 761,250
------------ ------------
18,751,941 20,096,140
Consumer B B2 3,325,000 Affinity Group, Inc., 11.50% due
Services-- 10/15/2003 3,340,625 3,416,438
1.1%
Diversified-- B- B3 3,750,000 Crain Industries, 13.50% due 8/15/2005 3,770,625 3,937,500
1.3%
<PAGE>
Energy--13.1% B B2 3,375,000 ++Benton Oil & Gas Co., 11.625% due
5/01/2003 3,375,000 3,467,812
BB- Ba3 1,000,000 California Energy Company, Inc., 9.875%
due 6/30/2003 1,000,000 1,030,000
B+ B1 8,275,000 Clark R&M Holdings, Inc., 10.54%* due
2/15/2000 5,650,391 5,647,687
NR+++ NR+++ 6,500,000 Consolidated Hydro Inc., 12%* due
7/15/2003 5,098,533 1,365,000
BB B1 5,000,000 Gulf Canada Resources Ltd., 9% due
8/15/1999 4,950,000 5,025,000
B- B1 1,750,000 ++KCS Energy Inc., 11% due 1/15/2003 1,750,000 1,852,812
BBB- Baa3 5,000,000 ++Oleoducts Central S.A., 9.35% due
9/01/2005 5,000,000 4,887,500
NR+++ NR+++ 7,450,000 ++Trans Dakota Oil, 22%* due 8/31/1996 7,454,656 7,450,000
B- NR+++ 3,000,000 Transamerican Refining Corporation,
16.50% due 2/15/2002 3,001,395 2,700,000
BB+ B2 5,000,000 TransTexas Gas Corp., 11.50% due
6/15/2002 5,000,000 4,900,000
BB- B1 1,250,000 Yacimientos Petroliferos Fiscales S.A.
(Sponsored) (ADR), 8% due 2/15/2004 (b) 806,250 1,112,500
------------ ------------
43,086,225 39,438,311
Entertainment-- B Caa 6,000,000 Marvel Holdings Inc., 9.125% due
3.0% 2/15/1998 5,310,000 5,580,000
D Ca 6,985,000 SPI Holdings, Inc., 11.50%* due
10/01/2001 (c) 6,061,826 3,317,875
------------ ------------
11,371,826 8,897,875
Financial BB- B1 5,000,000 Reliance Group Holdings Inc., 9.75%
Services-- due 11/15/2003 5,008,750 4,950,000
1.6%
Food & B+ B3 4,250,000 Chiquita Brands International Inc.,
Beverage-- 11.50% due 6/01/2001 4,498,750 4,462,500
4.6% B+ B2 2,000,000 Coca-Cola Bottling Group, 9% due
11/15/2003 2,000,000 1,992,500
B B3 2,500,000 Curtice-Burns Foods, Inc., 12.25% due
2/01/2005 2,500,000 2,450,000
CCC+ Caa 5,000,000 Fresh Del Monte Produce, 10% due
5/01/2003 4,801,875 4,700,000
------------ ------------
13,800,625 13,605,000
Foreign BB- B1 4,000,000 Republic of Argentina, Global Bonds,
Government 8.375% due 12/20/2003 2,798,750 3,460,000
Obligations--
1.1%
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Gaming--6.0% BB B1 $ 2,500,000 Bally's Park Place, Inc., 9.25% due
3/15/2004 $ 2,116,250 $ 2,518,750
B+ B2 6,000,000 Greate Bay Property Funding Corp.,
10.875% due 1/15/2004 5,930,000 5,175,000
D Caa 5,000,000 Harrah's Jazz Company, 14.25% due
11/15/2001 (c) 5,000,000 2,275,000
B B2 3,000,000 Harvey's Casino Resorts, 10.625% due
6/01/2006 3,000,000 3,022,500
BB- B1 5,000,000 Trump Atlantic City, 11.25% due
5/01/2006 5,000,000 5,037,500
------------ ------------
21,046,250 18,028,750
Health B+ B1 2,550,000 MEDIQ PRN Life Support Services Inc.,
Services-- 12.125% due 7/01/1999 2,667,938 2,757,187
2.6% B+ B1 4,500,000 Quorum Health Group, 11.875% due
12/15/2002 4,972,500 4,995,000
------------ ------------
7,640,438 7,752,187
Metals & B- B2 4,200,000 Kaiser Aluminum & Chemical Corp.,
Mining-- 12.75% due 2/01/2003 4,389,000 4,536,000
5.1% B- B3 8,000,000 Maxxam Group, Inc., 12.25%* due 8/01/2003 6,184,607 5,760,000
NR+++ NR+++ 4,700,000 Renco Metals Inc., 12% due 7/15/2000 5,103,000 5,228,750
------------ ------------
15,676,607 15,524,750
Packaging-- Anchor Glass Container Corp.:
2.9% B+ Ba3 2,250,000 10.25% due 6/30/2002 1,567,500 1,687,500
B B3 4,250,000 9.875% due 12/15/2008 1,636,250 2,550,000
B- B3 4,592,000 Silgan Holdings, Inc., 12.122%*
due 12/15/2002 4,575,356 4,546,080
------------ ------------
7,779,106 8,783,580
Paper--6.6% B+ B2 4,000,000 Container Corporation of America,
9.75% due 4/01/2003 4,080,000 3,980,000
B B3 3,375,000 Crown Paper Co., 11% due 9/01/2005 3,142,969 3,189,375
BB- Ba3 2,000,000 Doman Industries Ltd., 8.75% due
3/15/2004 1,837,813 1,840,000
BB- Ba3 2,000,000 Repap New Brunswick, Inc., 9.875%
due 7/15/2000 2,000,000 1,940,000
B+ B1 3,000,000 Repap Wisconsin Finance, Inc., 9.25%
due 2/01/2002 2,638,750 2,790,000
B B3 2,250,000 Riverwood International Corp., 10.875%
due 4/01/2008 2,233,125 2,238,750
NR+++ NR+++ 4,000,000 S.D. Warren Co., 12% due 12/15/2004 4,000,000 4,200,000
------------ ------------
19,932,657 20,178,125
<PAGE>
Real Estate-- Rockefeller Center Properties, Inc.:
2.7% NR+++ NR+++ 6,975,000 11.075%* due 12/31/2000 4,315,110 4,394,250
NR+++ NR+++ 3,375,000 13% due 12/31/2000 3,392,052 3,390,500
------------ ------------
7,707,162 7,784,750
Restaurants & CCC+ Caa 4,500,000 Flagstar Corp., 11.375% due 9/15/2003 4,668,750 3,240,000
Food Services--
1.1%
Specialty B- B3 4,000,000 Specialty Retailers, Inc., 11%
Retailing-- due 8/15/2003 4,000,000 4,160,000
1.4%
Steel--2.6% B B1 3,500,000 Gulf States Steel Acquisition Corp.,
13.50% due 4/15/2003 3,424,412 3,185,000
B+ B1 2,500,000 WCI Steel, Inc., 10.50% due 3/01/2002 2,443,750 2,562,500
Weirton Steel Corp.:
B Ba2 250,000 10.875% due 10/15/1999 256,250 261,250
B B2 2,000,000 10.75% due 6/01/2005 1,880,000 1,920,000
------------ ------------
8,004,412 7,928,750
Supermarkets-- B- B3 1,137,000 Grand Union Co., 12% due 9/01/2004 1,151,284 1,068,780
0.4%
Textiles--0.9% NR+++ NR+++ 3,250,000 Decorative Home Accents, Inc., 13%
due 6/30/2002 3,232,535 2,697,500
Transportation BB- Ba2 4,000,000 Eletson Holdings, Inc., 9.25% due
Services--5.0% 11/15/2003 4,013,750 3,900,000
B- B3 4,250,000 Transtar Holdings L.P., 12.625%* due
12/15/2003 2,802,295 3,102,500
B B2 5,250,000 Trism Inc., 10.75% due 12/15/2000 5,000,625 4,987,500
B+ Ba3 3,150,000 Viking Star Shipping Co., Inc., 9.625%
due 7/15/2003 2,919,500 3,181,500
------------ ------------
14,736,170 15,171,500
<PAGE>
Utilities--9.6% B+ B1 2,954,000 Beaver Valley Funding Corp., 9% due
6/01/2017 2,281,160 2,392,149
CTC Mansfield Funding Corp.:
B+ Ba3 1,994,000 10.25% due 3/30/2003 1,850,060 2,036,313
B+ Ba3 3,000,000 11.125% due 9/30/2016 3,213,750 3,053,040
NR+++ B1 4,000,000 Metrogas S.A., 12% due 8/15/2000 3,997,500 4,215,000
BB Ba3 4,153,740 Midland Cogeneration Venture Limited
Partnership, 10.33% due 7/23/2002** 4,070,665 4,356,234
B+ B1 4,000,000 Texas-New Mexico Power Co., 10.75% due
9/15/2003 4,085,000 4,180,000
NR+++ NR+++ 4,000,000 Transportadora de Gas del Sur S.A.,
7.75% due 12/23/1998 3,544,687 3,895,000
NR+++ NR+++ 5,106,532 ++Tucson Electric & Power Co.,
10.21% due 1/01/2009** 4,798,574 4,854,218
------------ ------------
27,841,396 28,981,954
Waste D D 4,000,000 Mid-American Waste Systems, Inc.,
Management-- 12.25% due 2/15/2003 (c) 4,000,000 2,600,000
0.9%
Total Investments in Corporate
Bonds--113.2% 344,785,937 340,677,427
Shares Held Common Stock
Communications-- 37,404 EchoStar Communications Corp. 265,736 1,271,736
0.4%
Supermarkets-- 70,697 Grand Union Co. 4,152,500 468,368
0.2%
Textiles--0.0% 3,250 ++Decorative Home Accents, Inc. 24,965 22,750
Total Investments in Common
Stock--0.6% 4,443,201 1,762,854
Preferred Stock & Warrants
<PAGE>
Broadcasting & 95,665 K-III Communications Corp. 2,606,871 2,547,081
Publishing--0.9%
Broadcasting/ 45,725 American Telecasting, Inc. (Warrants) (a) -- 228,625
Cable--0.1%
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value
INDUSTRIES Held Preferred Stocks & Warrants Cost (Note 1a)
<S> <C> <S> <C> <C>
Communications-- 3,750 Cellular Communications International
0.0% Inc. (Warrants) (a) $ 90,489 $ 56,250
6,208 ++Comunicacion Celular (Warrants) (a) 6,782 7,760
------------ ------------
97,271 64,010
Energy--0.0% 16,835 Transamerican Refining Corporation
(Warrants) (a) 40,388 33,670
Steel--0.0% 3,500 ++Gulf States Steel Acquisition Corp.
(Warrants) (a) 38,087 875
Total Investments in Preferred Stock &
Warrants--1.0% 2,782,617 2,874,261
Face Amount Short-Term Securities
Commercial $ 996,000 Ford Motor Credit Co., 5.40% due
Paper***-- 0.3% 6/03/1996 996,000 996,000
Total Investments in Short-Term
Securities--0.3% 996,000 996,000
Total Investments--115.1% $353,007,755 346,310,542
============
Liabilities in Excess of Other
Assets--(15.1%) (45,406,135)
------------
Net Assets--100.0% $300,904,407
============
<PAGE>
<FN>
(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 Receipts (ADR).
(c)Non-income producing security.
(d)Each $1,000 face amount contains one warrant of Australis Media
Ltd.
*Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase by the Fund.
**Subject to principal paydowns.
***Commercial Paper is traded on a discount basis; the interest rate
shown is the discount rate paid at the time of purchase by the Fund.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
+++Not Rated.
++Restricted security as to resale. The value of the Fund's
investment in restricted securities was approximately $30,109,000,
representing 10.0% of net assets.
Acquisition Value
Issue Date(s) Cost (Note 1a)
Benton Oil & Gas Co., 11.625% due
5/01/2003 4/29/1996 $ 3,375,000 $ 3,467,812
Comunicacion Celular (Warrants) 11/17/1995 6,782 7,760
Decorative Home Accents, Inc. 6/30/1995-9/20/1995 24,965 22,750
Grupo Televisa S.A., 11.375%
due 5/15/2003 5/8/1996 3,750,000 3,787,500
Gulf States Steel Acquisition
Corp. (Warrants) 4/12/1995-6/30/1995 38,087 875
KCS Energy Inc., 11% due
1/15/2003 1/19/1996 1,750,000 1,852,812
Nextlink Communications, 12.50%
due 4/15/2006 4/18/1996 3,750,000 3,778,125
Oleoducts Central S.A., 9.35%
due 9/01/2005 6/21/1995 5,000,000 4,887,500
Trans Dakota Oil, 22% due 8/31/1996 3/22/1996 7,454,656 7,450,000
Tucson Electric & Power Co.,
10.21% due 1/01/2009 6/25/1993-7/28/1993 4,798,574 4,854,218
Total $29,948,064 $30,109,352
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of May 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$353,007,755) (Note 1a) $346,310,542
Cash 10
Receivables:
Interest $ 7,869,535
Securities sold 2,364,254 10,233,789
------------
Deferred organization expenses (Note 1e) 35,459
Prepaid expenses and other assets 35,654
------------
Total assets 356,615,454
------------
Liabilities: Loans (Note 5) 54,000,000
Payables:
Dividends to shareholders (Note 1f) 909,443
Interest on loans (Note 5) 457,876
Investment adviser (Note 2) 157,248
Commitment fees 29,481 1,554,048
------------
Accrued expenses and other liabilities 156,999
------------
Total liabilities 55,711,047
------------
Net Assets: Net assets $300,904,407
============
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized $ 2,199,610
Paid-in capital in excess of par 307,747,451
Undistributed investment income--net 2,782,777
Accumulated realized capital losses on investments--net (Note 6) (5,128,218)
Unrealized depreciation on investments--net (6,697,213)
------------
Total--Equivalent to $13.68 per share based on 21,996,104 shares
of capital stock outstanding (market price $13.375) $300,904,407
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended May 31, 1996
<S> <S> <C>
Investment Income Interest and discount earned $ 36,593,390
(Note 1d): Dividends 275,037
Other 544,734
------------
Total income 37,413,161
------------
Expenses: Loan interest expense (Note 5) 3,165,041
Investment advisory fees (Note 2) 1,727,545
Borrowing costs (Note 5) 242,982
Professional fees 94,139
Accounting services (Note 2) 90,893
Transfer agent fees 70,400
Printing and shareholder reports 50,853
Directors' fees and expenses 47,941
Custodian fees 28,888
Amortization of organization expenses (Note 1e) 17,235
Pricing services 7,342
Listing fees 375
Other 51,725
------------
Total expenses 5,595,359
------------
Investment income--net 31,817,802
------------
Realized & Realized gain on investments--net 3,786,936
Unrealized Gain on Change in unrealized depreciation on investments--net 3,322,391
Investments--Net ------------
(Notes 1b, Net Increase in Net Assets Resulting from Operations $ 38,927,129
1d & 3): ============
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended May 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 31,817,802 $ 33,990,666
Realized gain (loss) on investments--net 3,786,936 (9,784,578)
Change in unrealized depreciation on investments--net 3,322,391 13,263,210
------------ ------------
Net increase in net assets resulting from operations 38,927,129 37,469,298
------------ ------------
<PAGE>
Dividends to Investment income--net (31,825,075) (33,990,929)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends to
shareholders (31,825,075) (33,990,929)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends 6,516,883 11,066,549
(Note 4): Offering costs resulting from the issuance of Common Stock -- 3,582
------------ ------------
Net increase in net assets derived from capital stock transactions 6,516,883 11,070,131
------------ ------------
Net Assets: Total increase in net assets 13,618,937 14,548,500
Beginning of year 287,285,470 272,736,970
------------ ------------
End of year* $300,904,407 $287,285,470
============ ============
<FN>
*Undistributed investment income--net (Note 1g) $ 2,782,777 $ 2,668,306
============ ============
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
For the Year Ended May 31, 1996
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 38,927,129
Operating Adjustments to reconcile net increase (decrease) in net assets
Activities: resulting from operations to net cash provided by
operating activities:
Increase in receivables (759,625)
Decrease in other assets 26,988
Increase in other liabilities 243,077
Realized and unrealized gain on investments--net (7,109,327)
Amortization of discount (8,079,668)
------------
Net cash provided by operating activities 23,248,574
------------
Cash Used for Proceeds from sales of long-term investments 234,064,390
Investing Purchases of long-term investments (240,554,129)
Activities: Purchases of short-term investments (359,908,060)
Proceeds from sales and maturities of short-term investments 359,547,000
------------
Net cash used for investing activities (6,850,799)
------------
<PAGE>
Cash Used for Cash receipts from borrowings 169,000,000
Financing Cash payments on borrowings (161,000,000)
Activities: ------------
Dividends paid to shareholders (24,398,749)
------------
Net cash used for financing activities (16,398,749)
------------
Cash: Net decrease in cash (974)
Cash at beginning of year 984
------------
Cash at end of year $ 10
============
Cash Flow Cash paid for interest $ 2,984,792
Information: ============
Non-Cash Reinvestment of dividends paid to shareholders $ 6,516,883
Financing ============
Activities:
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the Period
The following per share data and ratios have been derived June 25,
from information provided in the financial statements. For the Year 1993++ to
Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1996++++ 1995++++ 1994
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.35 $ 13.21 $ 14.18
Operating -------- -------- --------
Performance: Investment income--net 1.46 1.62 1.30
Realized and unrealized gain (loss) on
investments--net .33 .14 (1.10)
-------- -------- --------
Total from investment operations 1.79 1.76 .20
-------- -------- --------
Less dividends from investment income--net (1.46) (1.62) (1.17)
-------- -------- --------
Net asset value, end of period $ 13.68 $ 13.35 $ 13.21
======== ======== ========
Market price per share, end of period $ 13.375 $ 13.625 $ 13.875
======== ======== ========
<PAGE>
Total Investment Based on market price per share 9.35% 11.67% .36%+++
Return:** ======== ======== ========
Based on net asset value per share 14.15% 14.92% 1.08%+++
======== ======== ========
Ratios to Average Expenses, excluding interest expense .70% .69% .68%*
Net Assets: ======== ======== ========
Expenses 1.62% 2.53% 1.76%*
======== ======== ========
Investment income--net 9.20% 9.03% 7.55%*
======== ======== ========
Leverage: Amount of borrowings (in thousands) $ 54,000 $ 46,000 $124,000
======== ======== ========
Average amount of borrowings outstanding during $ 49,424 $107,934 $ 98,601
the period (in thousands) ======== ======== ========
Average amount of borrowings outstanding per
share during the period $ 2.27 $ 5.13 $ 4.78
======== ======== ========
Supplemental Net assets, end of period (in thousands) $300,904 $287,285 $272,737
Data: ======== ======== ========
Portfolio turnover 65.68% 45.73% 45.82%
======== ======== ========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
*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.
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, which approximates market value.
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 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 ex-penses
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.
(g) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $121,744 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.
<PAGE>
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.
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended May 31, 1996, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of Merrill Lynch, Pierce,
Fenner, & Smith Inc. ("MLPF&S"), $4,919 for providing 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, 1996 were $236,669,129 and $221,444,284,
respectively.
Net realized and unrealized gains (losses) as of May 31, 1996 were
as follows:
Realized Unrealized
Gains Losses
Long-term investments $ 3,786,936 $ (6,697,213)
------------ ------------
Total $ 3,786,936 $ (6,697,213)
============ ============
<PAGE>
As of May 31, 1996, net unrealized depreciation for financial report-
ing and Federal income tax purposes aggregated $6,962,339, of which
$13,280,104 related to appreciated securities and $20,242,443
related to depreciated securities. The aggregate cost of investments
at May 31, 1996 for Federal income tax purposes was $353,272,881.
4. Capital 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, 1996, shares
issued and outstanding increased by 480,580 to 21,996,104 as a
result of dividend reinvestment. At May 31, 1996, total paid-in
capital amounted to $309,947,061.
5. Short-Term Borrowings:
On August 15, 1995, the Fund entered into a one-year loan commitment
in the amount of $150,000,000. For this commitment, the Fund pays
15%. For the year ended May 31, 1996, the maximum amount borrowed
was $75,000,000, the average amount borrowed was approximately
$49,424,000 and the daily weighted average interest rate was 6.40%.
For the year ended May 31, 1996, facility and commitment fees
aggregated approximately $242,982.
6. Capital Loss Carryforward:
At May 31, 1996, the Fund had a capital loss carryforward of
approximately $5,926,000, of which $4,106,000 expires in 2003 and
$1,820,000 expires in 2004. This amount will be available to offset
like amounts of any future taxable gains.
7. Subsequent Event:
On June 7, 1996, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.123530 per share, payable on June 28, 1996 to shareholders of
record as of June 18, 1996.
<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, 1996, the related statements of
operations for the year then ended, changes in net assets for each
of the years in the two year period then ended, and cash flows for
the year then ended, and the financial highlights for each of the
years in the the two-year period 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 responsi-
bility 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,
1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Corporate High Yield Fund, Inc. as of May 31, 1996, 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 1, 1996
</AUDIT-REPORT>
<TABLE>
PORTFOLIO INFORMATION (unaudited)
<CAPTION>
Ten Largest
Holdings
Percent of
Net Assets
<S> <S> <C>
Rockefeller Center These are secured bonds of the well-known New York office and retail
Properties, Inc. complex. 2.6%
11.075% 12/31/2000
13% 12/31/2000
PanAmSat L.P. PanAmSat operates communications satellites covering an area that includes
11.375% 8/01/2003 97% of the world's population, especially focused on Latin America and Asia.
Additional satellites are scheduled for launch in the coming years. 2.6
<PAGE>
Trans Dakota Oil This limited purpose subsidiary of TransTexas Gas holds publicly traded
22% 8/31/1996 TransTexas stock and gas-producing properties as security for the bonds. 2.5
EchoStar Publicly traded Echostar provides satellite-based television service
Communications Corp. throughout the US. 2.0
13.615% 6/01/2004 Service started March 1, 1996. As of June 30, 1996, the company had 50,000
(Common Stock) subscribers and experiences ongoing and rapid subscriber growth.
American Telecasting, Inc. This company is the largest wireless cable operator in the United States.
14.50% 6/15/2004 The company's total service area, when fully built-out, will cover over 8
(Warrants) million homes. Its largest operating markets are Denver, Portland, Orlando
and Columbus. 2.0
Revlon This well-known cosmetics and fragrance company recently completed a
9.50% 6/01/1999 successful initial public offering. 1.9
9.375% 4/01/2001
12.59% 3/15/1998
Maxxam Group, Inc. Maxxam is a holding company whose affiliate, Kaiser Aluminum is a leading
12.25% 8/01/2003 producer of aluminum. Kaiser's common stock secures these bonds. Through
subsidiaries, Pacific Lumber and Britt Lumber, Maxxam is the largest
producer of premium-grade redwood lumber in the world. 1.9
Clark R&M Holdings, Inc. Clark Oil is an independent refiner and marketer of petroleum products
10.54% 2/15/2000 in the Midwest.
The company operates gas stations under the Clark name. 1.9
Marvel Holdings Inc. Marvel is a holding company that controls 80% of the Marvel Entertainment.
9.125% 2/15/1998 Marvel Entertainment is the largest publisher of comic books, including
Spiderman and X-Men, and a leading marketer of sports. 1.9
USAir Inc. USAir is the sixth-largest US airline with major hubs in Pittsburgh,
10.33% 6/27/2002 Charlotte, Philadelphia, and Baltimore. Our investment is in equipment
(Series A, C, & D) trust certificates secured by modern, saleable aircraft. 1.8
11.20% 3/19/2005
10.375% 3/01/2013
</TABLE>
