CORPORATE
HIGH YIELD
FUND, INC.
FUND LOGO
Semi-Annual Report
November 30, 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
Printed on post-consumer recycled paper
CORPORATE HIGH YIELD FUND, INC.
The Benefits and
Risks of
Leveraging
<PAGE>
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
The quality ratings of securities in the Fund as of November 30,
1996 were as follows:
Percent of
Rating Net Assets
A 1%
B 62
BB 29
C 7
NR(Not Rated) 16
<PAGE>
DEAR SHAREHOLDER
High-Yield Market Overview
High-yield bonds turned in a respectable performance during the six-
month period ended November 30, 1996, but underperformed other
financial alternatives. The high-yield market, as measured by the
unmanaged Merrill Lynch High Yield Index II, returned +7.8% during
the six months ended November 30, 1996. This compares to the ten-
year Treasury bond which returned 9.1% and the unmanaged Standard &
Poor's 500 Index which returned +13.1% during the same six-month
period. We believe the relative underperformance of high-yield bonds
reflects the ongoing overvaluation of the high-yield market. As we
pointed out in our May 31, 1996 report to shareholders, the high-
yield market, as measured by the Merrill Lynch Master Index, stood
at a historically narrow spread of near 300 basis points (3.00%)
relative to ten-year Treasury bonds. Typically, investors in the
high-yield market have demanded a wider spread than this to
compensate for the greater credit risk of owning high-yield bonds.
While the spread between high-yield bonds and ten-year Treasury
bonds has widened to 337 basis points, we continue to believe that
the high-yield market will underperform in the next period.
Supporting the high-yield market in the past year has been a low
default rate of 0.62% for the first ten months of 1996 as compared
to 1.18% for the first ten months of last year. A receptive equity
market has allowed high-yield issuers to reduce debt, and
acquisition activity has favorably affected many bonds in our
universe. Cash flow levels into the high-yield market have supported
prices as high-yield mutual funds have taken in on average $1
billion per month through October 31, 1996.
Fund Performance
For the six months ended November 30, 1996, total investment return
on the Fund's Common Stock was +5.90%, based on a change in the per
share net asset value from $13.68 to $13.73, and assuming
reinvestment of $0.736 per share income dividends. During the same
period, the net annualized yield of the Fund's Common Stock was
10.59%.
Leverage Strategy
For the six months ended November 30, 1996, the Fund was on average
11.6% leveraged. In other words, the Fund borrowed on average the
equivalent of 11.6% of its total assets. On November 30, 1996, the
Fund was 15% leveraged, having borrowed $53.6 million of the $130
million credit line available at an average borrowing cost of 5.67%.
<PAGE>
Although we slightly increased the Fund's use of leverage, we have
attempted to mitigate the impact of any downturn in the market by
investing borrowings in bonds that we believe have limited downside
risk under most economic scenarios. While such bonds generally have
limited upside as well, we earn a modest incremental return on the
difference between the bond's coupon and the interest rate we pay on
our bank borrowings. Given our cautious outlook on the high-yield
market and our expectation that high-yield bonds will underperform
other fixed-income alternatives in the immediate future, we will
remain conservative in our use of leverage. (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 view on the future direction of the high-yield
market, we have made an effort to modestly upgrade the quality of
the portfolio, adding to the BB-rated category when we were able to
find bonds at a good value. Among BB-rated names which we added are
Advanced Micro Devices Inc., First PV Funding (an electric utility
in New Mexico), Lenfest Communications, Inc. (a cable TV company),
and Building Materials Corporation of America (the manufacturer of
Timberline roofing).
At the end of the November 30, 1996 period, major industries
represented in the portfolio as a percentage of total long-term
investments included: communications, 16.1%; energy, 11.6%;
utilities, 8.6%; broadcasting/ cable, 7.6%; and paper, 6.5%. The
average maturity of the portfolio at November 30, 1996 was 6 years,
3 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
December 24, 1996
Proxy Results
During the six-month period ended November 30, 1996, Corporate High
Yield Fund, Inc. stockholders voted on the following proposals. The
proposals were approved at the annual stockholders' meeting on
September 9, 1996. The description of each proposal and number of
shares voted are as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Joe Grills 21,366,998 512,887
Walter Mintz 21,362,819 517,066
Robert S. Salomon Jr. 21,362,849 517,036
Melvin R. Seiden 21,364,327 515,558
Stephen B. Swensrud 21,366,444 513,441
Arthur Zeikel 21,361,058 518,827
<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. 21,352,862 127,880 399,143
</TABLE>
<PAGE>
<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.:
B+ B1 $ 2,760,056 11.20% due 3/19/2005** $ 2,428,849 $ 2,935,540
B+ B1 500,000 10.375% due 3/01/2013 477,500 510,000
B+ B1 368,000 Series A, 10.33% due 6/27/2002 386,113 372,320
B+ B1 740,000 Series C, 10.33% due 6/27/2002 776,423 748,688
B+ B1 892,000 Series D, 10.33% due 6/27/2002 935,904 902,472
------------ ------------
5,004,789 5,469,020
Automotive--0.7% B B3 1,875,000 Collins & Aikman Corp., 11.50% due 4/15/2006 1,875,000 2,001,563
Broadcasting & B- B2 3,750,000 EZ Communications, Inc., 9.75% due 12/01/2005 3,796,875 3,796,875
Publishing--6.1% BB Ba3 3,750,000 Grupo Televisa S.A., 11.375% due 5/15/2003 3,750,000 3,989,063
B B3 5,000,000 Katz Corporation (The), 12.75% due 11/15/2002 5,418,750 5,581,250
NR+++ NR+++ 3,904,346 SCI Television Inc., 8.50% due 6/30/1998 3,909,226 3,904,346
B B2 1,500,000 Sinclair Broadcast Group, Inc., 10% due
9/30/2005 1,483,125 1,515,000
------------ ------------
18,357,976 18,786,534
Broadcasting/ CCC+ Caa 7,463,099 American Telecasting, Inc., 13.651%* due
Cable--8.5% 6/15/2004 5,432,071 4,627,121
CCC Caa 6,922,000 Australis Media Ltd., 14.12%* due
5/15/2003 (b) 4,309,295 3,634,050
B+ B2 1,500,000 Bell Cablemedia PLC, 9.898%* due 7/15/2004 1,254,599 1,282,500
B B2 3,000,000 ++Intermedia Capital Partners LP, 11.25%
due 8/01/2006 3,011,250 3,030,000
NR+++ NR+++ 3,500,000 International Cabletel Inc., Series B,
11.643%* due 2/01/2006 2,174,647 2,240,000
BB- B2 3,000,000 Lenfest Communications, Inc., 10.50% due
6/15/2006 3,043,125 3,150,000
B+ B3 6,160,000 Videotron Holdings PLC, 11.125%* due
7/01/2004 4,410,750 5,297,600
B B3 5,747,000 Wireless One Inc., 13.50%* due 8/01/2006 (e) 3,123,239 2,816,030
------------ ------------
26,758,976 26,077,301
Building BB B1 5,500,000 Building Materials Corporation of America,
Materials--2.2% 10.466%* due 7/01/2004 4,416,452 4,730,000
BB B1 1,875,000 ++CEMEX S.A. de C.V., 12.75% due 7/15/2006 1,875,000 2,085,938
------------ ------------
6,291,452 6,815,938
<PAGE>
Chemicals--0.7% BB+ Ba3 2,000,000 Veridian Inc., 9.75% due 4/01/2003 1,942,500 2,180,000
Communications-- B+ B2 3,750,000 Call-Net Enterprises Inc., 10.927%* due
17.9% 12/01/2004 2,945,436 3,046,875
CCC+ B3 6,750,000 Cellular Communications, Inc., 11.89%* due
8/15/2000 4,389,273 4,455,000
NR+++ Caa 3,000,000 Cencall Communications Corp., 13.935%* due
1/15/2004 1,950,960 1,995,000
NR+++ NR+++ 2,500,000 ++Comtel Brasileir Ltd., 10.75% due
9/26/2004 2,500,000 2,583,750
B+ B3 6,208,000 Comunicacion Celular, 13.154%* due
11/15/2003 3,741,349 4,112,800
NR+++ NR+++ 6,312,000 EchoStar Communications Corp., 13.615%*
due 6/01/2004 4,411,488 5,112,720
NR+++ NR+++ 5,000,000 Microcell Telecommunications Inc., 13.471%*
due 6/01/2006 2,647,547 2,700,000
B- B3 3,750,000 Millicom International Cellular S.A.,
14.162%* due 6/01/2006 1,981,943 2,231,250
B- B3 3,850,000 Nextel Communications Inc., 13.675%* due
8/15/2004 2,453,669 2,545,812
NR+++ NR+++ 3,750,000 Nextlink Communications Inc., 12.50% due
4/15/2006 3,750,000 3,946,875
B B3 9,285,000 PanAmSat L.P., 11.375%* due 8/01/2003 7,791,725 8,542,200
BB- B2 5,000,000 Rogers Communications Inc., 10.875% due
4/15/2004 5,015,625 5,250,000
BB- B1 5,000,000 Telefonica de Argentina S.A., 11.875% due
11/01/2004 4,900,400 5,506,250
B- B3 3,000,000 ++Western Wireless Corp., 10.50% due
2/01/2007 2,987,813 3,093,750
------------ ------------
51,467,228 55,122,282
Computer BB- Ba1 3,000,000 Advanced Micro Devices Inc., 11% due
Services--1.7% 8/01/2003 3,116,250 3,247,500
B B2 2,000,000 ++Celestica International Inc., 10.50% due
12/31/2006 2,000,000 2,065,000
------------ ------------
5,116,250 5,312,500
Conglomerates-- B+ B1 5,000,000 Coltec Industries, Inc., 10.25% due
3.4% 4/01/2002 5,325,000 5,312,500
Sequa Corp.:
B+ B1 2,000,000 9.625% due 10/15/1999 2,055,000 2,050,000
B+ B3 3,000,000 9.375% due 12/15/2003 2,941,250 3,075,000
------------ ------------
10,321,250 10,437,500
<PAGE>
Consumer Products-- B NR+++ 5,000,000 Coleman Holdings, Inc., 10.70%* due
4.8% 5/27/1998 4,284,050 4,200,000
B- B2 4,459,000 Polymer Group Inc., 12.25% due 7/15/2002 4,501,813 4,904,900
Revlon Consumer Products Corp.:
B B2 1,500,000 9.50% due 6/01/1999 1,372,365 1,545,000
B B2 1,500,000 9.375% due 4/01/2001 1,364,932 1,533,750
B- B2 2,250,000 Samsonite Corporation, 11.125% due 7/15/2005 2,175,938 2,452,500
------------ ------------
13,699,098 14,636,150
Consumer Services-- B B2 3,325,000 Affinity Group, Inc., 11.50% due 10/15/2003 3,340,625 3,478,781
1.1%
Diversified--1.4% NR+++ B3 3,750,000 Crain Industries Inc., 13.50% due 8/15/2005 3,770,625 4,209,375
Energy--12.9% B B2 3,375,000 Benton Oil & Gas Co., 11.625% due 5/01/2003 3,375,000 3,712,500
BB B2 1,000,000 California Energy Company, Inc., 9.875%
due 6/30/2003 1,000,000 1,042,500
B+ B1 4,275,000 Clark R&M Holdings, Inc., 10.536%* due
2/15/2000 3,071,287 3,078,000
NR+++ NR+++ 6,500,000 Consolidated Hydro Inc., 12%* due 7/15/2003 5,396,174 1,950,000
BB+ Ba2 5,000,000 Gulf Canada Resources Ltd., 9% due 8/15/1999 4,950,000 5,275,000
B- B1 3,250,000 KCS Energy Inc., 11% due 1/15/2003 3,338,125 3,388,125
BB- B1 2,250,000 Maxus Energy Corp., 11.50% due 11/15/2015 2,345,625 2,362,500
BBB- Baa3 5,000,000 ++Oleoducts Central S.A., 9.35% due 9/01/2005 5,000,000 5,200,000
NR+++ NR+++ 4,000,000 ++Transamerican Exploration, 14% due 9/19/1998 3,960,000 4,000,000
CCC+ Caa 3,000,000 Transamerican Refining Corporation, 16.50%
due 2/15/2002 3,003,333 2,992,500
BB- Ba3 5,000,000 TransTexas Gas Corp., 11.50% due 6/15/2002 5,000,000 5,425,000
BB- B1 1,250,000 Yacimientos Petroliferos Fiscales S.A.
(ADR), 8% due 2/15/2004 (d) 806,250 1,187,500
------------ ------------
41,245,794 39,613,625
Financial Services-- BB- B1 5,000,000 Reliance Group Holdings Inc., 9.75% due
1.7% 11/15/2003 5,008,750 5,175,000
</TABLE>
<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>
Food & Beverage-- B+ B1 $ 2,000,000 Coca-Cola Bottling Group, 9% due 11/15/2003 $ 2,000,000 $ 2,040,000
3.0% B B3 2,500,000 Curtice-Burns Foods, Inc., 12.25% due
2/01/2005 2,500,000 2,575,000
CCC+ Caa 5,000,000 Fresh Del Monte Produce, 10% due 5/01/2003 4,801,875 4,775,000
------------ ------------
9,301,875 9,390,000
<PAGE>
Foreign Government BB- B1 4,000,000 Republic of Argentina, Global Bonds, 8.375%
Obligations--1.2% due 12/20/2003 2,798,750 3,720,000
Gaming--6.0% BB Ba3 2,500,000 Bally's Park Place, Inc., 9.25% due
3/15/2004 2,116,250 2,755,250
A A3 3,000,000 California Hotel Finance Corp., 11% due
12/01/2002 3,135,000 3,112,500
B+ B2 6,000,000 Greate Bay Property Funding Corp., 10.875%
due 1/15/2004 5,930,000 5,160,000
D Caa 5,000,000 Harrah's Jazz Company, 14.25% due
11/15/2001 (c) 5,000,000 2,625,000
BB- B1 5,000,000 Trump Atlantic City, 11.25% due 5/01/2006 5,000,000 4,725,000
------------ ------------
21,181,250 18,377,750
Health Services-- B B3 3,000,000 ++Imed Corp., 9.75% due 12/01/2006 3,022,500 3,022,500
2.6% B+ B1 4,500,000 Quorum Health Group, 11.875% due 12/15/2002 4,972,500 4,966,875
------------ ------------
7,995,000 7,989,375
Home-Builders-- B+ B1 2,250,000 Ryland Group, Inc., 10.50% due 7/01/2006 2,215,958 2,317,500
0.7%
Metals & Mining-- B- B2 4,200,000 Kaiser Aluminum & Chemical Corp., 12.75%
3.7% due 2/01/2003 4,389,000 4,431,000
B- B3 8,000,000 Maxxam Group, Inc., 12.25%* due 8/01/2003 6,560,557 6,800,000
------------ ------------
10,949,557 11,231,000
Packaging--0.6% Anchor Glass Container Corp.:
CCC- Caa 2,250,000 10.25% due 6/30/2002 1,567,500 1,485,000
CCC- Ca 4,250,000 9.875% due 12/15/2008 1,636,250 276,250
------------ ------------
3,203,750 1,761,250
Paper--7.3% B+ B1 4,000,000 Container Corporation of America, 9.75%
due 4/01/2003 4,080,000 4,170,000
B B3 3,375,000 Crown Paper Co., 11% due 9/01/2005 3,142,969 3,113,437
BB- Ba3 2,750,000 Doman Industries Ltd., 8.75% due 3/15/2004 2,515,625 2,564,375
Repap New Brunswick, Inc.:
BB- B1 2,000,000 9.875% due 7/15/2000 2,000,000 1,980,000
B+ B3 1,500,000 10.625% due 4/15/2005 1,421,250 1,455,000
BB- B2 3,000,000 Repap Wisconsin Finance, Inc., 9.25% due
2/01/2002 2,638,750 2,932,500
B B3 2,250,000 Riverwood International Corp., 10.875% due
4/01/2008 2,233,125 2,025,000
B+ B1 4,000,000 S.D. Warren Co., 12% due 12/15/2004 4,000,000 4,200,000
------------ ------------
22,031,719 22,440,312
<PAGE>
Printing & B B3 2,250,000 MDC Communications Corp., 10.50% due
Publishing--0.7% 12/01/2006 2,250,000 2,250,000
Real Estate--1.4% NR+++ NR+++ 6,975,000 Rockefeller Center Properties, Inc.
(Convertible), 11.075%* due 12/31/2000 4,535,884 4,219,875
Specialty Retailing-- B- B3 4,000,000 Specialty Retailers, Inc., 11% due
1.4% 8/15/2003 4,000,000 4,160,000
Supermarkets--0.2% B- B3 637,000 Grand Union Co., 12% due 9/01/2004 645,002 661,684
Textiles--0.7% B- Caa 3,250,000 Decorative Home Accents, Inc., 13% due
6/30/2002 3,232,535 2,145,000
Transportation--0.7% BB Ba2 2,250,000 Transportacion Maritima Mexicana S.A. de
C.V., 10% due 11/15/2006 2,241,562 2,269,687
Transportation BB- Ba2 4,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 4,013,750 4,020,000
Services--6.4% BB- B1 3,750,000 Sea Containers Ltd., 12.50% due 12/01/2004 4,106,250 4,106,250
B- B3 4,250,000 Transtar Holdings L.P., 12.625%* due
12/15/2003 2,968,133 3,230,000
B B2 5,250,000 Trism Inc., 10.75% due 12/15/2000 5,000,625 5,013,750
BB Ba2 3,150,000 Viking Star Shipping Co., Inc., 9.625% due
7/15/2003 2,919,500 3,291,750
------------ ------------
19,008,258 19,661,750
Utilities--9.5% B+ B1 2,954,000 Beaver Valley Funding Corp., 9% due
6/01/2017 2,281,160 2,907,474
CTC Mansfield Funding Corp.:
B+ Ba3 1,994,000 10.25% due 3/30/2003 1,850,060 2,037,350
B+ Ba3 3,000,000 11.125% due 9/30/2016 3,213,750 3,316,890
B Ba3 3,116,000 First PV Funding, 10.30% due 1/15/2014 3,316,409 3,302,960
BB- B1 4,000,000 Metrogas S.A., 12% due 8/15/2000 3,997,500 4,325,000
BB- Ba3 3,879,091 Midland Cogeneration Venture Limited
Partnership, 10.33% due 7/23/2002** 3,801,509 4,121,534
B+ B1 4,000,000 Texas-New Mexico Power Co., 10.75% due
9/15/2003 4,085,000 4,300,000
NR+++ NR+++ 5,106,532 ++Tucson Electric & Power Co., 10.21% due
1/01/2009** 4,798,574 5,005,627
------------ ------------
27,343,962 29,316,835
Waste Management-- D Ca 4,000,000 Mid-American Waste Systems, Inc., 12.25%
0.5% due 2/15/2003 (c) 4,000,000 1,600,000
Total Investments in Corporate Bonds--111.5% 341,135,375 342,827,587
Shares Held Common Stocks
Broadcasting--1.0% 191,747 On Command Corp. 5,573,706 3,115,889
<PAGE>
Communications-- 37,404 EchoStar Communications Corp. 265,736 981,855
0.4%
Supermarkets--0.1% 70,697 Grand Union Co. 4,152,500 406,508
Textiles--0.0% 3,250 ++Decorative Home Accents, Inc. 24,965 17,875
Total Investments in Common Stocks--1.5% 10,016,907 4,522,127
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value
INDUSTRIES Held Preferred Stocks & Warrants Cost (Note 1a)
<S> <C> <S> <C> <C>
Broadcasting--1.1% 61,015 On Command Corp. (Warrants) (a) $ 488,120 $ 366,090
3,000 ++Paxson Communications Corp. (Convertible) 3,000,000 2,820,000
------------ ------------
3,488,120 3,186,090
Broadcasting & 95,665 K-III Communications Corp. 2,606,871 2,570,997
Publishing--0.8%
Broadcasting/Cable-- 45,725 American Telecasting, Inc. (Warrants) (a) 0 91,450
0.0%
Communications-- 3,750 Cellular Communications International Inc.
0.1% (Warrants) (a) 90,489 56,250
6,208 ++Comunicacion Celular (Warrants) (a) 6,782 45,008
20,000 Microcell Telecommunications Inc.
(Warrants) (a) 281,574 120,000
20,000 Microcell Telecommunications Inc.
(Warrants) (a) 0 5,000
------------ ------------
378,845 226,258
Energy--0.0% 16,835 Transamerican Refining Corporation
(Warrants) (a) 40,388 33,670
Total Investments in Preferred Stocks &
Warrants--2.0% 6,514,224 6,108,465
Face Amount Short-Term Securities
<PAGE>
Commercial $104,000 General Electric Capital Corp., 5.70% due
Paper***--0.0% 12/02/1996 104,000 104,000
Total Investments in Short-Term Securities
--0.0% 104,000 104,000
Total Investments--115.0% $357,770,506 353,562,179
============
Liabilities in Excess of Other Assets--
(15.0%) (46,083,612)
------------
Net Assets--100.0% $307,478,567
============
<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)Each $1,000 face amount contains one warrant of Australis
Media Ltd.
(c)Non-income producing security.
(d)American Depositary Receipts (ADR).
(e)Each $1,000 face amount contains one warrant of Wireless
One Inc.
*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.
+++Not Rated.
++Restricted securities as to resale. The value of the
Fund's investment in restricted securities was
approximately $32,969,000, representing 10.7% of net
assets.
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <S> <C> <C>
CEMEX S.A. de C.V., 12.75% due 7/15/2006 7/16/1996 $ 1,875,000 $ 2,085,938
Celestica International Inc., 10.50%
due 12/31/2006 11/12/1996 2,000,000 2,065,000
Comunicacion Celular (Warrants) 11/17/1995 6,782 45,008
Comtel Brasileir Ltd., 10.75% due 9/26/2004 9/18/1996 2,500,000 2,583,750
Decorative Home Accents, Inc. 6/30/1995-
9/20/1995 24,965 17,875
Imed Corp., 9.75% due 12/01/2006 11/21/1996 3,022,500 3,022,500
Intermedia Capital Partners LP, 11.25%
due 8/01/2006 11/21/1996 3,011,250 3,030,000
Oleoducts Central S.A., 9.35% due 9/01/2005 6/21/1995 5,000,000 5,200,000
Paxson Communications Corp. (Convertible) 10/01/1996 3,000,000 2,820,000
Transamerican Exploration, 14% due 9/19/1998 9/17/1996 3,960,000 4,000,000
Tucson Electric & Power Co., 10.21% due
1/01/2009 6/25/1993-
7/28/1993 4,798,574 5,005,627
Western Wireless Corp., 10.50% due 2/01/2007 10/18/1996-
10/24/1996 2,987,813 3,093,750
Total $32,186,884 $32,969,448
=========== ===========
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of November 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$357,770,506) (Note 1a) $353,562,179
Receivables:
Interest $ 7,009,386
Securities sold 1,012,500 8,021,886
------------
Deferred organization expenses (Note 1e) 35,459
Prepaid expenses and other assets 1,542,148
------------
Total assets 363,161,672
------------
Liabilities: Loans (Note 5) 53,600,000
Payables:
Interest on loans (Note 5) 387,858
Investment adviser (Note 2) 147,029 534,887
------------
Accrued expenses and other liabilities 1,548,218
------------
Total liabilities 55,683,105
------------
Net Assets: Net assets $307,478,567
============
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized $ 2,239,860
Paid-in capital in excess of par 313,203,056
Undistributed investment income--net 2,681,474
Accumulated realized capital losses on investments--net (Note 6) (6,437,496)
Unrealized depreciation on investments--net (4,208,327)
------------
Total--Equivalent to $13.73 per share based on 22,398,601 shares
of capital stock outstanding (market price $14.25) $307,478,567
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended November 30, 1996
<S> <S> <C>
Investment Income Interest and discount earned $ 18,223,179
(Note 1d): Dividends 137,519
Other 127,535
------------
Total income 18,488,233
------------
Expenses: Loan interest expense (Note 5) 1,126,951
Investment advisory fees (Note 2) 850,623
Borrowing costs (Note 5) 87,590
Professional fees 45,667
Transfer agent fees 32,184
Accounting services (Note 2) 28,903
Printing and shareholder reports 26,864
Directors' fees and expenses 21,366
Custodian fees 13,780
Amortization of organization expenses (Note 1e) 9,122
Pricing services 4,029
Listing fees 133
Other 22,260
------------
Total expenses 2,269,472
------------
Investment income--net 16,218,761
------------
Realized & Realized loss on investments--net (1,309,278)
Unrealized Change in unrealized depreciation on investments--net 2,488,886
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 17,398,369
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Nov. 30, 1996 May 31, 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 16,218,761 $ 31,817,802
Realized gain (loss) on investments--net (1,309,278) 3,786,936
Change in unrealized depreciation on investments--net 2,488,886 3,322,391
------------ ------------
Net increase in net assets resulting from operations 17,398,369 38,927,129
------------ ------------
Dividends to Investment income--net (16,320,064) (31,825,075)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends to
shareholders (16,320,064) (31,825,075)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends 5,495,855 6,516,883
(Note 4): ------------ ------------
Net increase in net assets derived from capital stock transactions 5,495,855 6,516,883
------------ ------------
Net Assets: Total increase in net assets 6,574,160 13,618,937
Beginning of period 300,904,407 287,285,470
------------ ------------
End of period* $307,478,567 $300,904,407
============ ============
<FN>
*Undistributed investment income--net $ 2,681,474 $ 2,782,777
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
For the Six Months Ended November 30, 1996
<S> <S> <C>
Cash Provided by Net increase in net assets resulting from operations $ 17,398,369
Operating Adjustments to reconcile net increase (decrease) in net assets resulting from
Activities: operations to net cash provided by operating activities:
Decrease in receivables 860,149
Increase in other assets (1,506,494)
Increase in other liabilities 1,281,501
Realized and unrealized gain on investments--net (1,179,608)
Amortization of discount (4,811,787)
------------
Net cash provided by operating activities 12,042,130
------------
<PAGE>
Cash Provided by Proceeds from sales of long-term investments 107,260,765
Investing Purchases of long-term investments (108,093,107)
Activities: Purchases of short-term investments (144,616,146)
Proceeds from sales and maturities of short-term investments 145,540,000
------------
Net cash provided by investing activities 91,512
------------
Cash Used for Cash receipts from borrowings 67,000,000
Financing Cash payments on borrowings (67,400,000)
Activities: Dividends paid to shareholders (11,733,652)
------------
Net cash used for financing activities (12,133,652)
------------
Cash: Net decrease in cash (10)
Cash at beginning of period 10
------------
Cash at end of period $ 0
============
Cash Flow Cash paid for interest $ 1,196,969
Information: ============
Non-Cash Financing Reinvestment of dividends paid to shareholders $ 5,495,855
Activities: ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
The following per share data and ratios have been For the Period
derived from information provided in the financial Six Months June 25,
statements. Ended For the Year 1993++ to
Nov. 30, Ended May 31, May 31,
Increase (Decrease) in Net Asset Value: 1996++++ 1996++++ 1995++++ 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.68 $ 13.35 $ 13.21 $ 14.18
Operating -------- -------- -------- --------
Performance: Investment income--net .73 1.46 1.62 1.30
Realized and unrealized gain (loss) on investments
--net .06 .33 .14 (1.10)
-------- -------- -------- --------
Total from investment operations .79 1.79 1.76 .20
-------- -------- -------- --------
Less dividends from investment income--net (.74) (1.46) (1.62) (1.17)
-------- -------- -------- --------
Net asset value, end of period $ 13.73 $ 13.68 $ 13.35 $ 13.21
======== ======== ======== ========
Market price per share, end of period $ 14.25 $ 13.375 $ 13.625 $ 13.875
======== ======== ======== ========
<PAGE>
Total Investment Based on market price per share 12.42%+++ 9.35% 11.67% .36%+++
Return:** ======== ======== ======== ========
Based on net asset value per share 5.90%+++ 14.15% 14.92% 1.08%+++
======== ======== ======== ========
Ratios to Average Expenses, excluding interest expense .67%* .70% .69% .68%*
Net Assets: ======== ======== ======== ========
Expenses 1.33%* 1.62% 2.53% 1.76%*
======== ======== ======== ========
Investment income--net 9.53%* 9.20% 9.03% 7.55%*
======== ======== ======== ========
Leverage: Amount of borrowings (in thousands) $ 53,600 $ 54,000 $ 46,000 $124,000
======== ======== ======== ========
Average amount of borrowings outstanding during
the period (in thousands) $ 39,232 $ 49,424 $107,934 $ 98,601
======== ======== ======== ========
Average amount of borrowings outstanding per
share during the period $ 1.77 $ 2.27 $ 5.13 $ 4.78
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $307,479 $300,904 $287,285 $272,737
Data: ======== ======== ======== ========
Portfolio turnover 31.40% 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
<PAGE>
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. 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 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.
(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.
NOTES TO FINANCIAL STATEMENTS (concluded)
(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.
<PAGE>
(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.
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 borrow-ings used for leverage.
For the six months ended November 30, 1996, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), $2,456 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 six months ended November 30, 1996 were $108,093,107 and
$105,909,011, respectively.
Net realized and unrealized losses as of November 30, 1996 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $(1,309,278) $ (4,208,327)
----------- ------------
Total $(1,309,278) $ (4,208,327)
=========== ============
<PAGE>
As of November 30, 1996, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $4,208,327, of
which $16,983,458 related to appreciated securities and $21,191,785
related to depreciated securities. The aggregate cost of investments
at November 30, 1996 for Federal income tax purposes was
$357,770,506.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of Common Stock,
par value $.10 per share. For the six months ended November 30,
1996, shares issued and outstanding increased by 402,497 to
22,398,601 as a result of dividend reinvestment. At November 30,
1996, total paid-in capital amounted to $315,442,916.
5. Short-Term Borrowings:
On August 13, 1996, the Fund extended its credit agreement with
Merrill Lynch International Bank Limited, an affiliate of MLPF&S.
The agreement is a $130,000,000 credit facility bearing interest at
the Federal Funds Rate plus .25% and/or LIBOR plus .25%. For the six
months ended November 30, 1996, the maximum amount borrowed was
$54,000,000, the average amount borrowed was approximately
$39,232,000 and the daily weighted average interest rate was 5.76%.
For the six months ended November 30, 1996, facility and commitment
fees aggregated approximately $87,590.
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 December 2, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $0.115939 per share, payable on December 19, 1996 to shareholders
of record as of December 12, 1996.
<TABLE>
PORTFOLIO INFORMATION
<CAPTION>
Percent of Total
Long-Term Assets
<S> <S> <S> <C>
Ten Largest PanAmSat L.P. PanAmSat operates communications satellites covering an area
Holdings 11.375% 8/01/2003 that includes 97% of the world's population, especially
focused on Latin America and Asia. The company recently
agreed to be acquired by Hughes Galaxy. 2.8%
<PAGE>
Maxxam Group, Inc. Maxxam is a holding company whose affiliate, Kaiser Aluminum,
12.25% 8/01/2003 is a leading 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. 2.2
Katz Corporation (The) Katz is the largest broadcast media representation firm in the
12.75% 11/15/2002 United States. The company sells and markets national spot
advertising air time for television and radio stations. 1.8
Telefonica de Telefonica de Argentina provides monopoly telephone service to
Argentina S.A. the southern half of Argentina, including about half the
11.875% 11/01/2004 Buenos Aires metropolitan area where nearly one third of
Argentina's population is located. 1.8
USAir Inc. USAir is the sixth-largest US airline with major hubs in
10.33% 6/27/2002 Pittsburgh, Charlotte, Philadelphia and Baltimore. Our
11.20% 3/19/2005 investment is in equipment Trust certificates secured by
10.375% 3/01/2013 modern, saleable aircraft. 1.8
TransTexas Gas Corp. TransTexas is an independent exploration and production company
11.50% 6/15/2002 with operations primarily in the Lower Wilcox Lobo Trend in
south Texas. The company also owns a pipeline and gathering
system and a drilling services operation. 1.8
CTC Mansfield Funding CTC Mansfield is a subsidiary of Centerior Energy Corp., a
Corp. utility in the Midwest that has recently agreed to merge with
10.25% 3/30/2003 Ohio Edison Co. Our bonds are secured lease obligation bonds
11.125% 9/30/2016 secured by an economically viable, fully scrubbed, coal-fired
power generating plant. 1.7
Coltec Industries, Coltec is a conglomerate operating in the aerospace, automotive
Inc. and industrial sectors. Products are targeted at both original
10.25% 4/01/2002 equipment manufacturers and the aftermarket. 1.7
Videotron Holdings Videotron is a start-up cable TV/telephone company operating
PLC primarily in London. The company is owned 56% by Le Groupe
11.125% 7/01/2004 Videotron Ltee of Canada and 26% by a partnership between Bell
Canada and Cable and Wireless PLC. Le Groupe Videotron has
agreed to sell its stake to Bell Cablemedia and Cable and
Wireless. 1.7
Gulf Canada Resources This company is one of Canada's leading independent producers
Ltd. of crude oil, natural gas liquids and natural gas. Gulf Canada's
9% 8/15/1999 oil and gas exploration activities are focused primarily in
western Canada. 1.7
</TABLE>
<PAGE>
