CORPORATE
HIGH YIELD
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
May 31, 1998
<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.
Portfolio Profile
As of May 31, 1998
The quality ratings* of securities in the Fund as of May 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Ratings/Moody's Ratings Long-Term Investments
- --------------------------------------------------------------------------------
BBB/Baa............................................................ 5.3%
BB/Ba.............................................................. 24.2
B/B................................................................ 61.0
CCC/Caa............................................................ 3.1
NR (Not Rated)..................................................... 6.4
- --------------------------------------------------------------------------------
* In cases where bonds are rated differently by Standard & Poor's Corp. and
Moody's Investors Service, Inc., bonds are categorized according to the
higher of the two ratings.
Percent of Total
Foreign Holdings Long-Term Investments
- --------------------------------------------------------------------------------
Total Foreign Holdings............................................. 26.6%
Emerging Market Holdings........................................... 13.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Percent of Total
Five Largest Foreign Countries* Long-Term Investments
- --------------------------------------------------------------------------------
Canada............................................................. 4.7%
Argentina.......................................................... 3.4
Colombia........................................................... 3.0
United Kingdom..................................................... 3.0
Mexico............................................................. 2.6
- --------------------------------------------------------------------------------
* All holdings are denominated in US dollars.
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
DEAR SHAREHOLDER
High-Yield Market Overview
The high-yield market entered 1998 on a note of optimism. As the year
progressed, a heavy new-issue calendar and a move by fixed-income investors
toward the perceived safety of the US Treasury market dampened returns and
widened spreads. With a return of +5.0% as measured by the unmanaged CS First
Boston High Yield Index, the high-yield market modestly outperformed the +4.2%
return on the ten-year Treasury bond for the six months ended May 31, 1998. The
spread between ten-year Treasury securities and the high-yield market widened to
395 basis points (3.95%) by May 31, 1998 from 373 basis points on November 30,
1997.
New-issue supply for the 12 months ended May 31, 1998 totaled near $90 billion
as compared to $42 billion for the previous year, continuing the acceleration in
new-issue volume that has led to a near doubling of the high-yield market since
1993. The abundance of new issues caused purchasers to be more selective and to
demand better pricing. Reassessment of relative value led to lower prices and
increasing yields throughout the high-yield market. Toward the middle of May,
attention focused on the Asian economic turmoil and its potentially adverse
effect on corporate profits. Investors fled higher risk fixed-income
instruments, including bonds of both high-yield and emerging markets issuers,
for the safer haven of the US Treasury market.
Though changes in investor sentiment and an ample supply of new issues may lead
to volatility, we believe that current spreads offer a reasonable risk premium
for high-yield bonds relative to Treasury securities and represent a good
investment value. Fundamentals for the high-yield market have remained
favorable. Many companies have acted to shore up balance sheets in recent years
through debt repayment and equity issuance and are better able to withstand an
earnings shortfall. Cash continues to enter the high-yield market, providing an
ongoing level of demand that tends to support prices.
Fund Performance
For the year ended May 31, 1998, total investment return on the Fund's Common
Stock was +12.53%, based on a change in the per share net asset value from
$13.74 to $13.95, and assuming reinvestment of $1.459 per share income
dividends. For the six months ended May 31, 1998, total investment return for
the Fund was +5.55%. During the same period, the net annualized yield of the
Fund's Common Stock was 11.00%. The Fund's performance for the period reflects
both volatility in weaker credits and emerging markets as well as the gradual
unwinding of the defensive market posture we have maintained during the past
year.
Leverage Strategy
The Fund was on average 16.4% leveraged during the six-month period ended May
31, 1998. This means that we borrowed the equivalent of 16.4% of total assets
invested, earning incremental yield on the investments we made with the borrowed
funds. During the period, we lost several portfolio holdings to bond calls or
tenders, including the bonds of Food 4 Less Supermarkets, Inc. and Repap New
Brunswick, Inc. This made maintaining leverage more difficult during the earlier
part of the six-month period. The widening of yield spreads in late May gave us
the opportunity to increase our investments at a favorable yield spread as
compared to US Treasury securities. Therefore, we expect to gradually increase
leverage. On May 31, 1998, the Fund was 17.9% leveraged, having borrowed $70.3
million at a borrowing cost of 5.88%. We anticipate continuing to use market
dips to add to attractive investments.
(For a complete explanation of the benefits and risks of leveraging, see page 1
of this report to shareholders.)
Investment Strategy
We took advantage of softer market conditions to purchase new issues, such as
office supply distributor CEX Holdings Inc., which came at a spread of 400 basis
points over the Treasury bond of comparable maturity. We also purchased recent
new issues at below par and at favorable spreads. One such purchase was
packaging company Indesco International Inc. senior subordinated bonds rated B-
by Standard & Poor's Corp. These issues took the place of sold positions with
limited upside or called bonds.
A significant portion of the new-issue market was in the communications and
telephony sector. We made selective purchases in that sector, including Level 3
Communications Corp., an internet telecommunications provider with an $8.5
billion equity market capitalization. However, we avoided companies that we
believed have serious competitive threats or the potential for inadequate
financing to fund their investment plans. On January 14, 1998, the Board of
Directors approved the Fund's ability to invest up to 15% of total assets in
secondary market purchases of corporate bank loans.
Portfolio Characteristics
Communications and media was our largest broad industry category, totaling
nearly 26% of total long-term investments. Of the narrowly classified sectors,
the largest allocations were: transportation, 7.7% of total long-term
investments, media and communications--international, 7.6%; paper and forest
products, 7.5%; utilities, 5.4%; and energy, 5.4%. Non-US bonds totaled about
27% of the portfolio, with emerging market issues accounting for 13% of total
long-term investments. See the foreign holdings table on page 1 of this report
for the distribution of non-US dollar-denominated investments in the portfolio.
At May 31, 1998, the average maturity for the portfolio was 6 years, 10 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 needs in the months and years
ahead.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Senior Vice President and
Portfolio Manager
/s/ Elizabeth M. Phillips
Elizabeth M. Phillips
Vice President and Portfolio Manager
July 1, 1998
2 & 3
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Aerospace & L-3 Communications Corp.:
Defense--1.6% B B2 $ 1,850,000 10.375% due 5/01/2007 $ 1,850,000 $ 2,044,250
B B2 3,000,000 8.50% due 5/15/2008 (e) 2,997,900 3,003,750
------------ ------------
4,847,900 5,048,000
===================================================================================================================================
Airlines--1.0% USAir Inc.:
B+ B1 2,369,789 11.20% due 3/19/2005** 2,085,415 2,719,523
BB Ba2 500,000 10.375% due 3/01/2013 477,500 561,850
------------ ------------
2,562,915 3,281,373
===================================================================================================================================
Automotive--2.2% B+ B3 3,000,000 Breed Technologies, Inc., 9.25%
due 4/15/2008 (e) 3,000,000 3,030,000
B B3 1,875,000 Collins & Aikman Corp., 11.50% due 4/15/2006 1,875,000 2,090,625
B+ B2 1,875,000 Venture Holdings Trust, 9.50% due 7/01/2005 1,812,246 1,924,219
------------ ------------
6,687,246 7,044,844
===================================================================================================================================
Broadcasting/Radio B- B2 3,750,000 EZ Communications, Inc., 9.75% due 12/01/2005 3,796,875 4,078,125
& Television--2.4% B B2 1,500,000 Sinclair Broadcast Group Inc., 10% due 9/30/2005 1,483,125 1,605,000
B B2 1,875,000 Young Broadcasting Corporation, 11.75% due
11/15/2004 2,085,938 2,071,875
------------ ------------
7,365,938 7,755,000
===================================================================================================================================
Cable--4.1% B- B2 3,750,000 EchoStar Communications Corp., 10.923%* due
6/01/2004 3,509,136 3,618,750
B B2 3,000,000 Intermedia Capital Partners L.P., 11.25% due
8/01/2006 3,011,250 3,345,000
BB- B2 3,750,000 Lenfest Communications, Inc., 10.50% due
6/15/2006 3,803,438 4,256,250
BB+ Ba3 1,500,000 TCI Communications Inc., 9.65% due 3/31/2027 1,636,875 1,797,900
CCC+ B3 5,747,000 Wireless One Inc., 13.50%* due 8/01/2006 (g) 3,686,961 524,414
------------ ------------
15,647,660 13,542,314
===================================================================================================================================
Cable-- Australis Media Ltd. (b):
International--2.8% D C 118,416 1.75%/15.75% due 5/15/2003 65,146 11,842
NR++ NR++ 6,922,000 1.75%/15.75% due 5/15/2003 (d) 4,874,096 692,200
Diamond Cable Communications PLC*:
B- Caa1 1,500,000 11.055% due 9/30/2004 1,408,467 1,402,500
B- B3 2,625,000 10.772% due 12/15/2005 2,055,336 2,106,563
B- B3 900,000 11.387% due 2/15/2007 583,180 645,750
NTL, Inc.:
B- B3 1,500,000 10% due 2/15/2007 1,500,938 1,601,250
B- B3 3,500,000 Series B, 11.643%* due 2/01/2006 2,574,731 2,800,000
------------ ------------
13,061,894 9,260,105
===================================================================================================================================
Chemicals--2.5% B- B3 3,750,000 Great Lakes Carbon Corp., 11.75% due
5/15/2008 (e)+ 3,750,000 3,784,912
B+ B2 1,500,000 Huntsman Corporation, 9.50% due 7/01/2007 1,500,000 1,515,000
B+ B2 2,750,000 Octel Developments PLC, 10% due 5/01/2006 (e) 2,750,000 2,811,875
------------ ------------
8,000,000 8,111,787
===================================================================================================================================
Communications-- B+ B1 1,500,000 TeleWest Communications PLC, 10.509%*
0.4% due 10/01/2007 1,210,566 1,203,750
===================================================================================================================================
Computer Services-- B Ba3 3,000,000 Advanced Micro Devices Inc., 11% due 8/01/2003 3,116,250 3,210,000
Electronics--4.0% B- B2 2,250,000 Amphenol Corporation, 9.875% due 5/15/2007 2,250,000 2,396,250
B B2 2,000,000 Celestica International Inc., 10.50%
due 12/31/2006 2,000,000 2,190,000
B- B3 2,500,000 MCMS Inc., 9.75% due 3/01/2008 (e) 2,500,000 2,462,500
B B2 3,500,000 Zilog, Inc., 9.50% due 3/01/2005 (e) 3,269,375 2,887,500
------------ ------------
13,135,625 13,146,250
===================================================================================================================================
Conglomerates--1.6% Sequa Corp.:
BB Ba2 2,000,000 9.625% due 10/15/1999 2,055,000 2,070,000
B+ B1 3,000,000 9.375% due 12/15/2003 2,941,250 3,120,000
------------ ------------
4,996,250 5,190,000
===================================================================================================================================
Consumer Products-- B- B2 2,500,000 Chattem, Inc., Series B, 12.75% due 6/15/2004 2,829,688 2,818,750
3.4% B- B2 3,750,000 Home Interiors & Gifts Inc., 10.125% due
6/01/2008 (e) 3,750,000 3,750,000
B B3 1,800,000 Packaged Ice, Inc., 9.75% due 2/01/2005 (e) 1,796,355 1,818,000
B- B3 3,175,000 Syratech Corp., 11% due 4/15/2007 2,621,000 2,857,500
------------ ------------
10,997,043 11,244,250
===================================================================================================================================
Consumer Services-- B B2 3,325,000 Affinity Group, Inc., 11.50% due 10/15/2003 3,340,625 3,524,500
1.1%
===================================================================================================================================
Diversified--1.8% B- B3 3,750,000 Foamex Capital Corp. L.P., 13.50%
due 8/15/2005 (e) 4,275,000 4,350,000
B- B2 1,500,000 Koppers Industries, Inc., 9.875% due 12/01/2007 1,500,000 1,545,000
------------ ------------
5,775,000 5,895,000
===================================================================================================================================
Electronics/ CCC+ Caa1 2,250,000 Telesystem International Wireless Inc., Series B,
Electrical 11.778%* due 6/30/2007 1,489,276 1,485,000
Components--0.5%
===================================================================================================================================
Energy--5.2% B B1 3,250,000 KCS Energy Inc., 11% due 1/15/2003 3,338,125 3,518,125
BBB- Baa3 4,765,625 Oleoducto Centrale S.A., 9.35%
due 9/01/2005** (e) 4,765,625 4,860,938
NR++ B3 10,450,000 Transamerican Energy Corp., 13.163%*
due 6/15/2002 9,110,764 8,673,500
------------ ------------
17,214,514 17,052,563
===================================================================================================================================
Entertainment--1.3% B- B3 3,750,000 Six Flags Theme Parks, 9.937%* due 6/15/2005 3,978,079 4,232,812
===================================================================================================================================
Financial Services-- B B2 3,000,000 AMRESCO, Inc., 9.875% due 3/15/2005 3,000,000 3,075,000
3.7% B Ba3 4,527,000 First Nationwide Holdings Inc., 10.625%
due 10/01/2003 5,040,105 5,047,605
NR++ Baa2 2,000,000 IBJ Preferred Capital Co. LLC, 8.79% (e)(h) 1,970,000 1,762,500
BB- Ba2 1,620,000 Reliance Group Holdings Inc., 9.75%
due 11/15/2003 1,619,725 1,696,448
BB NR++ 487,000 Veritas Holdings GMBH, 9.625% due 12/15/2003 491,261 516,220
------------ ------------
12,121,091 12,097,773
===================================================================================================================================
</TABLE>
4 & 5
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Food & Beverage-- B B3 $ 2,500,000 Curtice-Burns Foods, Inc., 12.25%
0.8% due 2/01/2005 $ 2,500,000 $ 2,737,500
===================================================================================================================================
Foreign BB- B1 2,000,000 Republic of Brazil, Global Bonds, 10.125%
Government due 5/15/2027 1,799,180 1,817,500
Obligations--0.6%
===================================================================================================================================
Furniture--1.0% B B1 3,000,000 Lifestyle Furnishings International Ltd.,
10.875% due 8/01/2006 3,378,750 3,345,000
===================================================================================================================================
Gaming--5.9% B+ B2 6,000,000 Greate Bay Property Funding Corp., 10.875%
due 1/15/2004 5,930,000 5,190,000
D Caa 5,000,000 Harrah's Jazz Company, 14.25%
due 11/15/2001 (c) 5,000,000 1,675,000
B+ B2 2,250,000 Hollywood Casino Corp., 12.75% due 11/01/2003 2,428,125 2,491,875
BB- B1 5,000,000 Trump Atlantic City, 11.25% due 5/01/2006 5,000,000 4,912,500
NR++ Caa 1,500,000 Trump Castle Funding Inc., 11.75% due 11/15/2003 1,402,860 1,372,500
Venetian Casino Resort LLC (e):
B- B3 750,000 12.25% due 11/15/2004 762,188 776,250
CCC+ Caa1 3,000,000 10% due 11/15/2005 2,841,998 2,820,000
------------ ------------
23,365,171 19,238,125
===================================================================================================================================
Health Services-- B- B3 3,750,000 ALARIS Medical Systems, Inc., 9.75%
5.8% due 12/01/2006 3,791,250 3,881,250
BBB Ba2 2,250,000 Columbia/HCA Healthcare Corp., 7.15%
due 3/30/2004 2,160,000 2,209,072
B- B2 1,500,000 Extendicare Health Services, 9.35%
due 12/15/2007 (e) 1,500,000 1,500,000
B+ Ba3 2,050,000 Fresenius Medical Capital Trust II, 7.875%
due 2/01/2008 (e) 2,054,750 2,009,000
B+ Ba3 950,000 Fresenius Medical Care AG, 9% due 12/01/2006 995,125 992,750
B- Ba3 3,500,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 3,525,000 3,535,000
B- B3 1,500,000 Paragon Health Networks, Inc., 9.50%
due 11/01/2007 1,493,310 1,515,000
B+ B2 3,000,000 Quest Diagnostic Inc., 10.75% due 12/15/2006 3,000,000 3,360,000
------------ ------------
18,519,435 19,002,072
===================================================================================================================================
Independent Power BB- Ba2 1,500,000 Calpine Corporation, 8.75% due 7/15/2007 1,494,530 1,548,750
Producers--1.9% Midland Cogeneration Venture
Limited Partnership**:
BB Ba3 3,064,795 10.33% due 7/23/2002 3,003,499 3,309,090
B B2 1,000,000 13.25% due 7/23/2006 1,263,750 1,288,010
------------ ------------
5,761,779 6,145,850
===================================================================================================================================
Industrial-- B B3 3,000,000 Neff Corporation, 10.25% due 6/01/2008 (e) 3,000,000 3,007,500
Services--0.9%
===================================================================================================================================
Media & BB- Ba3 3,000,000 Antenna TV S.A., 9% due 8/01/2007 2,909,344 3,030,000
Communications-- Call-Net Enterprises Inc.*:
International--9.2% BB- B1 3,750,000 10.927% due 12/01/2004 3,308,395 3,553,125
BB- B1 3,500,000 9.27% due 8/15/2007 2,390,038 2,450,000
BB- B1 3,250,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 (e) 3,212,500 3,217,500
NR++ NR++ 3,000,000 Facilicom International, 10.50% due 1/15/2008 (e) 3,000,000 2,970,000
BB- B1 2,250,000 Globo Communicacoes Participacoes, Ltd., 10.50%
due 12/20/2006 (e) 2,244,428 2,199,375
BB Ba2 3,750,000 Grupo Televisa S.A., 11.375% due 5/15/2003 3,750,000 4,050,000
B- B3 3,000,000 Satelites Mexicanos S.A., 10.125%
due 11/01/2004 (e) 3,000,000 3,007,500
BBB- Ba3 5,000,000 Telefonica de Argentina S.A., 11.875%
due 11/01/2004 4,900,400 5,550,000
------------ ------------
28,715,105 30,027,500
===================================================================================================================================
Metals & Mining-- CCC+ B2 4,200,000 Kaiser Aluminum & Chemical Corp., 12.75%
3.9% due 2/01/2003 4,389,000 4,488,750
CCC+ B3 8,000,000 Maxxam Group, Inc., 12.25%* due 8/01/2003 7,838,748 8,240,000
------------ ------------
12,227,748 12,728,750
===================================================================================================================================
Packaging--2.7% B- B3 4,750,000 Indesco International Inc., 9.75%
due 4/15/2008 (e) 4,717,188 4,702,500
B+ Ba3 3,750,000 Vicap S.A., 11.375% due 5/15/2007 (e) 3,730,125 4,059,375
------------ ------------
8,447,313 8,761,875
===================================================================================================================================
Paper & Forest B B3 3,750,000 Ainsworth Lumber Company, 12.50% due 7/15/2007+ 3,646,425 3,872,600
Products--9.0% B B2 3,000,000 Bear Island LLC, Series B, 10% due 12/01/2007 3,000,000 3,090,000
B+ B1 4,000,000 Container Corporation of America, 9.75%
due 4/01/2003 4,080,000 4,300,000
BB- B1 4,625,000 Doman Industries Ltd., 8.75% due 3/15/2004 4,264,063 4,555,625
BB Ba3 1,875,000 Malette Inc., 12.25% due 7/15/2004 2,085,937 2,090,625
P.T. Pabrik Kertas Tjiwa Kimia:
CCC+ B2 1,500,000 13.25% due 8/01/2001 1,665,000 1,218,750
BB Ba3 3,000,000 10% due 8/01/2004 2,983,650 2,160,000
B- B3 1,500,000 Riverwood International Corp., 10.25%
due 4/01/2006 1,451,250 1,545,000
B+ B1 4,000,000 S.D. Warren Co., 12% due 12/15/2004 4,000,000 4,430,000
B+ B1 2,250,000 US Timberlands Klamath Falls, 9.625%
due 11/15/2007 2,250,000 2,334,375
------------ ------------
29,426,325 29,596,975
===================================================================================================================================
Product B- B3 3,000,000 AmeriServ Food Company, 10.125% due 7/15/2007 3,000,000 3,120,000
Distribution--3.2% B B2 2,750,000 CEX Holdings Inc., 9.625% due 6/01/2008 (e) 2,750,000 2,763,750
B- B3 2,250,000 Fisher Scientific International Inc., 9%
due 2/01/2008 (e) 2,250,000 2,227,500
B- B3 2,500,000 Nebraska Book Co., 8.75% due 2/15/2008 (e) 2,500,000 2,406,250
------------ ------------
10,500,000 10,517,500
===================================================================================================================================
Publishing & Hollinger International, Inc.:
Printing--1.7% BB+ Ba3 1,500,000 8.625% due 3/15/2005 1,492,500 1,560,000
BB- B1 1,500,000 9.25% due 3/15/2007 1,490,370 1,571,250
B B3 2,250,000 MDC Communications Corp., 10.50%
due 12/01/2006 2,250,000 2,401,875
------------ ------------
5,232,870 5,533,125
===================================================================================================================================
Specialty Retailing-- B+ B1 3,000,000 NBTY, Inc., 8.625% due 9/15/2007 2,975,250 3,022,500
0.9%
===================================================================================================================================
</TABLE>
8 & 9
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Steel--0.6% NR++ B1 $ 2,250,000 CSN Iron S.A., 9.125% due 6/01/2007 (e) $ 1,826,250 $ 1,940,625
===================================================================================================================================
Telephony/ B+ B2 3,000,000 GCI Inc., 9.75% due 8/01/2007 3,000,000 3,150,000
Competitive Intermedia Communications Inc.:
Local Exchange B B2 1,500,000 10.503%* due 7/15/2007 1,005,470 1,098,750
Carriers--3.9% B B2 1,000,000 8.60% due 6/01/2008 (e) 1,000,000 1,007,500
B B3 1,750,000 Level 3 Communications Corp., 9.125% due
5/01/2008 (e) 1,742,633 1,706,250
Nextlink Communications Inc.:
B B3 3,750,000 12.50% due 4/15/2006 3,750,000 4,275,000
B B3 1,500,000 9% due 3/15/2008 (e) 1,496,970 1,500,000
------------ ------------
11,995,073 12,737,500
===================================================================================================================================
Textiles--0.9% B B2 3,000,000 Polymer Group, Inc., 8.75% due 3/01/2008 (e) 3,000,000 3,022,500
===================================================================================================================================
Transportation-- BB- B1 3,000,000 Alpha Shipping PLC, 9.50% due 2/15/2008 (e) 2,982,840 2,895,000
9.3% B+ B1 2,750,000 American Reefer Co. Ltd., 10.25%
due 3/01/2008 (e) 2,750,000 2,756,875
BB- NR++ 3,750,000 Autopistas del Sol S.A., 10.25%
due 8/01/2009 (e) 3,675,000 3,646,875
BB- Ba2 4,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 4,013,750 4,120,000
GS Superhighway Holdings:
BB Ba2 1,500,000 9.875% due 8/15/2004 1,496,250 1,113,750
BB Ba3 1,500,000 10.25% due 8/15/2007 1,505,625 1,113,750
BB- B1 3,750,000 Sea Containers Ltd., 12.50% due 12/01/2004 4,106,250 4,200,000
B- B3 4,250,000 Transtar Holdings, Inc., 12.625%* due 12/15/2003 3,536,992 3,952,500
B- B3 5,250,000 Trism Inc., 10.75% due 12/15/2000 5,000,625 4,383,750
BB Ba2 2,125,000 Viking Star Shipping Co., Inc., 9.625%
due 7/15/2003 1,969,531 2,146,250
------------ ------------
31,036,863 30,328,750
===================================================================================================================================
Utilities--6.2% B+ Ba1 2,250,000 AES Corporation, 8.50% due 11/01/2007 2,245,500 2,261,250
BB+ Baa3 3,000,000 Empresa Electricidad del Norte, 10.50%
due 6/15/2005 (e) 3,000,000 3,060,000
BBB- Ba3 4,750,000 Metrogas S.A., 12% due 8/15/2000 4,803,281 5,023,125
BB- Ba3 4,000,000 Texas-New Mexico Power Co., 10.75% due 9/15/2003 4,085,000 4,304,240
NR++ NR++ 5,106,532 Tucson Electric & Power Co., 10.21%
due 1/01/2009** (f) 4,798,574 5,620,862
------------ ------------
18,932,355 20,269,477
===================================================================================================================================
Waste D Ca 4,000,000 Mid-American Waste Systems, Inc., 12.25%
Management-- due 2/15/2003 (c) 2,480,088 1,060,000
0.3%
===================================================================================================================================
Wireless CCC+ B2 3,000,000 Cencall Communications Corp., 13.935%*
Communications-- due 1/15/2004 2,338,882 2,932,500
Domestic Paging & Nextel Communications Inc.*:
Cellular--3.7% CCC+ B2 4,600,000 12.819% due 8/15/2004 3,681,133 4,450,500
CCC+ B2 2,250,000 9.505% due 10/31/2007 1,507,206 1,451,250
B- B3 3,000,000 Western Wireless Corp., 10.50% due 2/01/2007 2,987,812 3,210,000
------------ ------------
10,515,033 12,044,250
===================================================================================================================================
Wireless NR++ NR++ 3,000,000 Celcaribe S.A., 11.318%* due 3/15/2004 3,179,885 3,045,000
Communications-- B+ B3 6,208,000 Comunicacion Celular S.A., 13.154%*
International due 11/15/2003 4,519,742 4,811,200
Paging & CCC+ NR++ 3,750,000 McCaw International Ltd., 11.757%* due 4/15/2007 2,492,465 2,475,000
Cellular--4.2% B- B3 4,500,000 Millicom International Cellular S.A., 13.803%*
due 6/01/2006 2,978,866 3,543,750
------------ ------------
13,170,958 13,874,950
===================================================================================================================================
Total Investments in Corporate Bonds--116.2% 381,237,168 379,875,145
===================================================================================================================================
<CAPTION>
Shares
Held Common Stocks
===================================================================================================================================
Energy--1.3% 321,384 CHI Energy Inc. (Series A) (c) 5,096,857 4,177,992
===================================================================================================================================
Entertainment--0.8% 191,749 On Command Corporation (c) 5,573,706 2,636,549
===================================================================================================================================
Supermarkets--0.0% 70,697 Grand Union Co. (c) 4,152,500 12,018
===================================================================================================================================
Wireless 10,611 Nextel Communications Inc. (Class A) (c) 171,223 249,358
Communications--
Domestic Paging &
Cellular--0.1%
===================================================================================================================================
Total Investments in Common Stocks--2.2% 14,994,286 7,075,917
===================================================================================================================================
<CAPTION>
Preferred Stocks & Warrants
===================================================================================================================================
Cable--0.0% 45,725 American Telecasting, Inc. (Series B)
(Warrants) (a) 0 457
5,747 Wireless One, Inc. (Warrants) (a) 121,377 57
------------ ------------
121,377 514
===================================================================================================================================
Entertainment--1.9% 61,014 On Command Corporation (Warrants) (a) 488,120 305,070
5,170 Time Warner Inc. (Series M)+ 5,672,677 5,867,950
------------ ------------
6,160,797 6,173,020
===================================================================================================================================
Telephony/Competitive 1,729 Intermedia Communications Inc. (Series B)
Local Exchange (Convertible)+ 1,758,497 2,083,445
Carriers--0.6%
===================================================================================================================================
Wireless 822 Nextel Communications Inc. (Series D)+ 831,165 920,640
Communications--
Domestic Paging &
Cellular--0.3%
===================================================================================================================================
Wireless 3,750 Cellular Communications International Inc.
Communications-- (Warrants) (a) 90,489 58,875
International Paging & 6,208 Comunicacion Celular S.A. (Warrants) (a)(e) 6,782 43,456
Cellular--0.0% ------------ ------------
97,271 102,331
===================================================================================================================================
Total Investments in Preferred Stocks &
Warrants--2.8% 8,969,107 9,279,950
===================================================================================================================================
</TABLE>
8 & 9
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value
Amount Short Term Securities Cost (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C>
Commercial $ 299,000 General Motors Acceptance Corp., 5.69%
Paper***--0.1% due 6/01/1998 $ 299,000 $ 299,000
====================================================================================================================================
Total Investments in Short-Term Securities--0.1% 299,000 299,000
====================================================================================================================================
Total Investments--121.3% $405,499,561 396,530,012
Liabilities in Excess of Other Assets--(21.3%) ============ (69,601,478)
------------
Net Assets--100.0% $326,928,534
============
====================================================================================================================================
</TABLE>
* 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.
+ Represents a pay-in-kind security which may pay interest in additional
shares/face.
++ Not Rated.
(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 and are non-income producing.
(b) Represents a step bond. Coupon payments are paid-in-kind, in which the
Fund receives additional face amount at an annual rate of 1.75% until May
15, 2000. Subsequently, the Fund will receive cash coupon payments at an
annual rate of 15.75% until maturity.
(c) Non-income producing security.
(d) Each $1,000 face amount contains one warrant of Australis Media Ltd.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(f) Restricted security as to resale. The value of the Fund's investment in
restricted securities was approximately $5,621,000, representing 1.7% of
net assets.
- --------------------------------------------------------------------------------
Acquisition Value
Issue Dates Cost (Note 1a)
- --------------------------------------------------------------------------------
Tucson Electric & Power Co., 10.21% 6/25/1993-
due 1/01/2009 7/28/1993 $ 4,798,574 $ 5,620,862
- --------------------------------------------------------------------------------
Total $ 4,798,574 $ 5,620,862
=========== ===========
- --------------------------------------------------------------------------------
(g) Each $1,000 face amount contains one warrant of Wireless One, Inc.
(h) The security is a perpetual bond and has no definite maturity date.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of May 31, 1998
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$405,499,561) (Note 1a) ........... $396,530,012
Cash ...................................................................... 1,942
Receivables:
Securities sold ...................................................... $ 8,461,460
Interest ............................................................. 8,241,272 16,702,732
------------
Deferred organization expenses (Note 1e) .................................. 1,083
Prepaid expenses and other assets ......................................... 100,186
------------
Total assets .............................................................. 413,335,955
------------
====================================================================================================================================
Liabilities: Loans (Note 5) ............................................................ 70,300,000
Payables:
Securities purchased ................................................. 15,165,874
Interest on loans (Note 5) ........................................... 678,494
Investment adviser (Note 2) .......................................... 166,828 16,011,196
------------
Accrued expenses and other liabilities .................................... 96,225
------------
Total liabilities ......................................................... 86,407,421
------------
====================================================================================================================================
Net Assets: Net assets ................................................................ $326,928,534
============
====================================================================================================================================
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized ............... $ 2,343,882
Paid-in capital in excess of par .......................................... 327,628,919
Undistributed investment income--net ...................................... 3,590,273
Undistributed realized capital gains on investments--net .................. 2,335,009
Unrealized depreciation on investments--net ............................... (8,969,549)
------------
Total--Equivalent to $13.95 per share based on 23,438,815 shares of capital
stock outstanding (market price $14.1875) ................................. $326,928,534
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended May 31, 1998
===================================================================================================================================
<S> <C> <C> <C>
Investment Income Interest and discount earned........................................... $ 36,283,555
(Note 1d): Dividends.............................................................. 1,265,631
Other.................................................................. 574,971
------------
Total income........................................................... 38,124,157
------------
===================================================================================================================================
Expenses: Loan interest expense (Note 5)......................................... $ 3,032,953
Investment advisory fees (Note 2)...................................... 1,880,807
Borrowing costs (Note 5)............................................... 121,092
Professional fees...................................................... 91,475
Accounting services (Note 2)........................................... 81,625
Transfer agent fees.................................................... 57,611
Printing and shareholder reports....................................... 48,736
Directors' fees and expenses........................................... 40,347
Custodian fees......................................................... 25,189
Amortization of organization expenses (Note 1e)........................ 17,188
Pricing services....................................................... 8,919
Other.................................................................. 38,646
------------
Total expenses......................................................... 5,444,588
------------
Investment income--net................................................. 32,679,569
------------
===================================================================================================================================
Realized & Unrealized Realized gain on investments--net...................................... 9,402,781
Gain (Loss) on Change in unrealized depreciation on investments--net.................. (4,365,077)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations................... $ 37,717,273
============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended May 31,
---------------------------
Increase (Decrease) in Net Assets: 1998 1997
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net................................................ $ 32,679,569 $ 32,116,435
Realized gain (loss) on investments--net.............................. 9,402,781 (223,424)
Change in unrealized depreciation on investments--net................. (4,365,077) 2,092,741
------------ -----------
Net increase in net assets resulting from operations.................. 37,717,273 33,985,752
------------ -----------
===================================================================================================================================
Dividends to Investment income--net................................................ (33,072,339) (32,632,299)
Shareholders ------------ -----------
(Note 1f): Net decrease in net assets resulting from dividends to shareholders... (33,072,339) (32,632,299)
------------ -----------
===================================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions (Note 4): of dividends.......................................................... 9,374,343 10,651,397
------------ -----------
Net increase in net assets derived from capital stock transactions.... 9,374,343 10,651,397
------------ -----------
===================================================================================================================================
Net Assets: Total increase in net assets.......................................... 14,019,277 12,004,850
Beginning of year..................................................... 312,909,257 300,904,407
------------ -----------
End of year*.......................................................... $326,928,534 $312,909,257
============ ===========
===================================================================================================================================
* Undistributed investment income--net (Note 1g) $ 3,590,273 $ 3,569,440
============ ===========
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended May 31, 1998
===================================================================================================================================
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations.................. $ 37,717,273
Operating Activities: Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Increase in receivables............................................. (1,350,636)
Increase in other assets............................................ (17,026)
Decrease in other liabilities....................................... (1,007,216)
Realized and unrealized gain on investments--net.................... (5,037,704)
Amortization of discount............................................ (7,243,559)
-------------
Net cash provided by operating activities............................. 23,061,132
-------------
===================================================================================================================================
Cash Used for Proceeds from sales of long-term investments.......................... 200,112,527
Investing Activities: Purchases of long-term investments.................................... (241,804,154)
Purchases of short-term investments................................... (115,368,567)
Proceeds from sales and maturities of short-term investments.......... 115,399,000
-------------
Net cash used for investing activities................................ (41,661,194)
-------------
===================================================================================================================================
Cash Provided by Cash receipts from borrowings......................................... 205,800,000
Financing Activities: Cash payments on borrowings........................................... (163,500,000)
Dividends paid to shareholders........................................ (23,697,996)
-------------
Net cash provided by financing activities............................. 18,602,004
-------------
===================================================================================================================================
Cash: Net increase in cash.................................................. 1,942
Cash at beginning of year............................................. 0
-------------
Cash at end of year................................................... $ 1,942
=============
===================================================================================================================================
Cash Flow Cash paid for interest................................................ $ 2,569,601
=============
Information:
===================================================================================================================================
Non-Cash Financing Reinvestment of dividends paid to shareholders........................ $ 9,374,343
Activities: =============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
For the Year Ended May 31,
-------------------------------------
Increase (Decrease) in Net Asset Value: 1998++ 1997++ 1996++
=======================================================================================================================
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ......................... $ 13.74 $ 13.68 $ 13.35
Operating --------- --------- ---------
Performance: Investment income--net ....................................... 1.42 1.44 1.46
Realized and unrealized gain (loss) on investments--net ...... .25 .08 .33
--------- --------- ---------
Total from investment operations ............................. 1.67 1.52 1.79
--------- --------- ---------
Less dividends from investment income--net ................... (1.46) (1.46) (1.46)
--------- --------- ---------
Net asset value, end of period ............................... $ 13.95 $ 13.74 $ 13.68
========= ========= =========
Market price per share, end of period ........................ $ 14.1875 $ 14.125 $ 13.375
========= ========= =========
=======================================================================================================================
Total Investment Based on market price per share .............................. 11.33% 17.44% 9.35%
Return:** ========= ========= =========
Based on net asset value per share ........................... 12.53% 11.69% 14.15%
========= ========= =========
=======================================================================================================================
Ratios to Expenses, excluding interest expense ......................... .64% .66% .70%
Average ========= ========= =========
Net Assets: Expenses ..................................................... 1.45% 1.27% 1.62%
========= ========= =========
Investment income--net ....................................... 8.71% 9.43% 9.20%
========= ========= =========
=======================================================================================================================
Leverage: Amount of borrowings outstanding, end of period
(in thousands) ............................................... $ 70,300 $ 28,000 $ 54,000
========= ========= =========
Average amount of borrowings outstanding during the
period (in thousands) ........................................ $ 52,080 $ 36,667 $ 49,424
========= ========= =========
Average amount of borrowings outstanding per share
during the period ............................................ $ 2.26 $ 1.64 $ 2.27
========= ========= =========
=======================================================================================================================
Supplemental Net assets, end of period (in thousands) ..................... $ 326,929 $ 312,909 $ 300,904
Data: ========= ========= =========
Portfolio turnover ........................................... 55.42% 52.91% 65.68%
========= ========= =========
=======================================================================================================================
<CAPTION>
For the For the
Year Period
Ended June 25,
May 31, 1993+ to
-------- May 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994
==========================================================================================================
<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 ............................. 11.67% .36%+++
Return:** ========= ========
Based on net asset value per share .......................... 14.92% 1.08%+++
========= ========
==========================================================================================================
Ratios to Average Expenses, excluding interest expense ........................ .69% .68%*
Net Assets: ========= ========
Expenses .................................................... 2.53% 1.76%*
========= ========
Investment income--net ...................................... 9.03% 7.55%*
========= ========
==========================================================================================================
Leverage: Amount of borrowings outstanding, end of period
(in thousands) .............................................. $ 46,000 $124,000
========= ========
Average amount of borrowings outstanding during the
period (in thousands) ....................................... $ 107,934 $ 98,601
========= ========
Average amount of borrowings outstanding per share
during the period ........................................... $ 5.13 $ 4.78
========= ========
==========================================================================================================
Supplemental Net assets, end of period (in thousands) .................... $ 287,285 $272,737
Data: ========= ========
Portfolio turnover .......................................... 45.73% 45.82%
========= ========
==========================================================================================================
</TABLE>
+ Commencement of operations.
++ Based on average shares outstanding.
+++ 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.
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.
(a) Valuation of investments--Portfolio securities are valued on the basis of
prices furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders. In
certain circumstances, portfolio securities are valued at the last sale price on
the exchange that is the primary market for such securities, or the last quoted
bid price for those securities for which the over-the-counter market is the
primary market or for listed securities in which there were no sales during the
day. The value of interest rate swaps, caps and floors is determined in
accordance with a formula and then confirmed periodically by obtaining a bank
quotation. Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. Options purchased are valued at
the last sale price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the last bid price. Obligations
with remaining maturities of sixty days or less are valued at amortized cost,
which approximates market value, unless this method no longer produces fair
valuations. Rights or warrants to acquire stock, or stock acquired pursuant to
the exercise of a right or warrant, may be valued taking into account various
factors such as original cost to the Fund, earnings and net worth of the issuer,
market prices for securities of similar issuers, assessment of the issuer's
future prosperity, liquidation value or third party transactions involving the
issuer's securities. Securities for which there exist no price quotations or
valuations and all other assets including futures contracts and related options
are valued at fair value as determined in good faith by or on behalf of the
Board of Directors of the Fund.
(b) Derivative financial instruments--The Fund may engage in various portfolio
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.
o Options--The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as
14 & 15
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the value of the contract at the time it was opened and the value at the time it
was closed.
o Interest rate transactions--The Fund is authorized to enter into interest rate
swaps and purchase or sell interest rate caps and floors. In an interest rate
swap, the Fund exchanges with another party their respective commitments to pay
or receive interest on a specified notional principal amount. The purchase of an
interest rate cap (or floor) entitles the purchaser, to the extent that a
specified index exceeds (or falls below) a predetermined interest rate, to
receive payments of interest equal to the difference between the index and the
predetermined rate on a notional principal amount from the party selling such
interest rate cap (or floor).
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(e) 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.
(g) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $413,603 have been reclassified between undistributed
net realized capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets plus the
proceeds of any outstanding principal borrowed.
For the year ended May 31, 1998, the Fund paid Merrill Lynch Security Pricing
Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
$6,627 for security price quotations to compute the net asset value of the Fund.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended May 31, 1998 were $256,970,028, and $205,845,871, respectively.
Net realized gains for the year ended May 31, 1998 and net unrealized losses as
of May 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Losses
Long-term investments....................... $9,402,781 $(8,969,549)
---------- -----------
Total....................................... $9,402,781 $(8,969,549)
========== ===========
- --------------------------------------------------------------------------------
As of May 31, 1998, net unrealized depreciation for financial reporting and
Federal income tax purposes aggregated $10,567,101, of which $15,890,897 related
to appreciated securities and $26,457,998 related to depreciated securities. The
aggregate cost of investments at May 31, 1998 for Federal income tax purposes
was $407,097,113.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10, all of which were initially classified as Common Stock. The Board of
Directors is authorized, however, to classify and reclassify any unissued shares
of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding during the years ended May 31, 1998 and May 31,
1997 increased by 664,216 and 778,495, respectively, as a result of dividend
reinvestment.
5. Short-Term Borrowings:
On August 13, 1997, the Fund extended its credit agreement with Merrill Lynch
International Bank Limited, an affiliate of MLPF&S. The agreement provides for
$130,000,000 unsecured revolving credit facility bearing interest at the Federal
Funds Rate plus 0.25% and/or LIBOR plus 0.25%. For the year ended May 31, 1998,
the average amount borrowed was approximately $52,080,000 and the daily weighted
average interest rate was 5.84%. For the year ended May 31, 1998, facility and
commitment fees aggregated $121,092.
6. Subsequent Event:
On June 8, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.118358 per share,
payable on June 30, 1998 to shareholders of record as of June 22, 1998.
16 & 17
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1998
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, 1998, the related statements of operations and cash flows for the year
then ended, changes in net assets for each of the years in the two-year period
then ended and the financial highlights for each of the years in the four-year
period then ended and 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.
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,
1998 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, 1998, the results of its operations, its cash flows,
the changes in its net assets and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 13, 1998
PORTFOLIO INFORMATION (unaudited)
<TABLE>
<CAPTION>
Percent of Total
As of May 31, 1998 Long-Term Investments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ten Largest Holdings TransAmerican Energy Corp. TransAmerican Energy has interests in natural gas and
oil refining. The company owns approximately 70% of
TransTexas Gas Corp., a public natural gas exploration,
development and production company, primarily in
southern Texas. 100%-owned TransAmerican Refining Corp.
owns a large petroleum refinery on the Gulf Coast near
New Orleans. The refinery is being rebuilt to process
heavy, sour crude oils into higher value, light
petroleum products such as gasoline and heating oil. 2.2%
------------------------------------------------------------------------------------------------------------
Maxxam Group, Inc. Maxxam is a holding company whose affiliate, Kaiser
Aluminum, 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. 2.1
------------------------------------------------------------------------------------------------------------
Nextel Communications Inc. Nextel is building a network to provide digital wireless
communications services that ultimately will have a
nationwide footprint. The company currently has service
in over 225 cities and expects service to cover 85% of
the US population by the end of 1998. The company has
over 1.2 million units in service. Our holdings include
bonds of 100%-owned Cencall Communications. 1.8
------------------------------------------------------------------------------------------------------------
Call-Net Enterprises Inc. The company is the largest alternative provider of long
distance telephone services in Canada, marketing under
the brand name Sprint Canada. Sprint Communications
Company L.P., the third-largest long distance services
carrier in the United States, owns approximately 25% of
the company's shares. 1.5
------------------------------------------------------------------------------------------------------------
Time Warner Inc. Time Warner is a media and entertainment company
covering entertainment, cable networks, publishing and
cable operations. The company has interests in movie and
television production, recorded music, music publishing,
cable-TV programming, magazine and book publishing and
cable-TV service. 1.5
------------------------------------------------------------------------------------------------------------
Nextlink Nextlink provides local, long distance and enhanced
Communications Inc. telephone communications services to commercial
customers. The company operates in 24 markets in seven
states. 1.5
------------------------------------------------------------------------------------------------------------
Tucson Electric & Power Co. This electric utility serves Tucson, Arizona, and surrounding
areas. Our bonds are secured lease obligation bonds on the
company's Springerville coal-fired power generation plant. 1.4
------------------------------------------------------------------------------------------------------------
Telefonica de Argentina S.A. Telefonica de Argentina provides monopoly telephone
service to the southern half of Argentina, including
about half the Buenos Aires metropolitan area where
nearly one third of Argentina's population is located. 1.4
------------------------------------------------------------------------------------------------------------
Greate Bay Property Greate Bay Property Funding finances the Sands Casino in
Funding Corp. Atlantic City, which is the ultimate security for these first
mortgage bonds 1.3
------------------------------------------------------------------------------------------------------------
Sequa Corp. Sequa is a diversified industrial company whose business
lines include aerospace, machinery and metal coatings,
and specialty chemicals. Within these categories, Sequa
produces such products as solid rocket fuel propulsion
systems, protective coatings and a bleach activator. 1.3
------------------------------------------------------------------------------------------------------------
</TABLE>
18 & 19
<PAGE>
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
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Elizabeth M. Phillips, Vice President
Gerald M. Richard, Treasurer
Patrick D. Sweeney, Secretary
Custodian
The Chase Manhattan Bank
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 #16718--5/98
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