CORPORATE
HIGH YIELD
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
November 30, 1997
<PAGE>
CORPORATE HIGH YIELD FUND, INC.
The Benefits and
Risks of
Leveraging
Corporate High Yield Fund, Inc. has the ability to utilize leverage through
borrowings or issuance of short-term debt securities or shares of Preferred
Stock. The concept of leveraging is based on the premise that the cost of assets
to be obtained from leverage will be based on short-term interest rates, which
normally will be lower than the return earned by the Fund on its longer-term
portfolio investments. Since the total assets of the Fund (including the assets
obtained from leverage) are invested in higher-yielding portfolio investments,
the Fund's Common Stock shareholders are the beneficiaries of the incremental
yield.
Leverage creates risks for holders of Common Stock including the
likelihood of greater net asset value and market price volatility. In addition,
there is the risk that fluctuations in interest rates on borrowings (or in the
dividend rates on any Preferred Stock, if the Fund were to issue Preferred
Stock) may reduce the Common Stock's yield and negatively impact its market
price. If the income derived from securities purchased with assets received from
leverage exceeds the cost of leverage, the Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from the
securities purchased is not sufficient to cover the cost of leverage, the Fund's
net income will be less than if leverage had not been used, and therefore the
amount available for distribution to Common Stock shareholders will be reduced.
In this case, the Fund may nevertheless decide to maintain its leveraged
position in order to avoid capital losses on securities purchased with leverage.
However, the Fund will not generally utilize leverage if it anticipates that its
leveraged capital structure would result in a lower rate of return for its
Common Stock than would be obtained if the Common Stock were unleveraged for any
significant amount of time.
Quality Profile*
The quality ratings of securities in the Fund as of November 30, 1997 were as
follows:
- -------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- -------------------------------------------------------
BBB/Baa................................... 4.7%
BB/Ba..................................... 33.7
B/B....................................... 61.2
C/C....................................... 4.5
NR(Not Rated)............................. 9.7
- -------------------------------------------------------
* 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.
<PAGE>
Corporate High Yield Fund, Inc., November 30, 1997
DEAR SHAREHOLDER
High-Yield Market Overview
The six-month period ended November 30, 1997 started with investor
complacency--followed by inflationary concerns and fall-out from turbulence in
Pacific Rim markets--and ended with renewed investor confidence. During the
six-month period, the high-yield bond market posted modest gains, but
underperformed other investment alternatives. Total returns for the six-month
and three-month periods ended November 30, 1997 are compared in the table below.
- --------------------------------------------------------------------------------
Six Months Three Months
Ended Ended
November 30, November 30,
1997 1997
- --------------------------------------------------------------------------------
CS First Boston High
Yield Index + 6.87% +2.69%
Standard & Poor's
500 Index +13.63% +6.67%
Ten-Year Treasury
Securities + 8.89% +5.08%
- --------------------------------------------------------------------------------
During the past six months, returns on high-yield bonds lagged US Treasury bonds
of comparable maturity. Yield spreads widened from 334 basis points (3.34%) at
May 31, 1997 to 369 basis points at November 30, 1997. Treasury bonds have
benefited from the turmoil in Asian markets. Returns on high-yield issues
reflected continued cash inflows to the market and favorable equity markets, but
were dampened somewhat by concerns over potential erosion in future corporate
earnings as well as a heavy new-issue calendar. Bonds of companies in emerging
markets were particularly hard hit in light of potentially slowing Asian
economic growth.
Despite recent market volatility, we believe that prospects for the high-yield
market are generally favorable. The economic environment remains benign. Trends
in credit quality remain positive. Merger and acquisition activity and equity
issuance have strengthened credit quality for many high-yield issuers. Portfolio
holdings benefiting from this trend included Brooks Fiber Properties Inc., which
agreed to be acquired by WorldCom Inc., as well as Sinclair Broadcasting Group
Inc. and Fresh Del Monte Corp., which tapped the equity markets in recent
months. During the six-month period ended November 30, 1997, market technicals
continued to favor the high-yield market. Cash flows into the high-yield market
remained healthy, thanks in part to more modest yields obtained elsewhere. Heavy
supply has been and is likely to continue to be offset in part by redemption of
callable bonds. Our favorable market outlook is tempered by the still-modest
yield pick up to be obtained from investing in high-yield securities as opposed
to Treasury securities. The yield spread to Treasury securities continues to
suggest that much of the good news is priced into the market.
Fund Performance
For the six months ended November 30, 1997, the total investment return on the
Fund's Common Stock was +6.61%, based on a change in the per share net asset
value from $13.74 to $13.94, and assuming reinvestment of $0.702 per share
income dividends. During the same period, the net annualized yield of the Fund's
Common Stock was 10.06%. The Fund's performance for the six-month period
primarily reflects the defensive market posture we have maintained over the past
year.
Leverage Strategy
For the six months ended November 30, 1997, our leverage position was
considerably lower than that of many other closed-end leveraged high-yield
funds. The Fund was on average 10.6% leveraged over the six-month period. Thus,
the Fund borrowed the equivalent of 10.6% of total assets invested, earning
incremental yield on the investments we made with the borrowed funds. Our
leverage position during the past six months reflects our caution on the
direction of high-yield bond prices. With recent market volatility and widening
yield spreads, we modestly increased use of leverage. On November 30, 1997, the
Fund was 13.2% leveraged, having borrowed $45.7 million at a borrowing cost of
5.82%. With high-yield fundamentals and technicals supporting the high-yield
market, we intend to increase our use of leverage somewhat in the near term.
(For a complete explanation of the benefits and risks of leveraging, see page 1
of this report to shareholders.)
Investment Strategy
Our approach to the market continues to be selective, favoring companies with
strong fundamentals whose bonds we believe represent good value. As an example,
in recent months we added positions in several healthcare names at attractive
levels. These names included Vencor Inc., Paragon Health Corp., Fresenius
Medical Care AG and Kinetic Concepts, Inc. Healthcare had been significantly
underrepresented in the portfolio in response to previously full valuation
levels.
The emerging markets sector, despite its volatility, also represents
above-average relative value, in our opinion. This sector includes issuers
domiciled in countries with below investment-grade bond ratings on US dollar
borrowings. Since the ratings services will not generally rate a company's bonds
higher than the bonds issued by the country in which it is domiciled, a number
of world-class, financially strong corporations from Brazil, Mexico, Argentina,
Venezuela and Indonesia have issued high-yield bonds. These bonds offer higher
yields than similarly rated bonds of US domiciled issuers. We believe that the
magnitude of these yield spreads are unwarranted, particularly during the period
of currency turbulence experienced around the world in October and November.
Portfolio Characteristics
Communications and media remain our largest broad industry category, totaling
nearly 27% of total long-term investments. Of the narrowly classified sectors,
the largest industries were: paper & forest products, 9.4%; transportation,
7.0%; energy, 6.8%; utilities, 6.8%; and media & communications--international,
6.3%. Non-US bonds totaled 27.4% of the portfolio, with emerging market issues
accounting for 11.4% of total long-term investments. See the "Foreign Holdings"
table on page 15 of this report to shareholders for the distribution of non-US,
dollar-denominated investments in the portfolio. At November 30, 1997, the
average maturity for the portfolio was 6 years, 9 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
Vincent T. Lathbury III
Vice President and Portfolio Manager
/s/ Elizabeth M. Phillips
Elizabeth M. Phillips
Vice President and Portfolio Manager
January 5, 1998
Proxy Results
During the six-month period ended November 30, 1997, Corporate High Yield Fund,
Inc. stockholders voted on the following proposals. The proposals were approved
at the annual stockholders' meeting on September 11, 1997. The description of
each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: Joe Grills 22,071,304 504,400
Walter Mintz 22,078,895 496,809
Robert S. Salomon Jr. 22,075,329 500,375
Melvin R. Seiden 22,069,214 506,490
Stephen B. Swensrud 22,074,020 501,684
Arthur Zeikel 22,064,161 511,543
<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. 22,088,775 96,038 390,890
- ---------------------------------------------------------------------------------------------------
</TABLE>
2 & 3
<PAGE>
Corporate High Yield Fund, Inc., November 30, 1997
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 & B- B2 $ 1,850,000 L-3 Communications Corp., 10.375% due 5/01/2007 $ 1,850,000 $ 1,998,000
Defense - 0.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Airlines - 1.1% USAir Inc.:
B+ B1 2,532,719 11.20% due 3/19/2005** 2,228,792 2,882,082
B+ B1 500,000 10.375% due 3/01/2013 477,500 557,270
------------ ------------
2,706,292 3,439,352
- ------------------------------------------------------------------------------------------------------------------------------------
Automotive - 1.2% B B3 1,875,000 Collins & Aikman Corp., 11.50% due 4/15/2006 1,875,000 2,118,750
B+ B2 1,875,000 Venture Holdings Trust, 9.50% due 7/01/2005 (e) 1,809,261 1,870,313
------------ ------------
3,684,261 3,989,063
- ------------------------------------------------------------------------------------------------------------------------------------
Broadcasting/Radio B- B2 3,750,000 EZ Communications, Inc., 9.75% due 12/01/2005 3,796,875 4,115,625
& Television - 2.4% B B2 1,500,000 Sinclair Broadcast Group Inc., 10% due 9/30/2005 1,483,125 1,582,500
B B2 1,875,000 Young Broadcasting Corporation, 11.75%
due 11/15/2004 2,085,938 2,067,188
------------ ------------
7,365,938 7,765,313
- ------------------------------------------------------------------------------------------------------------------------------------
Building BB+ B1 1,875,000 CEMEX S.A. de C.V., 12.75% due 7/15/2006 (e) 1,875,000 2,268,750
Materials - 0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Cable - 5.0% CCC+ Caa 5,963,099 American Telecasting, Inc., 13.651%* due 6/15/2004 4,903,660 2,087,085
B- B2 3,750,000 EchoStar Communications Corp., 10.923%* due 6/01/2004 3,405,704 3,375,000
B B2 3,000,000 Intermedia Capital Partners L.P., 11.25% due 8/01/2006 3,011,250 3,322,500
BB- B2 3,750,000 Lenfest Communications, Inc., 10.50% due 6/15/2006 3,803,438 4,115,625
BB+ Ba3 1,500,000 TCI Communications Inc., 9.65% due 3/31/2027 1,636,875 1,734,885
B- B3 5,747,000 Wireless One Inc., 13.50%* due 8/01/2006 3,438,765 1,609,160
------------ ------------
20,199,692 16,244,255
- ------------------------------------------------------------------------------------------------------------------------------------
Cable- Australis Media Ltd. (d):
International - 3.6% D C 61,314 1.75%/15.75% due 5/15/2003 41,448 14,780
NR++ NR++ 6,922,000 1.75%/15.75% due 5/15/2003 (c) 4,874,096 2,016,230
Diamond Cable Communications PLC*:
B- B3 2,625,000 10.772% due 12/15/2005 1,961,473 1,981,875
B- B3 5,000,000 11.387% due 2/15/2007 3,067,186 3,300,000
B- B3 1,500,000 International Cabletel Inc., 10% due 2/15/2007 1,500,938 1,571,250
B- B3 3,500,000 NTL, Inc., Series B, 11.643%* due 2/01/2006 2,433,631 2,642,500
------------ ------------
13,878,772 11,526,635
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals - 0.5% B+ B2 1,500,000 Huntsman Corporation, 9.50% due 7/01/2007 (e) 1,500,000 1,560,000
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Services/ BB- Ba1 3,000,000 Advanced Micro Devices Inc., 11% due 8/01/2003 3,116,250 3,180,000
Electronics - 2.4% B- B2 2,250,000 Amphenol Corporation, 9.875% due 5/15/2007 2,250,000 2,368,125
B B2 2,000,000 Celestica International Inc., 10.50% due 12/31/2006 2,000,000 2,127,500
------------ ------------
7,366,250 7,675,625
- ------------------------------------------------------------------------------------------------------------------------------------
Conglomerates - Sequa Corp.:
1.6% BB B1 2,000,000 9.625% due 10/15/1999 2,055,000 2,045,000
B+ B3 3,000,000 9.375% due 12/15/2003 2,941,250 3,116,250
------------ ------------
4,996,250 5,161,250
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Products - B B3 7,025,000 CLN Holdings Inc., 12.162%* due 5/15/2001 4,675,007 4,425,750
2.0% B B2 1,500,000 Revlon Consumer Products Corp., 9.375% due 4/01/2001 1,368,741 1,545,000
B+ B1 336,000 Samsonite Corporation, 11.125% due 7/15/2005 324,660 379,680
------------ ------------
6,368,408 6,350,430
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Services - B B2 3,325,000 Affinity Group, Inc., 11.50% due 10/15/2003 3,340,625 3,557,750
1.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified - 1.8% B- B3 3,750,000 Crain Industries, Inc., 13.50% due 8/15/2005 3,770,625 4,200,000
B- B2 1,500,000 Koppers Industries, Inc., 9.875% due 12/01/2007 (e) 1,500,000 1,522,500
------------ ------------
5,270,625 5,722,500
- ------------------------------------------------------------------------------------------------------------------------------------
Energy - 6.5% B+ B2 3,375,000 Benton Oil & Gas Co., 11.625% due 5/01/2003 3,375,000 3,720,937
B B1 3,250,000 KCS Energy Inc., 11% due 1/15/2003 3,338,125 3,558,750
BBB- Baa3 5,000,000 Oleoducto Centrale S.A., 9.35% due 9/01/2005 (e) 5,000,000 5,259,175
B+ B3 10,450,000 Transamerican Energy Corp., 13.163%* due 6/15/2002 (e) 8,552,669 8,255,500
------------ ------------
20,265,794 20,794,362
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment - 1.2% B B2 3,750,000 Six Flags Theme Parks, 9.937%* due 6/15/2005 3,840,000 3,984,375
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Services B Ba3 4,527,000 First Nationwide Holdings Inc., 10.625% due 10/01/2003 5,040,105 5,036,287
- - 3.4% BB- B1 5,000,000 Reliance Group Holdings Inc., 9.75% due 11/15/2003 5,008,750 5,278,450
BB- NR++ 750,000 Veritas Holdings, 9.625% due 12/15/2003 756,563 798,750
------------ ------------
10,805,418 11,113,487
- ------------------------------------------------------------------------------------------------------------------------------------
Food & Beverage - B B3 2,500,000 Curtice-Burns Foods, Inc., 12.25% due 2/01/2005 2,500,000 2,750,000
1.8% B+ B2 2,842,000 Fresh Del Monte Produce Corp., 10% due 5/01/2003 2,751,775 2,969,890
------------ ------------
5,251,775 5,719,890
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Government BB- B1 2,000,000 Republic of Brazil, 10.125% due 5/15/2027 1,799,180 1,773,000
Obligations - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Gaming - 6.4% 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 (b) 5,000,000 1,625,000
B+ B2 3,000,000 Station Casinos, Inc., 9.75% due 4/15/2007 2,977,962 3,022,500
BB- B1 5,000,000 Trump Atlantic City, 11.25% due 5/01/2006 5,000,000 4,950,000
NR++ Caa 2,250,000 Trump Castle Funding Inc., 11.75% due 11/15/2003 2,099,633 2,098,125
Venetian Casino Resort LLC (e):
CCC+ Caa1 2,000,000 10% due 11/15/1999 1,859,001 1,870,000
B- B3 1,750,000 12.25% due 11/15/2004 1,697,188 1,767,500
------------ ------------
24,563,784 20,493,125
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4 & 5
<PAGE>
Corporate High Yield Fund, Inc., November 30, 1997
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>
Health Services - B B3 $ 3,750,000 ALARIS Medical Systems, Inc., 9.75% due 12/01/2006 $ 3,791,250 $ 3,909,375
5.0% B- B2 1,500,000 Extendicare Health Services, 9.35% due 12/15/2007 (e) 1,500,000 1,500,000
B+ Ba3 1,500,000 Fresensius Medical Care AG, 9% due 12/01/2006 1,571,250 1,563,750
B- B3 1,500,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 (e) 1,500,000 1,503,750
B- B3 1,500,000 Paragon Health Network, Inc., 9.50% due 11/01/2007 (e) 1,493,310 1,496,250
B+ B2 3,000,000 Quest Diagnostic Inc., 10.75% due 12/15/2006 3,000,000 3,270,000
B B1 3,000,000 Vencor, Inc., 8.625% due 7/15/2007 2,962,500 2,947,500
------------ ------------
15,818,310 16,190,625
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels - 1.0% BB- Ba3 3,000,000 HMH Properties Inc., 8.875% due 7/15/2007 3,003,750 3,090,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels & Casinos - B+ B2 2,250,000 Hollywood Casino Corp., 12.75% due 11/01/2003 2,428,125 2,418,750
0.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Independent Power BB- Ba3 1,500,000 Calpine Corporation, 8.75% due 7/15/2007 (e) 1,494,530 1,515,000
Producers - 1.6% BB Ba3 3,380,536 Midland Cogeneration Venture Limited Partnership,
10.33% due 7/23/2002** 3,312,925 3,690,666
------------ ------------
4,807,455 5,205,666
- ------------------------------------------------------------------------------------------------------------------------------------
Media & BB- Ba3 3,000,000 Antenna TV S.A., 9% due 8/01/2007 (e) 2,906,283 2,940,000
Communications Call-Net Enterprises, Inc.*:
International - 7.1% BB- B1 3,750,000 10.927% due 12/01/2004 3,179,360 3,375,000
BB- B1 3,500,000 9.27% due 8/15/2017 2,284,322 2,345,000
BB- B1 2,500,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 (e) 2,500,000 2,425,000
BB- B1 2,250,000 Globo Communicacoes Participacoes, Ltd., 10.50%
due 12/20/2006 (e) 2,244,427 2,103,750
BB Ba3 3,750,000 Grupo Televisa S.A., 11.375% due 5/15/2003 3,750,000 4,087,500
BBB- Ba3 5,000,000 Telefonica de Argentina S.A., 11.875% due 11/01/2004 4,900,400 5,693,750
------------ ------------
21,764,792 22,970,000
- ------------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - CCC+ B2 4,200,000 Kaiser Aluminum & Chemical Corp., 12.75% due 2/01/2003 4,389,000 4,494,000
4.7% CCC+ B3 8,000,000 Maxxam Group, Inc., 12.25%* due 8/01/2003 7,386,417 7,280,000
B B3 3,000,000 Westmin Resources Ltd., 11% due 3/15/2007 3,000,000 3,330,000
------------ ------------
14,775,417 15,104,000
- ------------------------------------------------------------------------------------------------------------------------------------
Packaging - B+ Ba3 3,750,000 Vicap S.A., 11.375% due 5/15/2007 (e) 3,730,125 4,050,000
1.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Paper & Forest B B3 3,750,000 +Ainsworth Lumber Company, 12.50% due 7/15/2007 (e) 3,646,425 3,622,718
Products - 10.7% B B2 3,000,000 Bear Island Paper LLC, 10% due 12/01/2007 (e) 3,000,000 3,000,000
B+ B2 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 4,264,062 4,567,187
BB Ba3 1,875,000 Malette Inc., 12.25% due 7/15/2004 2,085,937 2,109,375
P.T. Pabrik Kertas Tjiwa Kimia:
BB Ba3 1,500,000 13.25% due 8/01/2001 1,665,000 1,563,750
BB Ba3 3,000,000 10% due 8/01/2004 (e) 2,983,650 2,730,000
Repap New Brunswick, Inc.:
CCC B2 2,000,000 9.875% due 7/15/2000 2,000,000 2,030,000
CC Caa 2,250,000 10.625% due 4/15/2005 2,163,750 2,182,500
B- B3 1,500,000 Riverwood International Corp., 10.25% due 4/01/2006 1,451,250 1,530,000
B+ B1 4,000,000 S.D. Warren Co., 12% due 12/15/2004 4,000,000 4,480,000
B+ B1 2,250,000 US Timberlands Klamath Falls, 9.625% due 11/15/2007 2,250,000 2,300,625
------------ ------------
33,590,074 34,416,155
- ------------------------------------------------------------------------------------------------------------------------------------
Product Distribution B- B3 3,000,000 AmeriServ Food Company, 10.125% due 7/15/2007 (e) 3,000,000 3,090,000
- - 1.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Publishing & Hollinger International, Inc.:
Printing - 1.7% BB+ Ba3 1,500,000 8.625% due 3/15/2005 1,492,500 1,533,750
BB- B1 1,500,000 9.25% due 3/15/2007 1,490,370 1,552,500
B B3 2,250,000 MDC Communications Corp., 10.50% due 12/01/2006 2,250,000 2,407,500
------------ ------------
5,232,870 5,493,750
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Retailing B+ B1 3,000,000 NBTY, Inc., 8.625% due 9/15/2007 (e) 2,975,250 2,940,000
- - 0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Steel - 0.6% NR++ B1 2,250,000 CSN Iron S.A., 9.125% due 6/01/2007 (e) 1,826,250 1,878,750
- ------------------------------------------------------------------------------------------------------------------------------------
Supermarkets - 1.0% NR++ Caa 3,750,000 Food 4 Less Supermarkets, Inc., 11.039%* due 7/15/2005 3,084,571 3,281,250
- ------------------------------------------------------------------------------------------------------------------------------------
Telephony/ NR++ NR++ 2,000,000 Brooks Fiber Properties Inc., 10.546%* due 11/01/2006 1,394,506 1,580,000
Competitive B+ B2 3,000,000 GCI Inc., 9.75% due 8/01/2007 3,000,000 3,075,000
Local Exchange B B2 1,500,000 Intermedia Communications Inc., 10.503%* due 7/15/2007 959,247 1,027,500
Carriers - 3.9% NR++ NR++ 3,750,000 Nextlink Communications Inc., 12.50% due 4/15/2006 3,750,000 4,256,250
B+ B1 2,250,000 Teleport Communications Group Inc., 9.875%
due 7/01/2006 2,374,875 2,475,000
------------ ------------
11,478,628 12,413,750
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 7.9% BB- NR++ 3,750,000 Autopistas del Sol S.A., 10.25% due 8/01/2009 (e) 3,675,000 3,525,000
BB- Ba2 4,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 4,013,750 4,080,000
GS Superhighway Holdings (e):
BB Ba3 1,500,000 9.875% due 8/15/2004 1,496,250 1,410,000
BB Ba3 1,500,000 10.25% due 8/15/2007 1,505,625 1,372,500
BB- B1 3,750,000 Sea Containers Ltd., 12.50% due 12/01/2004 4,106,250 4,237,500
NR++ B3 4,250,000 Transtar Holdings, Inc., 12.625%* due 12/15/2003 3,334,700 3,655,000
B- B3 5,250,000 Trism Inc., 10.75% due 12/15/2000 5,000,625 5,184,375
BB Ba2 2,125,000 Viking Star Shipping Co., Inc., 9.625% due 7/15/2003 1,969,531 2,146,250
------------ ------------
25,101,731 25,610,625
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities - 7.7% B+ Ba1 4,500,000 AES Corporation, 8.50% due 11/01/2007 (e) 4,491,000 4,455,000
BB- B1 2,954,000 Beaver Valley Funding Corp., 9% due 6/01/2017** 2,281,160 3,249,282
BB- NR++ 2,937,000 First PV Funding Corp., 10.30% due 1/15/2014** 3,126,347 3,205,970
BBB- Ba3 4,000,000 Metrogas S.A., 12% due 8/15/2000 3,997,500 4,300,000
BB- Ba3 4,000,000 Texas-New Mexico Power Co., 10.75% due 9/15/2003 4,085,000 4,350,000
NR++ NR++ 5,106,532 Tucson Electric & Power Co., 10.21%
due 1/01/2009** (f) 4,798,574 5,347,305
------------ ------------
22,779,581 24,907,557
</TABLE>
6 & 7
<PAGE>
Corporate High Yield Fund, Inc., November 30, 1997
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>
Waste Management - D Ca $ 4,000,000 Mid-American Waste Systems, Inc., 12.25% due
0.3% 2/15/2003 (b) $ 3,002,551 $ 1,120,000
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless CCC B3 3,000,000 Cencall Communications Corp., 13.935%* due 1/15/2004 2,202,785 2,621,250
Communications - CCC B3 4,600,000 Nextel Communications Inc., 12.819%* due 8/15/2004 3,481,005 3,967,500
Domestic Paging & B- B3 3,000,000 Western Wireless Corp., 10.50% due 2/01/2007 2,987,812 3,217,500
Cellular - 3.0% 8,671,602 9,806,250
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless CCC+ B3 6,750,000 Cellular Communications International, Inc., 11.89%*
due 8/15/2000 4,911,792 5,298,750
Communications - B+ B3 6,208,000 Comunicacion Celular S.A., 13.154%* due 11/15/2003 4,240,672 4,656,000
International Paging CCC NR++ 3,750,000 McCaw International Ltd., 11.757%* due 4/15/2007 2,375,741 2,137,500
& Cellular - 4.8% B- B3 4,500,000 Millicom International Cellular S.A., 13.803%*
due 6/01/2006 2,791,953 3,285,000
------------ ------------
14,320,158 15,377,250
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds - 108.8% 348,319,304 350,501,540
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
Held Common Stocks
- ------------------------------------------------------------------------------------------------------------------------------------
Energy - 1.3% 321,384 CHI Energy Inc. (Series A) (b) 5,096,857 4,177,992
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment - 191,749 On Command Corporation (b) 5,573,706 2,324,957
0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Supermarkets - 70,697 Grand Union Co. (b) 4,152,500 189,998
0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless 10,611 Nextel Communications Inc. (Class A) (b) 171,223 267,928
Communications -
Domestic Paging &
Cellular - 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Common Stocks - 2.1% 14,994,286 6,960,875
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks & Warrants
- ------------------------------------------------------------------------------------------------------------------------------------
Cable - 0.0% 45,725 American Telecasting, Inc. (Warrants) (a) 0 18,290
5,747 Wireless One, Inc. (Warrants) (a) 121,377 575
------------ ------------
121,377 18,865
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment - 1.9% 61,014 On Command Corporation (Series B) (Warrants) (a) 488,120 301,257
5,041 Time Warner Inc. (Series M) 5,528,197 5,746,740
------------ ------------
6,016,317 6,047,997
- ------------------------------------------------------------------------------------------------------------------------------------
Telephony/Competitive 1,617 +Intermedia Communications Inc. (Series A)
Local Exchange (Convertible) 1,626,067 1,883,805
Carriers - 0.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless 772 +Nextel Communications Inc. (e) 774,915 853,060
Communications -
Domestic Paging &
Cellular - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless 3,750 Cellular Communications International Inc.
Communications - (Warrants) (a) 90,489 56,250
International Paging 6,208 Comunicacion Celular S.A. (Warrants) (a)(e) 6,782 40,352
& Cellular - 0.0% ------------ ------------
97,271 96,602
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Stocks & Warrants - 2.8% 8,635,947 8,900,329
- ------------------------------------------------------------------------------------------------------------------------------------
Face
Amount Short-Term Securities
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial $269,000 General Motors Acceptance Corp., 5.75% due 12/01/1997 269,000 269,000
Paper*** - 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities - 0.1% 269,000 269,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments - 113.8% $372,218,537 366,631,744
============
Liabilities in Excess of Other Assets - (13.8%) (44,430,978)
------------
Net Assets - 100.0% $322,200,766
============
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
(b) Non-income producing security.
(c) Each $1,000 face amount contains one warrant of Australis Media Ltd.
(d) 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.
(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 $5,347,000, representing 1.7% of
net assets.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Acquisition Value
Issue Dates Cost (Note 1a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tucson Electric & Power Co., 10.21% due 1/01/2009 6/25/1993-
7/28/1993 $4,798,574 $5,347,305
- ----------------------------------------------------------------------------------------------
Total $4,798,574 $5,347,305
========== ==========
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8 & 9
<PAGE>
Corporate High Yield Fund, Inc., November 30, 1997
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of November 30, 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$372,218,537) (Note 1a)............ $366,631,744
Cash....................................................................... 1,706,632
Receivables:
Interest................................................................. $ 7,109,363
Securities sold.......................................................... 2,050,692
Dividends................................................................ 3,004 9,163,059
Deferred organization expenses (Note 1e)................................... ----------- 18,271
Prepaid expenses and other assets.......................................... 81,050
------------
Total assets............................................................... 377,600,756
------------
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities: Loans (Note 5)............................................................. 45,700,000
Payables:
Securities purchased..................................................... 9,122,378
Interest on loans (Note 5)............................................... 427,096
Investment adviser (Note 2).............................................. 138,510 9,687,984
Accrued expenses and other liabilities..................................... ----------- 12,006
------------
Total liabilities.......................................................... 55,399,990
------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets................................................................. $322,200,766
============
- --------------------------------------------------------------------------------------------------------------------------------
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized................ $ 2,310,866
Paid-in capital in excess of par........................................... 323,002,164
Undistributed investment income--net........................................ 3,535,137
Accumulated realized capital losses on investments--net (Note 6)............ (1,060,608)
Unrealized depreciation on investments--net................................. (5,586,793)
------------
Total--Equivalent to $13.94 per share based on 23,108,658 shares of
capital stock outstanding (market price $14.875)........................... $322,200,766
============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended November 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income Interest and discount earned........................................................ $ 17,422,648
(Note 1d): Dividends........................................................................... 801,464
Other............................................................................... 198,088
------------
Total income........................................................................ 18,422,200
------------
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses: Loan interest expense (Note 5)...................................................... 1,165,651
Investment advisory fees (Note 2)................................................... 904,031
Professional fees................................................................... 91,626
Borrowing costs (Note 5)............................................................ 61,747
Transfer agent fees................................................................. 29,602
Printing and shareholder reports.................................................... 24,405
Accounting services (Note 2) ....................................................... 22,025
Directors' fees and expenses........................................................ 19,448
Custodian fees...................................................................... 11,925
Amortization of organization expenses (Note 1e)..................................... 8,286
Pricing services.................................................................... 3,590
Other............................................................................... 18,714
------------
Total expenses...................................................................... 2,361,050
------------
Investment income--net.............................................................. 16,061,150
------------
- ---------------------------------------------------------------------------------------------------------------------------------
Realized & Unrealized Realized gain on investments--net................................................... 5,593,562
Gain (Loss) on Change in unrealized depreciation on investments--net............................... (982,321)
Investments--Net ------------
(Notes 1b, 1d & 3) Net Increase in Net Assets Resulting from Operations................................ $ 20,672,391
============
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Nov. 30, 1997 May 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net................................................................ $ 16,061,150 $ 32,116,435
Realized gain (loss) on investments--net.............................................. 5,593,562 (223,424)
Change in unrealized depreciation on investments--net................................. (982,321) 2,092,741
------------ ------------
Net increase in net assets resulting from operations................................. 20,672,391 33,985,752
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net................................................................ (16,095,453) (32,632,299)
Shareholders ------------ ------------
(Note 1f): Net decrease in net assets resulting from dividends to shareholders.................. (16,095,453) (32,632,299)
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment of dividends .... 4,714,571 10,651,397
Transactions ------------ ------------
(Note 4): Net increase in net assets derived from capital stock transactions................... 4,714,571 10,651,397
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets......................................................... 9,291,509 12,004,850
Beginning of period.................................................................. 312,909,257 300,904,407
============ ============
End of period*....................................................................... $322,200,766 $312,909,257
============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net................................................. $ 3,535,137 $ 3,569,440
============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Corporate High Yield Fund, Inc., November 30, 1997
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended November 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Provided by Net increase in net assets resulting from operations............................. $ 20,672,391
Operating Activities: Adjustments to reconcile net increase (decrease) in net assets resulting
from operations to net cash provided by operating activities:
Increase in receivables........................................................ (221,731)
Increase in other assets....................................................... (15,078)
Decrease in other liabilities.................................................. (1,371,151)
Realized and unrealized gain on investments--net................................ (4,611,241)
Amortization of discount....................................................... (3,558,122)
------------
Net cash provided by operating activities........................................ 10,895,068
------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Used for Proceeds from sales of long-term investments..................................... 132,556,093
Investing Activities: Purchases of long-term investments............................................... (148,112,213)
Purchases of short-term investments.............................................. (63,091,434)
Proceeds from sales and maturities of short-term investments..................... 63,140,000
------------
Net cash used for investing activities........................................... (15,507,554)
------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Provided by Cash receipts from borrowings.................................................... 101,900,000
Financing Activities: Cash payments on borrowings...................................................... (84,200,000)
Dividends paid to shareholders................................................... (11,380,882)
------------
Net cash provided by financing activities........................................ 6,319,118
------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cash: Net increase in cash............................................................. 1,706,632
Cash at beginning of period...................................................... 0
------------
Cash at end of period............................................................ $ 1,706,632
============
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flow Cash paid for interest........................................................... $ 953,697
Information: ============
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Cash Financing Reinvestment of dividends paid to shareholders................................... $ 4,714,572
Activities: ============
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have For the Period
been derived from information provided Six Months For the Year June 25,
in the financial statements. Ended Ended May 31, 1993+ to
Nov. 30, ------------------------------ May 31,
Increase (Decrease) in Net Asset Value: 1997++ 1997++ 1996++ 1995++ 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period............. $ 13.74 $ 13.68 $ 13.35 $ 13.21 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net........................... .70 1.44 1.46 1.62 1.30
Realized and unrealized gain (loss) on
investments--net................................. .20 .08 .33 .14 (1.10)
-------- -------- -------- -------- --------
Total from investment operations................. .90 1.52 1.79 1.76 .20
-------- -------- -------- -------- --------
Less dividends from investment income--net....... (.70) (1.46) (1.46) (1.62) (1.17)
-------- -------- -------- -------- --------
Net asset value, end of period................... $ 13.94 $ 13.74 $ 13.68 $ 13.35 $ 13.21
======== ======== ======== ======== ========
Market price per share, end of period............ $ 14.875 $ 14.125 $ 13.375 $ 13.625 $ 13.875
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Total
Investment Based on market price per share.................. 10.66%+++ 17.44% 9.35% 11.67% .36%+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share............... 6.61%+++ 11.69% 14.15% 14.92% 1.08%+++
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to
Average Expenses, excluding interest expense............. .66%* .66% .70% .69% .68%*
======== ======== ======== ======== ========
Expenses......................................... 1.31%* 1.27% 1.62% 2.53% 1.76%*
======== ======== ======== ======== ========
Investment income--net........................... 8.91%* 9.43% 9.20% 9.03% 7.55%*
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Leverage: Amount of borrowings outstanding, end of
period (in thousands)............................ $ 45,700 $ 28,000 $ 54,000 $ 46,000 $124,000
======== ======== ======== ======== ========
Average amount of borrowings outstanding
during the period (in thousands)................. $ 40,020 $ 36,667 $ 49,424 $107,934 $ 98,601
======== ======== ======== ======== ========
Average amount of borrowings outstanding per
share during the period........ ................. $ 1.75 $ 1.64 $ 2.27 $ 5.13 $ 4.78
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands)......... $322,201 $312,909 $300,904 $287,285 $272,737
Data: ======== ======== ======== ======== ========
Portfolio turnover............................... 37.14% 52.91% 65.68% 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.
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 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
12 & 13
<PAGE>
Corporate High Yield Fund, Inc., November 30, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
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 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.
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.
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 six months ended November 30, 1997, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), $4,019 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 six
months ended November 30, 1997 were $157,234,591 and $131,878,669, respectively.
Net realized and unrealized gains (losses) as of November 30, 1997 were as
follows:
- --------------------------------------------------------------------------
Realized Unrealized
Gains Losses
- --------------------------------------------------------------------------
Long-term investments...................... $5,593,562 $(5,586,793)
---------- -----------
Total...................................... $5,593,562 $(5,586,793)
========== ===========
- --------------------------------------------------------------------------
As of November 30, 1997, net unrealized depreciation for D reporting and Federal
income tax purposes aggregated $5,586,793, of which $18,542,320 related to
appreciated securities and $24,129,113 related to depreciated securities. The
aggregate cost of investments at November 30, 1997 for Federal income tax
purposes was $372,218,537.
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 six months ended November 30, 1997 and
the year ended May 31, 1997 increased by 334,059 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 six months ended November
30, 1997, the maximum amount borrowed was $58,300,000, the average amount
borrowed was approximately $40,020,000 and the daily weighted average interest
rate was 5.84%. For the six months ended November 30, 1997, facility and
commitment fees aggregated $61,747.
6. Capital Loss Carryforward:
At May 31, 1997, the Fund had a net capital loss carryforward of approximately
$6,234,000, of which $4,105,000 expires in 2003, $1,820,000 expires in 2004 and
$309,000 expires in 2005. This amount will be available to offset like amounts
of any future taxable gains.
7. Subsequent Event:
On December 1, 1997, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.109594 per share,
payable on December 18, 1997 to shareholders of record as of December 11, 1997.
PORTFOLIO INFORMATION
As of November 30, 1997
- --------------------------------------------------------------------------------
Percent of
Ten Largest Corporate Holdings Net Assets
Transamerican Energy Corp. ....................................... 2.3%
Maxxam Group, Inc. ............................................... 2.0
Time Warner Inc. (Series M) ...................................... 1.6
Call-Net Enterprises, Inc. ....................................... 1.6
Telefonica de Argentina S.A ...................................... 1.6
Cellular Communications International, Inc. ...................... 1.5
Tucson Electric & Power Co. ...................................... 1.5
Diamond Cable Communications PLC ................................. 1.4
Reliance Group Holdings Inc. ..................................... 1.4
Oleoducto Centrale S.A ........................................... 1.4
Foreign Holdings
Total Foreign Holdings ........................................... 27.4%
Emerging Markets Holdings ........................................ 11.4
Top Five Foreign Countries
Canada ........................................................... 5.6%
Argentina ........................................................ 3.5
Brazil ........................................................... 2.7
Mexico ........................................................... 2.7
Colombia ......................................................... 2.6
14 & 15
<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
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Vincent T. Lathbury III, 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--11/97
[LOGO] Printed on post-consumer recycled paper
