MERRILL LYNCH
CORPORATE
HIGH YIELD
FUND, INC.
FUND LOGO
Annual Report
March 31, 1999
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Corporate High Yield Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH CORPORATE HIGHYIELD FUND, INC.
TO OUR SHAREHOLDERS
The High-Yield Market
During the quarter ended March 31, 1999, the high-yield market
produced excellent returns as it rebounded from distressed
conditions that prevailed during the August-October 1998 collapse.
The benchmark unmanaged CS First Boston High Yield Index registered
a total return of +1.64% in contrast to the -3.27% return provided
by ten-year US Treasury securities. In our opinion, the divergence
between the two markets reflects a reversal of the flight to quality
that characterized financial markets during August 1998-November
1998. World economies are normalizing, and the financial markets
reflect the improvement, in our view.
The credit quality outlook within the high-yield universe is
generally good, but with pockets of weakness. The high-yield market
continued to benefit from merger and acquisition activity,
particularly in the communications area, with both equity injections
and acquisitions producing ratings upgrades. Cyclical industries,
such as paper and steel, are improving. On the other hand, the bonds
of issuers in certain industries experiencing negative fundamentals,
such as oil and gas production and nursing home/extended care, have
fallen drastically. We believe the weakness is exacerbated by
dealers' lack of willingness to commit liquidity and by the low
tolerance to risk on the part of investors still smarting from last
year's debacle. This extreme risk aversion has created opportunities
in selected issues, which appear to have declined below reasonable
levels.
In our view, the high-yield market is attractive for the following
reasons.
Valuations are compelling. Yield spreads between high-yield and
Treasury securities narrowed by approximately 3.75% during the first
quarter of 1999 but remain wide at approximately 6%. This means that
an investor receives approximately 6% of additional yield for
assuming the higher credit risk and lesser liquidity of high-yield
bonds. In our opinion, this spread is quite attractive given the
relatively benign credit conditions currently prevailing.
The economic and interest rate outlook is likely to remain
favorable, in our view. We expect an environment of modest economic
growth and stable interest rates to continue. We believe that it is
unlikely that last year's liquidity debacle will recur and that as
memories fade, risk aversion is likely to moderate.
Technical conditions are positive. Last year most asset allocators,
hedge funds and other opportunistic investors abandoned the high-
yield market. The flow of new money into mutual funds was relatively
low in the first quarter, reflecting the modest expectations of
investors. We believe that greater awareness of valuation will
accelerate cash flows and result in improved bond prices.
Portfolio Strategy
Given our positive view on the high-yield market, we are structuring
the portfolio to seek to take advantage of anticipated rising bond
prices. The portfolio continues to receive steady cash flows from
new investors. Since the secondary market has been illiquid and
depressed, we have chosen to use these new assets to add to
positions where valuations appear compelling. This has reduced the
cost basis of a number of holdings initiated since the Fund's
inception (May 1, 1998) and the collapse of the high-yield market
last fall. These bonds are trading at a discount to par and provide
good upside potential in an improving market, in our view.
We sold smaller positions if we were unwilling to add to them and
selectively participated in the new-issue market. We also added new
issues that have full five-year call protection and therefore
provide good upside potential in an environment of falling yields.
The overall quality of issues in the Fund is somewhat higher than
the market (as measured by CS First Boston High Yield Index),
although recent attractive pricing of B-rated issues has brought us
closer to the B+ average in the last few months.
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
Given investors' current aversion to risk, it has been easy to
identify attractive investments. Consequently, our cash position has
been low, and at March 31, 1999, was 3.1% of net assets.
In Conclusion
We appreciate your ongoing investment in Merrill Lynch Corporate
High Yield Fund, Inc., and we look forward to assisting you with
your financial needs in the months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Senior Vice President and Portfolio Manager
May 17, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Corporate High
Yield Fund, Inc.'s Board of Directors. We are pleased to announce
that Terry K. Glenn has been elected President and Director of the
Fund. Mr. Glenn has held the position of Executive Vice President of
MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
<TABLE>
PORTFOLIO INFORMATION
<CAPTION>
As of March 31, 1999
Percent of
Ten Largest Corporate Holdings Net Assets
<S> <S> <C>
HMH Properties, Inc. HMH, a wholly-owned subsidiary of Host Marriott Corporation, owns or holds controlling 2.1%
interests in 69 full-service hotels, comprising the majority of Host Marriott's lodging
properties. These properties are generally operated under the Marriott and Ritz-Carlton
brand names. Host Marriott manages most of the properties for fees based on revenues or
operating profit.
Impsat Corp. Impsat provides private network integrated data and voice services for national and 2.1
multinational companies and governmental agencies in Latin America.
Nextel Nextel offers digital and analog wireless communication services throughout the United 1.9
Communications, States. The Company's digital service currently covers approximately 50% of the total US
Inc. population and, once completed, will enable Nextel to offer nationwide digital wireless service.
Stena AB Scandinavia's largest ferry operator, the company operates ferries between Scandinavia, 1.8
the United Kingdom, Ireland and Europe. It also owns and runs 30 passenger ships and
freighters. It operates through its Stena Line service and Lion Ferry subsidiaries.
TeleWest TeleWest is one of the largest UK cable TV and telephony operators with 37 franchises 1.7
Communications PLC covering 5.7 million homes and 365,000 businesses.
PharMerica, Inc. PharMerica, Inc. provides pharmacy products and services to patients in nursing facilities, 1.7
assisted living centers and hospitals. It was recently acquired by Bergen Brunswig Corp., an
investment-grade pharmaceutical company.
Call-Net Enterprises The company is the largest alternative provider of long distance telephone services in 1.6
Inc. 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 the
approximately 25% of Company's shares.
AEI Resources Inc. This is the fourth-largest steam coal company in the United States with good market share 1.6
and long-term contracts with electric utilities.
Ocean Energy Inc. The company is an independent energy company engaged in the exploration, development, 1.6
production and acquisition of crude oil and natural gas.
USAir Inc. US Air is the sixth-largest US airline, with major hubs in Pittsburgh, Charlotte, 1.5
Philadelphia, and Baltimore and routes covering most of the Eastern half of the country.
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
PORTFOLIO INFORMATION (concluded)
As of March 31, 1999
Quality Profile* Percent of
S&P Rating/Moody's Rating Long-Term Investments
BBB/Baa 2.2%
BB/Ba 33.4
B/B 60.5
CCC/Caa and Lower 3.9
[FN]
*In cases when bonds are rated differently by Standard & Poor's
Corporation and Moody's Investors Service, Inc., bonds are
categorized according to the higher of the two ratings.
Percent of
Five Largest Industries Net Assets
Health Services 8.2%
Energy 6.3
Telephone 5.6
Transportation 4.9
Cable--International 4.7
Geographic Profile Percent of
Top Five Foreign Countries* Net Assets
Canada 7.1%
United Kingdom 4.1
Argentina 3.3
Mexico 2.2
Brazil 2.0
[FN]
*All holdings are denominated in US dollars.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Richard R. West, Director
Arthur Zeikel, Director
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Aldona Schwartz, Vice President
Donald C. Burke, Vice President and Treasurer
Gerald M. Richard, Treasurer and Philip M. Mandel, Secretary of
Merrill Lynch Corporate High Yield Fund, Inc. have recently retired.
Their colleagues at Merrill Lynch Asset Management, L.P. join the
Fund's Board of Directors in wishing Mr. Richard and Mr. Mandel well
in their retirements.
Custodian
State Street Bank and Trust Company
One Heritage Drive, P2N
North Quincy, MA 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 4% and bear no ongoing distribution or account maintenance
fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.50% and an account
maintenance fee of 0.25%. These classes of shares automatically
convert to Class D Shares after approximately 10 years. (There is no
initial sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.55% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 4% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Aggregate Total Return" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the payable date. Investment return and principal value of shares
will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost. Dividends paid to each class of
shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
Standardized
3 Month Since Inception 30-Day Yield
Total Return Total Return As of 3/31/99
<S> <C> <C> <C>
ML Corporate High Yield Fund, Inc. Class A Shares* +4.51% +2.51% 9.37%
ML Corporate High Yield Fund, Inc. Class B Shares* +4.33 +1.80 8.82
ML Corporate High Yield Fund, Inc. Class C Shares* +4.31 +1.75 8.78
ML Corporate High Yield Fund, Inc. Class D Shares* +4.45 +2.28 8.96
Merrill Lynch High Yield US Corporates, Cash Pay Index** +1.08 +1.40
CS First Boston High Yield Index** +1.64 -1.49
Ten-Year US Treasury Securities*** -3.27 +6.65
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the payable date. The Fund
commenced operations on 5/01/98.
**Unmanaged. These market-weighted Indexes mirror the high-yield
debt market of securities rated BBB or lower. Since inception total
return for Merrill Lynch High Yield US Corporates, Cash Pay Index is
from 5/01/98 to 3/31/99. Since inception total return for CS First
Boston High Yield Index is from 4/30/98 to 3/31/99.
***Since inception total return is from 4/30/98 to 3/31/99.
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the
Fund's Class A & Class B Shares compared to growth of an
investment in the CS First Boston High Yield Index.
Beginning and ending values are:
5/01/98** 3/99
ML Corporate High Yield Fund, Inc.++--
Class A Shares* $ 9,600 $9,841
ML Corporate High Yield Fund, Inc.++--
Class B Shares* $10,000 $9,802
CS First Boston High Yield Index++++ $10,000 $9,851
A line graph depicting the growth of an investment in the
Fund's Class C & Class D Shares compared to growth of an
investment in the CS First Boston High Yield Index.
Beginning and ending values are:
5/01/98** 3/99
ML Corporate High Yield Fund, Inc.++--
Class C Shares* $10,000 $10,081
ML Corporate High Yield Fund, Inc.++--
Class D Shares* $ 9,600 $9,819
CS First Boston High Yield Index++++ $10,000 $9,851
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++Merrill Lynch Corporate High Yield Fund, Inc. invests primarily in
a diversified portfolio of corporate fixed-income securities that
are rated in the lower rating categories of the established rating
services (BBB/Baa or lower).
++++ This unmanaged market-weighted Index, which mirrors the high-
yield debt market, is comprised of securities rated BBB or below.
The starting date for the Index is from 4/30/98.
Past performance is not predictive of future performance.
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
PERFORMANCE DATA (concluded)
Aggregate Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Inception (5/01/98)
through 3/31/99 +2.51% -1.59%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (5/01/98)
through 3/31/99 +1.80% -1.98%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (5/01/98)
through 3/31/99 +1.75% +0.81%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (5/01/98)
through 3/31/99 +2.28% -1.81%
[FN]
*Maximum sales charge is 4%.
**Assuming maximum sales charge.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Bonds
Aerospace--1.7% B+ B1 $ 7,000,000 Hexcel Corp., 9.75% due 1/15/2009 (f) $ 7,000,000 $ 7,113,750
B+ B1 5,000,000 Kitty Hawk, Inc., 9.95% due 11/15/2004 4,893,750 4,825,000
-------------- --------------
11,893,750 11,938,750
Airlines--1.5% B B1 10,150,000 USAir Inc., 9.625% due 2/01/2001 10,581,375 10,417,351
Automotive--2.2% B B2 5,000,000 Collins & Aikman Products, 11.50% due
4/15/2006 5,081,250 5,312,500
BB+ Ba2 10,000,000 Federal-Mogul Corporation, 7.375% due
1/15/2006 (f) 9,958,300 9,826,670
-------------- --------------
15,039,550 15,139,170
Broadcasting-- CCC+ B3 3,000,000 Cumulus Media, Inc., 10.375% due 7/01/2008 3,000,000 3,255,000
Radio & B+ B2 1,500,000 Globo Comunicacoes e Participacoes, Ltd.,
Television-- 10.50% due 12/20/2006 735,000 982,500
2.0% B+ B2 7,500,000 Globo Comunicacoes e Participacoes, Ltd.,
10.50% due 12/20/2006 (f) 4,906,250 4,856,250
BB Ba2 5,000,000 Grupo Televisa, SA de CV, 11.875% due
5/15/2006 4,610,000 5,150,000
-------------- --------------
13,251,250 14,243,750
Cable--3.5% B+ B2 7,000,000 Bresnan Communications, 8% due
2/01/2009 (f) 7,000,000 7,227,500
B+ B2 7,000,000 Charter Communications Holding LLC,
8.625% due 4/01/2009 (f) 6,978,650 7,192,500
B B2 10,000,000 Echostar DBS Corp., 9.25% due
2/01/2006 (f) 10,000,000 10,387,500
-------------- --------------
23,978,650 24,807,500
Cable-- BB- Ba3 4,500,000 Century Communications Corporation,
Domestic--0.7% 9.75% due 2/15/2002 4,725,000 4,725,000
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Bonds (continued)
Cable-- B- B3 $10,000,000 NTL Incorporated, 11.753% due
International-- 10/01/2008 (c)(f) $ 6,109,051 $ 6,900,000
4.7% CCC Caa3 15,000,000 Supercanal Holdings SA, 11.50% due
5/15/2005 (f) 10,240,000 6,825,000
TeleWest Communications PLC:
B+ B1 7,000,000 10.793% due 10/01/2007 (c) 6,010,210 6,160,000
B+ B1 5,000,000 11.25% due 11/01/2008 (f) 5,000,000 5,850,000
B B3 11,000,000 United International Holdings, 12.37% due
2/15/2008 (a)(c) 6,581,121 7,521,250
-------------- --------------
33,940,382 33,256,250
Chemicals--0.7% BB- Ba3 5,000,000 ISP Holdings Inc., 9.75% due 2/15/2002 5,256,250 5,175,000
Child Care-- B- B3 8,750,000 Kindercare Learning Centers, Inc.,
1.3% 9.50% due 2/15/2009 8,652,500 8,837,500
Communications-- B+ B2 16,750,000 Impsat Corp., 12.375% due 6/15/2008 15,065,000 14,991,250
2.1%
Computer B B2 6,000,000 Hadco Corp., 9.50% due 6/15/2008 5,893,000 5,955,000
Services/ B- B2 6,000,000 Zilog Inc., 9.50% due 3/01/2005 4,732,500 5,010,000
Electronics-- -------------- --------------
1.6% 10,625,500 10,965,000
Conglomerates-- B- B3 5,000,000 Eagle-Picher Industries, 9.375%
1.3% due 3/01/2008 4,600,000 4,837,500
B+ NR* 5,000,000 Voto-Votorantim O/S Trading, 8.50% due
6/27/2005 (f) 4,638,750 4,256,250
-------------- --------------
9,238,750 9,093,750
Consumer B B3 10,000,000 Corning Consumer Products, 9.625% due
Products--2.3% 5/01/2008 9,428,219 7,950,000
B B2 8,500,000 Revlon Consumer Products, 9% due
11/01/2006 8,390,975 8,457,500
-------------- --------------
17,819,194 16,407,500
Consumer B- Caa3 3,500,000 AP Holdings Inc., 11.174% due
Services--1.7% 3/15/2008 (c) 2,284,850 2,012,500
BB+ Ba3 10,000,000 Protection One Alarm Monitoring, 8.125%
due 1/15/2009 (f) 10,000,000 10,250,000
-------------- --------------
12,284,850 12,262,500
Energy--6.3% B B3 4,720,000 Chesapeake Energy Corp., 9.625%
due 5/01/2005 4,784,350 3,953,000
BBB- Ba3 5,000,000 Compania Naviera Perez Compac
S.A.C.F.I.M.F.A., 9% due 1/30/2004 (f) 5,085,938 4,887,500
Ocean Energy Inc.:
BB+ Ba2 4,000,000 7.625% due 7/01/2005 3,882,500 3,830,000
BB- B1 7,000,000 8.375% due 7/01/2008 6,915,490 6,790,000
B- B3 6,000,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 5,840,000 4,230,000
B+ B1 6,000,000 Parker Drilling Co., 9.75% due 11/15/2006 6,077,500 5,010,000
BB- Ba3 5,000,000 RBF Finance Co., 11.375% due 3/15/2009 (f) 5,000,000 5,262,500
CCC Caa2 2,500,000 Southwest Royalties Inc., 10.50% due
10/15/2004 2,025,000 1,012,500
BB- B1 5,000,000 Tesoro Petroleum Corp., 9% due 7/01/2008 4,971,450 4,987,500
C Caa2 9,000,000 TransAmerican Energy Corp., 0/13% due
6/15/2002 (c) 5,713,468 2,261,250
B- B3 3,000,000 United Refining Co., 10.75% due 6/15/2007 2,865,000 2,115,000
-------------- --------------
53,160,696 44,339,250
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Bonds (continued)
Entertainment-- B+ B1 $ 6,275,000 Intrawest Corp., 9.75% due 8/15/2008 $ 6,326,480 $ 6,510,312
0.9%
Financial CCC+ Caa3 5,000,000 Amresco Inc., 9.875% due 3/15/2005 5,090,000 3,812,500
Services--1.2% BB+ Baa2 5,000,000 SB Treasury Company LLC, 9.40% due
12/29/2049 (d)(f) 4,980,000 4,908,900
-------------- --------------
10,070,000 8,721,400
Food & B B3 5,000,000 Agrilink Foods Inc., 11.875% due
Beverage--1.5% 11/01/2008 (f) 5,000,000 5,387,500
B+ B1 5,000,000 Chiquita Brands International Inc.,
9.125% due 3/01/2004 4,906,250 5,081,250
-------------- --------------
9,906,250 10,468,750
Gaming--3.8% Circus Circus Enterprises, Inc.:
BB+ Ba2 2,000,000 9.25% due 12/01/2005 2,000,000 2,090,000
BBB- Baa3 1,500,000 6.45% due 2/01/2006 1,365,000 1,369,890
BB+ Ba2 4,000,000 7.625% due 7/15/2013 3,355,000 3,635,000
BB+ Ba2 7,000,000 Harrah's Operating Co. Inc., 7.875% due
12/15/2005 6,995,000 7,035,000
BB+ Ba2 10,000,000 Park Place Entertainment, 7.875% due
12/15/2005 9,984,375 9,850,000
B B2 3,000,000 Trump Atlantic City Associates/Funding
Inc., 11.25% due 5/01/2006 2,972,189 2,670,000
-------------- --------------
26,671,564 26,649,890
Health Services-- B- Caa1 10,500,000 ALARIS Medical Systems, Inc., 14.993%
8.2% due 8/01/2008 (c) 4,874,788 6,300,000
B+ Ba3 5,000,000 Beverly Enterprises Inc., 9% due 2/15/2006 5,237,500 4,925,000
B- B2 14,000,000 Extendicare Health Services, 9.35% due
12/15/2007 12,535,000 10,290,000
B+ Ba3 10,000,000 Fresenius Medical Capital Trust II,
7.875% due 2/01/2008 9,535,000 9,812,500
B- Caa1 7,500,000 Magellan Health Services, 9% due 2/15/2008 7,203,125 6,487,500
CCC B3 4,000,000 Mariner Post--Acute Network, 9.50% due
11/01/2007 1,287,500 1,180,000
B B2 11,000,000 PharMerica, Inc., 8.375% due 4/01/2008 11,085,000 11,715,000
BB- Ba3 7,500,000 Tenet Healthcare Corp., 8.125% due
12/01/2008 (f) 7,409,975 7,237,500
-------------- --------------
59,167,888 57,947,500
Hotels--3.5% BB Ba2 5,000,000 HMH Properties, Inc., 8.45% due
12/01/2008 4,983,200 5,000,000
BB Ba2 10,000,000 Host Marriott LP, 8.375% due
2/15/2006 (f) 10,000,000 10,112,500
BB- B2 10,000,000 Signature Resorts, Inc., 9.25%
due 5/15/2006 9,766,250 9,750,000
-------------- --------------
24,749,450 24,862,500
Independent Power B+ Ba1 8,000,000 The AES Corporation, 8.375% due 8/15/2007 7,690,000 7,880,000
Producers--2.5% BB Ba2 5,000,000 Calpine Corp., 7.75% due 4/15/2009 4,996,900 4,996,900
B- B2 9,500,000 Panda Global Energy Co., 12.50% due
4/15/2004 3,715,462 4,512,500
-------------- --------------
16,402,362 17,389,400
Industrial B B3 5,000,000 Anthony Crane Rental LP, 10.375% due
Services--2.4% 8/01/2008 5,011,250 5,006,250
B B3 8,000,000 Neff Corp., 10.25% due 6/01/2008 7,940,640 8,340,000
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Bonds (continued)
Industrial CCC+ Caa1 $ 2,000,000 Thermadyne Holdings Corp., 12.50%
Services due 6/01/2008 (c) $ 1,206,521 $ 990,000
(concluded) CCC+ B3 3,000,000 Thermadyne Manufacturing, 9.875% due
6/01/2008 2,976,420 2,797,500
-------------- --------------
17,134,831 17,133,750
Internet B- B3 7,000,000 PSINet, Inc., 10% due 2/15/2005 7,070,000 7,437,500
Transport--2.0% B- B3 6,000,000 Verio Inc., 11.25% due 12/01/2008 (f) 6,000,000 6,795,000
-------------- --------------
13,070,000 14,232,500
Media & Call-Net Enterprises Inc.:
Communi- BB- B1 3,000,000 8% due 8/15/2008 2,986,260 2,970,000
cations-- BB- B1 13,000,000 8.94% due 8/15/2008 (c) 8,865,724 8,580,000
International-- BBB- Ba3 4,000,000 Telefonica de Argentina SA, 11.875% due
2.2% 11/01/2004 4,400,000 4,310,000
-------------- --------------
16,251,984 15,860,000
Metals & B- Caa1 11,000,000 AEI Resources Inc., 11.50% due
Mining--2.9% 12/15/2006 (f) 10,825,000 11,027,500
CCC+ B3 5,000,000 Kaiser Aluminum & Chemical Corp., 12.75%
due 2/01/2003 4,902,500 4,837,500
B B3 5,000,000 Ormet Corporation, 11% due 8/15/2008 (f) 5,000,000 4,725,000
-------------- --------------
20,727,500 20,590,000
Packaging--0.9% BB- B1 6,000,000 Ball Corporation, 8.25% due 8/01/2008 6,000,000 6,225,000
Paper & Forest CCC+ Caa1 3,000,000 APP International Finance, 11.75% due
Products--3.2% 10/01/2005 2,535,000 2,153,548
B B3 5,000,000 Ainsworth Lumber Company, 12.50% due
7/15/2007 (b) 4,179,100 5,325,000
B- B2 5,000,000 Container Corporation of America, 9.75% due
4/01/2003 5,025,000 5,262,500
Doman Industries Limited:
B+ B1 5,000,000 8.75% due 3/15/2004 3,137,500 3,250,000
B+ B1 5,000,000 Series B, 9.25% due 11/15/2007 2,875,000 3,075,000
CCC+ Caa1 7,000,000 Pindo Deli Financial Mauritius, 10.75% due
10/01/2007 4,692,500 3,867,500
-------------- --------------
22,444,100 22,933,548
Product B- Caa1 5,000,000 Nebco Evans Holding Co., 16.34% due
Distribution-- 7/15/2007 (c) 2,592,199 1,775,000
0.8% CCC Caa1 7,000,000 US Office Products Co., 9.75% due 6/15/2008 6,742,960 4,095,000
-------------- --------------
9,335,159 5,870,000
Publishing & BB- Ba3 1,000,000 Hollinger International Publishing,
Printing--2.2% Inc., 9.25% due 2/01/2006 1,000,000 1,045,000
BB- Ba3 5,000,000 Primedia, Inc., 7.625% due 4/01/2008 4,725,000 4,975,000
BB- B1 10,000,000 World Color Press Inc., 7.75%
due 2/15/2009 (f) 9,830,100 9,850,000
-------------- --------------
15,555,100 15,870,000
Real Estate-- BB- Ba3 4,875,000 Forest City Enterprises Inc., 8.50% due
0.7% 3/15/2008 4,906,406 4,905,469
Restaurants--0.1% D Ca 2,000,000 Planet Hollywood International, 12% due
4/01/2005 1,970,000 530,000
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Industries Rating Rating Amount Bonds Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Bonds (concluded)
Steel--1.2% NR* B2 $ 5,000,000 CSN Iron SA, 9.125% due 6/01/2007 (f) $ 4,507,750 $ 3,737,500
B B2 5,000,000 Weirton Steel Corp., 11.375%
due 7/01/2004 5,412,500 4,800,000
-------------- --------------
9,920,250 8,537,500
Telephone-- B B2 10,000,000 Intermedia Communications Inc.,
Competitive Local 8.60% due 6/01/2008 9,740,625 10,050,000
Exchange B B3 8,000,000 Level 3 Communications, 9.125% due
Carriers--5.6% 5/01/2008 7,702,500 8,100,000
Metronet Communications:
B B3 8,000,000 9.95% due 6/15/2008 (c) 5,316,110 6,220,000
B B3 3,500,000 10.625% due 11/01/2008 (f) 3,525,000 4,095,000
RSL Communications PLC:
B- B2 4,000,000 9.125% due 3/01/2008 3,672,500 3,980,000
B- B2 2,000,000 12.793% due 3/01/2008 (c) 1,112,254 1,310,000
NR* Caa1 10,000,000 Viatel Inc., 12.964% due 4/15/2008 (c) 5,918,127 6,175,000
-------------- --------------
36,987,116 39,930,000
Textiles--1.8% B B3 10,000,000 Galey & Lord, Inc., 9.125% due 3/01/2008 9,235,000 7,900,000
BB Ba3 5,000,000 Westpoint Stevens Inc., 7.875% due
6/15/2008 (e) 4,940,000 5,137,500
-------------- --------------
14,175,000 13,037,500
Transportation-- BB- NR* 9,000,000 Autopistas del Sol SA, 10.25%
4.9% due 8/01/2009 (f) 6,902,500 7,245,000
BB Ba3 8,000,000 GS Superhighway Holdings, 10.25% due
8/15/2007 5,005,000 3,860,000
BB Ba2 12,500,000 Stena AB, 10.50% due 12/15/2005 13,138,750 13,046,875
TFM, S.A. de C.V.:
B+ B2 5,000,000 10.25% due 6/15/2007 4,647,500 4,400,000
B+ B2 10,000,000 13.696% due 6/15/2009 (c) 6,015,084 5,950,000
-------------- --------------
35,708,834 34,501,875
Waste BB Ba2 6,500,000 Allied Waste North America, 7.375% due
Management-- 1/01/2004 6,490,445 6,353,750
1.5% B+ B2 4,000,000 Safety-Kleen Services, 9.25% due
6/01/2008 4,000,000 4,200,000
-------------- --------------
10,490,445 10,553,750
Wireless BB+ A2 7,000,000 Comcast Cellular Holdings, 9.50%
Communications-- due 5/01/2007 7,223,750 7,980,000
Domestic Paging CCC+ B3 7,000,000 Metrocall Inc., 11% due 9/15/2008 (f) 6,951,280 6,265,000
& Cellular--3.4% B- B2 7,000,000 Nextel Communications, Inc., 9.75% due
8/15/2004 (c) 6,555,136 7,245,000
CCC+ B3 5,000,000 Nextel Partners Inc., 14% due
2/01/2009 (c)(f) 2,598,351 2,900,000
-------------- --------------
23,328,517 24,390,000
Wireless B- Caa1 7,000,000 Nextel International Inc., 11.656% due
Communications-- 4/15/2008 (c) 4,494,399 3,325,000
International-- B+ Ba3 5,000,000 Orange PLC, 8% due 8/01/2008 4,961,900 5,175,000
1.2% -------------- --------------
9,456,299 8,500,000
Wireless CCC+ Caa 10,000,000 Dolphin Telecom PLC, 17.059% due
Communications-- 6/01/2008 (c) 4,147,280 5,162,500
International Paging
& Cellular--0.7%
Total Investments in Bonds--92.9% 670,415,512 657,912,665
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value
Industries Held Issue Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Preferred Stocks
Energy--0.0% TCR Holdings (Convertible)(e):
6,426 Class B $ 386 $ 386
3,534 Class C 198 198
9,317 Class D 494 494
19,277 Class E 1,214 1,214
-------------- --------------
2,292 2,292
Product Distribution--0.0% 5,714 Nebco Evans Holding Co. (b) 529,904 221,418
Publishing & Printing--0.7% 50,000 Primedia, Inc. 4,837,500 4,762,500
Wireless Communications-- 5,159 Crown Castle International Corp. (b) 5,174,900 5,623,310
Domestic Paging & Cellular--1.2% 2,719 Rural Cellular Corp. (b) 2,708,153 2,691,810
-------------- --------------
7,883,053 8,315,120
Total Investments in
Preferred Stocks--1.9% 13,252,749 13,301,330
Face
Amount
Short-Term Securities
Commercial $11,568,000 General Motors Acceptance Corp.,
Paper**--3.0% 5.13% due 4/01/1999 11,568,000 11,568,000
10,000,000 Xerox Credit Corp., 4.82% due 4/19/1999 9,975,900 9,975,900
Total Investments in
Short-Term Securities--3.0% 21,543,900 21,543,900
Total Investments--97.8% $ 705,212,161 692,757,895
--------------
Other Assets Less Liabilities--2.2% 15,780,847
--------------
Net Assets--100.0% $ 708,538,742
==============
<FN>
*Not Rated.
**Commercial Paper is traded on a discount basis; the interest rates
shown reflect the discount rate paid at the time of purchase by the
Fund.
(a)Each $1,000 face amount contains one warrant of United
International Holdings, Inc.
(b)Represents a pay-in-kind security which may pay
interest/dividends in additional face/shares.
(c)Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase by the Fund.
(d)The security is a perpetual bond and has no definite maturity
date.
(e)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $5,140,000,
representing 0.7% of net assets.
Acquisition Value
Issue Date(s) Cost (Note 1a)
TCR Holdings (Class B)
(Convertible Preferred) 12/10/1998 $ 386 $ 386
TCR Holdings (Class C)
(Convertible Preferred) 12/10/1998 198 198
TCR Holdings (Class D)
(Convertible Preferred) 12/10/1998 494 494
TCR Holdings (Class E)
(Convertible Preferred) 12/10/1998 1,214 1,214
Westpoint Stevens Inc., 6/3/1998-
7.875% due 6/15/2008 9/4/1998 4,940,000 5,137,500
---------- ----------
Total $4,942,292 $5,139,792
========== ==========
(f)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of March 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$705,212,161) (Note 1a) $ 692,757,895
Receivables:
Securities sold $ 17,059,062
Interest 15,827,863
Capital shares sold 2,967,311
Dividends 107,812 35,962,048
--------------
Deferred organization expenses (Note 1e) 67,017
Prepaid expenses and other assets (Note 1e) 162,948
--------------
Total assets 728,949,908
--------------
Liabilities: Payables:
Securities purchased 14,979,482
Capital shares redeemed 2,270,868
Dividends to shareholders (Note 1f) 2,118,029
Distributor (Note 2) 404,535
Investment adviser (Note 2) 312,124 20,085,038
--------------
Accrued expenses and other liabilities 326,128
--------------
Total liabilities 20,411,166
--------------
Net Assets: Net assets $ 708,538,742
==============
Capital Class A Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized $ 136,635
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 5,335,130
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 1,266,790
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 786,026
Paid-in capital in excess of par 712,368,790
Undistributed realized capital gains on investments--net 1,099,637
Unrealized depreciation on investments--net (12,454,266)
--------------
Net assets $ 708,538,742
==============
Net Asset Class A--Based on net assets of $12,864,286 and 1,366,349
Value: shares outstanding $ 9.42
==============
Class B--Based on net assets of $502,377,299 and 53,351,298
shares outstanding $ 9.42
==============
Class C--Based on net assets of $119,280,762 and 12,667,899
shares outstanding $ 9.42
==============
Class D--Based on net assets of $74,016,395 and 7,860,261
shares outstanding $ 9.42
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Period May 1, 1998++ to March 31, 1999
<S> <S> <C> <C>
Investment Interest and discount earned $ 40,198,547
Income Dividends 944,574
(Note 1d): Other 235,607
--------------
Total income 41,378,728
--------------
Expenses: Investment advisory fees (Note 2) $ 2,515,345
Account maintenance and distribution fees--Class B (Note 2) 2,177,115
Account maintenance and distribution fees--Class C (Note 2) 579,024
Transfer agent fees--Class B (Note 2) 202,746
Registration fees (Note 1e) 201,169
Account maintenance fees--Class D (Note 2) 119,401
Accounting services (Note 2) 95,192
Transfer agent fees--Class C (Note 2) 50,099
Custodian fees 34,230
Transfer agent fees--Class D (Note 2) 26,596
Directors' fees and expenses 25,904
Professional fees 25,620
Printing and shareholder reports 25,152
Amortization of organization expenses (Note 1e) 17,207
Pricing services 5,923
Transfer agent fees--Class A (Note 2) 4,962
Other 7,174
--------------
Total expenses 6,112,859
Reimbursement of expenses (Note 2) (1,065,969)
--------------
Total expenses after reimbursement 5,046,890
--------------
Investment income--net 36,331,838
--------------
Realized & Realized gain on investments--net 1,099,637
Unrealized Unrealized depreciation on investments--net (12,454,266)
Gain (Loss) on --------------
Investments-- Net Increase in Net Assets Resulting from Operations $ 24,977,209
Net (Notes 1b, ==============
1d & 3):
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Period
May 1, 1998++ to
Increase (Decrease) in Net Assets: March 31, 1999
<S> <S> <C>
Operations: Investment income--net $ 36,331,838
Realized gain on investments--net 1,099,637
Unrealized depreciation on investments--net (12,454,266)
--------------
Net increase in net assets resulting from operations 24,977,209
--------------
Dividends to Investment income--net:
Shareholders Class A (826,433)
(Note 1f): Class B (24,983,066)
Class C (6,174,842)
Class D (4,347,497)
--------------
Net decrease in net assets resulting from dividends to shareholders (36,331,838)
--------------
Capital Share Net increase in net assets derived from capital share transactions 719,793,371
Transactions --------------
(Note 4):
Net Assets: Total increase in net assets 708,438,742
Beginning of period 100,000
--------------
End of period $ 708,538,742
==============
<FN>
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
May 1, 1998++ to March 31, 1999
Increase (Decrease) in Net Asset Value: Class A Class B Class C Class D
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .79 .73 .72 .77
Realized and unrealized loss on investments--net (.58) (.58) (.58) (.58)
---------- ---------- ---------- ----------
Total from investment operations .21 .15 .14 .19
---------- ---------- ---------- ----------
Less dividends from investment income--net (.79) (.73) (.72) (.77)
---------- ---------- ---------- ----------
Net asset value, end of period $ 9.42 $ 9.42 $ 9.42 $ 9.42
========== ========== ========== ==========
Total Investment Based on net asset value per share 2.51%+++ 1.80%+++ 1.75%+++ 2.28%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses, net of reimbursement .52%* 1.27%* 1.31%* .75%*
Net Assets: ========== ========== ========== ==========
Expenses .76%* 1.52%* 1.57%* 1.01%*
========== ========== ========== ==========
Investment income--net 9.39%* 8.61%* 8.53%* 9.10%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 12,864 $ 502,377 $ 119,281 $ 74,017
Data: ========== ========== ========== ==========
Portfolio turnover 49.40% 49.40% 49.40% 49.40%
========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Corporate High Yield Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Fund's
financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of
management accruals and estimates. Prior to commencement of
operations on May 1, 1998, the Fund had no operations other than
those relating to organizational matters and the issue of 10,000
capital shares of the Fund to Fund Asset Management, L.P. ("FAM")
for $100,000. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class
D are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B,
Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued, or lacking
any sales, at the mean between closing bid and asked prices.
Securities traded in the over-the-counter market are valued at the
mean of the most recent bid and ask prices as obtained from one or
more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market, and it is expected that for debt securities
this ordinarily will be the over-the-counter market. Short-term
securities are valued at amortized cost, which approximates market
value.
Options written or purchased are valued at the last sale price in
the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased).
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their closing price at the close of such
exchanges. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good
faith by or under the direction of the Board of Directors of the
Fund, including valuations furnished by a pricing service retained
by the Fund which may use a matrix system for valuations.
(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 equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
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 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.
* Options--The Fund is authorized to purchase and write 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.
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
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 loss or gain to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(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 and prepaid registration fees--
Deferred organization expenses are amortized on a straight line
basis over a period not exceeding five years. Prepaid registration
fees are charged to expense as the related shares are issued.
(f) Dividends and distributions--Dividends from net investment
income are declared daily 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 FAM.
The general partner of FAM is Princeton Services, Inc. ("PSI"), an
indirect wholly-owned subsidiary of ML & Co., which is the limited
partner. The Fund has also entered into a Distribution Agreement and
Distribution Plans with Merrill Lynch Funds Distributor ("MLFD" or
the "Distributor"), a division of Princeton Funds Distributor, Inc.
("PFD"), which is a wholly-owned subsidiary of Merrill Lynch Group,
Inc.
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 of 0.60%, on an annual basis,
of the average daily value of the Fund's net assets. For the period
May 1, 1998 to March 31, 1999, FAM earned fees of $2,515,345, of
which $1,042,353 was voluntarily waived. FAM also reimbursed the
Fund additional expenses of $23,616.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares of the Fund as
follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.50%
Class C 0.25 0.55
Class D 0.25 --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the period May 1, 1998 to March 31, 1999, MLFD earned
underwriting discounts and MLPF&S earned dealer concessions on sales
of the Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 1,288 $ 12,707
Class D $48,832 $528,167
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
For the period May 1, 1998 to March 31, 1999, MLPF&S received
contingent deferred sales charges of $535,790 and $74,091 relating
to transactions in Class B and Class C Shares of the Portfolio,
respectively.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
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, PFD, FDS, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period May 1, 1998 to March 31, 1999 were $879,512,179 and
$202,126,676, respectively.
Net realized gains (losses) for the period May 1, 1998 to March 31,
1999 and net unrealized loss as of March 31, 1999 were as follows:
Realized
Gains Unrealized
(Losses) Losses
Long-term investments $ 1,103,251 $ (12,454,266)
Short-term investments (3,614) --
------------ --------------
Total $ 1,099,637 $ (12,454,266)
============ ==============
As of March 31, 1999, net unrealized depreciation for Federal income
tax purposes aggregated $12,527,435, of which $21,968,145 related to
appreciated securities and $34,495,580 related to depreciated
securities. The aggregate cost of investments at March 31, 1999 for
Federal income tax purposes was $705,285,330.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $719,793,371 for the period May 1, 1998 to March 31, 1999.
Transactions in capital shares for each class were as follows:
Class A Shares for the Period Dollar
May 1, 1998++ to March 31, 1999 Shares Amount
Shares sold 2,330,105 $ 21,930,940
Shares issued to shareholders
in reinvestment of dividends 57,215 529,164
------------ --------------
Total issued 2,387,320 22,460,104
Shares redeemed (1,023,471) (9,511,391)
------------ --------------
Net increase 1,363,849 $ 12,948,713
============ ==============
[FN]
++Prior to May 1, 1998 (commencement of operations), the Fund issued
2,500 shares to MLAM for $25,000.
Class B Shares for the Period Dollar
May 1, 1998++ to March 31, 1999 Shares Amount
Shares sold 61,308,556 $ 583,441,531
Shares issued to shareholders
in reinvestment of dividends 1,188,964 11,030,045
------------ --------------
Total issued 62,497,520 594,471,576
Automatic conversion of
shares (23,309) (221,805)
Shares redeemed (9,125,413) (84,440,756)
------------ --------------
Net increase 53,348,798 $ 509,809,015
============ ==============
[FN]
++Prior to May 1, 1998 (commencement of operations), the Fund issued
2,500 shares to MLAM for $25,000.
Class C Shares for the Period Dollar
May 1, 1998++ to March 31, 1999 Shares Amount
Shares sold 15,012,995 $ 143,340,616
Shares issued to shareholders
in reinvestment of dividends 351,594 3,266,291
------------ --------------
Total issued 15,364,589 146,606,907
Shares redeemed (2,699,190) (25,083,407)
------------ --------------
Net increase 12,665,399 $ 121,523,500
============ ==============
[FN]
++Prior to May 1, 1998 (commencement of operations), the Fund issued
2,500 shares to MLAM for $25,000.
Class D Shares for the Period Dollar
May 1, 1998++ to March 31, 1999 Shares Amount
Shares sold 10,622,611 $ 101,293,239
Automatic conversion of
shares 23,308 221,805
Shares issued to shareholders
in reinvestment of dividends 197,476 1,830,079
------------ --------------
Total issued 10,843,395 103,345,123
Shares redeemed (2,985,634) (27,832,980)
------------ --------------
Net increase 7,857,761 $ 75,512,143
============ ==============
[FN]
++Prior to May 1, 1998 (commencement of operations), the Fund issued
2,500 shares to MLAM for $25,000.
Merrill Lynch Corporate High Yield Fund, Inc.
March 31, 1999
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Corporate High Yield Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Corporate High Yield Fund, Inc. as of March 31, 1999, the related
statements of operations and changes in net assets and the financial
highlights for the period May 1, 1998 (commencement of operations)
to March 31, 1999. 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 audit.
We conducted our audit 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 March
31, 1999 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 audit
provides a reasonable basis for our opinion.
In our opinion, such financial statements and finan-cial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Corporate High Yield Fund, Inc. as of March 31, 1999,
the results of its operations, the changes in its net assets, and
the financial highlights for the period May 1, 1998 to March 31,
1999 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 18, 1999
</AUDIT-REPORT>
