CORPORATE
HIGH YIELD
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
May 31, 1999
<PAGE>
CORPORATE HIGH YIELD FUND, INC.
The Benefits and Risks of Leveraging
Corporate High Yield Fund, Inc. has the ability to utilize leverage through
borrowings or issuance of short-term debt securities or shares of Preferred
Stock. The concept of leveraging is based on the premise that the cost of assets
to be obtained from leverage will be based on short-term interest rates, which
normally will be lower than the return earned by the Fund on its longer-term
portfolio investments. Since the total assets of the Fund (including the assets
obtained from leverage) are invested in higher-yielding portfolio investments,
the Fund's Common Stock shareholders are the beneficiaries of the incremental
yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend rates
on any Preferred Stock, if the Fund were to issue Preferred Stock) may reduce
the Common Stock's yield and negatively impact its market price. If the income
derived from securities purchased with assets received from leverage exceeds the
cost of leverage, the Fund's net income will be greater than if leverage had not
been used. Conversely, if the income from the securities purchased is not
sufficient to cover the cost of leverage, the Fund's net income will be less
than if leverage had not been used, and therefore the amount available for
distribution to Common Stock shareholders will be reduced. In this case, the
Fund may nevertheless decide to maintain its leveraged position in order to
avoid capital losses on securities purchased with leverage. However, the Fund
will not generally utilize leverage if it anticipates that its leveraged capital
structure would result in a lower rate of return for its Common Stock than would
be obtained if the Common Stock were unleveraged for any significant amount of
time.
Portfolio Profile As of May 31, 1999
The quality ratings* of securities in the Fund as of May 31, 1999 were
as follows:
- --------------------------------------------------------------------------------
Percent of
S&P Ratings/Moody's Ratings Long-Term Investments
- --------------------------------------------------------------------------------
BBB/Baa ............................................................ 5.2%
BB/Ba .............................................................. 24.6
B/B ................................................................ 60.5
CCC/Caa or Lower ................................................... 2.8
NR (Not Rated) ..................................................... 6.9
- --------------------------------------------------------------------------------
* In cases where bonds are rated differently by Standard & Poor's Corp. and
Moody's Investors Service, Inc., bonds are categorized according to the higher
of the two ratings.
Percent of Total
Foreign Holdings Long-Term Investments
- --------------------------------------------------------------------------------
Total Foreign Holdings ............................................. 34.5%
Emerging Market Holdings ........................................... 13.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Percent of Total
Five Largest Foreign Countries* Long-Term Investments
- --------------------------------------------------------------------------------
Canada ............................................................. 9.4%
United Kingdom ..................................................... 5.7
Argentina .......................................................... 4.8
Mexico ............................................................. 3.3
Colombia ........................................................... 2.6
- --------------------------------------------------------------------------------
* All holdings are denominated in US dollars.
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
DEAR SHAREHOLDER
High-Yield Market Overview
Volatility in the financial markets moderated during the six months ended May
31, 1999. However, during the same period, investor sentiment shifted from
concern about global recession and worldwide deflation to a level of comfort
about world economic stability, then to fears of an overheated US economy.
Interest rates trended up during the six-month period, and renewed inflation
worries accelerated that trend in April and May.
The yield on the ten-year US Treasury bond, which is commonly compared to the
high-yield market, started the period at 4.73% but reached 5.62% by May
month-end. As often is the case in a rising interest rate environment,
high-yield bonds benefited relative to Treasury issues. Both the earnings-
driven fundamentals of the high-yield market and the higher coupon paid on
high-yield bonds tend to work in favor of the high-yield market when interest
rates rise. For example, the total return and price return of ten-year Treasury
issues was -4.51% and -6.80%, respectively, as compared to +2.53% and -1.91%,
respectively, for the high-yield market as measured by the unmanaged CS First
Boston Global High Yield Index.
During the six-month period ended May 31, 1999, the high-yield market also
benefited from a strong cash commitment by a variety of investors, although the
trend reversed in May. The combination of cash outflows from mutual funds,
falling prices on Treasury bonds and an unsettled stock market gave a negative
tone to the high-yield market at that time. Despite the negative trend at period
end, the spread, or incremental yield required by investors to assume the
additional risk of high-yield investments, tightened to 564 basis points (5.64%)
at May 31, 1999 from 624 basis points at November 30, 1998. This yield spread
remains wide relative to historic levels.
Within the high-yield market, lower-tier credits (which are less sensitive to
overall changes in long-term interest rates) outperformed better-rated bonds.
Telecommunications and media, as well as selected cyclical sectors such as paper
and chemicals, had a strong showing over the past six months. Industries wracked
by weak fundamentals, such as healthcare, energy and shipping, significantly
underperformed the broad high-yield market.
We believe that, although there may be near-term volatility, the high- yield
market represents good long-term value, supported by favorable economic growth
trends, wide spreads to Treasury securities and default rates near historic
averages of 3%-4%.
Fund Performance
For the year ended May 31, 1999, total investment return on the Fund's Common
Stock was -1.71%, based on a change in the per share net asset value from $13.95
to $12.12, and assuming reinvestment of $1.415 per share income dividends and
$0.114 per share capital gain distributions. For the six months ended May 31,
1999, total investment return for the Fund was +4.01%, based on a change in the
per share net asset value from $12.46 to $12.12, and assuming reinvestment of
$0.703 per share income dividends and $0.114 capital gain distributions. During
this period, the net annualized yield of the Fund's Common Stock was 11.34%. The
Fund benefited from improvements in the fundamentals of a number of its
holdings, including Canadian telecommunications operator Metronet Communications
with an investment by AT&T Corp. and computer chip manufacturer Zilog Inc. with
a turnaround in operations. A rebound from emerging markets' highly depressed
levels also helped Fund performance for the six months ended May 31, 1999, with
our 13.5% exposure to these markets. Weak sectors within the portfolio included
energy, healthcare and transportation.
Investment Strategy
We believe that the market will continue to be unsettled over the next few
months. There are many conflicting forces that could push the market toward
strength or weakness. Inflationary expectations and interest rates, equity
market fluctuation, events in emerging markets, corpo-rate earnings expectations
and supply/demand imbalances specific to the high-yield market are all likely
to take their turn influencing the market.
Given the general unease in the high-yield market at the end of May, we sought
to modestly improve portfolio quality. To that end, we added holdings such as
BB-rated Lyondell Chemical Company. We also disposed of positions where downside
risk outweighed upside potential or swapped into names that we believed had
better prospects. At the same time, there are good values in so-called
distressed issues and out-of-favor sectors and we have selectively added here in
modest size. An example is Forcenergy, Inc., purchased at a deep discount, which
offers both asset protection and substantial upside potential. Such companies
may require restructuring of their balance sheets, as high debt usage and weak
markets limit liquidity. Thus, there may be an increase in the default rate,
with good returns as asset values are realized. We believe there will also be
opportunities in the months ahead to add to portfolio holdings in companies with
solid fundamentals as favorable valuations emerge.
Portfolio Characteristics
Communications and media remained our largest broad industry category, totaling
nearly 34% of total long-term investments. Of the narrowly classified sectors,
the largest industry allocations were: telephony, 10.0% of total long-term
investments; health services, 7.5%; paper and forest products, 6.7%;
transportation, 6.1%; and wireless communications--international paging &
cellular, 5.5%. Non-US dollar-denominated bonds totaled nearly 34.5% of the
portfolio, with emerging market holdings accounting for 13.5% of total long-term
investments. (See the foreign holdings table on page 1 of this report for the
distribution of non-US, dollar-denominated investments in the portfolio.) At May
31, 1999, the average maturity for the portfolio was 6.6 years.
Leverage Strategy
The Fund was on average 25% leveraged during the six-month period ended May 31,
1999. This means that we borrowed the equivalent of 25% of total assets
invested, earning incremental yield on the investments we made with the borrowed
funds. On May 31, 1999, the Fund was 23.0% leveraged, having borrowed $88.6
million at a borrowing cost of 5.4%. While we may adjust leverage to react to
market conditions, we expect leverage on balance to remain near present levels.
(For a complete explanation of the benefits and risks of leveraging, see page 1
of this report to shareholders.)
In Conclusion
We appreciate 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/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent T. Lathbury III
Vincent T. Lathbury III
Senior Vice President and
Portfolio Manager
/s/ Elizabeth M. Phillips
Elizabeth M. Phillips
Vice President and Portfolio Manager
July 6, 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 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.
================================================================================
2 & 3
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
S&P Moody's Face Value
INDUSTRIES Rating Rating Amount Corporate Bonds Cost (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Aerospace & L-3 Communications Corp.:
Defense--1.7% B B2 $ 1,850,000 10.375% due 5/01/2007 $ 1,850,000 $ 2,037,312
B B2 3,000,000 8.50% due 5/15/2008 2,997,900 3,015,000
----------- -----------
4,847,900 5,052,312
====================================================================================================================================
Airlines--1.0% USAir Inc.:
BB Ba2 2,175,883 11.20% due 3/19/2005** 1,914,777 2,383,571
BB Ba2 500,000 10.375% due 3/01/2013 477,500 537,640
----------- -----------
2,392,277 2,921,211
====================================================================================================================================
Automotive--1.8% CCC Caa3 3,000,000 Breed Technologies Inc., 9.25%
due 4/15/2008 3,000,000 840,000
B B2 1,875,000 Collins & Aikman Products, 11.50%
due 4/15/2006 1,875,000 1,912,500
BB+ Ba2 2,750,000 Federal-Mogul Corporation, 7.375%
due 1/15/2006 (c) 2,738,533 2,612,558
----------- -----------
7,613,533 5,365,058
====================================================================================================================================
Broadcasting/Radio & BB- Ba3 3,000,000 Antenna TV SA, 9% due 8/01/2007 2,915,912 2,898,750
Television--4.1% CCC+ B3 2,000,000 Cumulus Media, Inc., 10.375%
due 7/01/2008 2,000,000 2,130,000
B+ B2 2,250,000 Globo Comunicacoes e Participacoes,
Ltd., 10.50% due 12/20/2006 (c) 2,244,428 1,575,000
BB Ba2 3,750,000 Grupo Televisa SA, 11.375% due 5/15/2003 3,750,000 3,759,375
B B2 1,500,000 Sinclair Broadcast Group Inc., 10%
due 9/30/2005 1,483,125 1,560,000
----------- -----------
12,393,465 11,923,125
====================================================================================================================================
Cable--2.2% B- B3 3,000,000 Avalon Cable of Michigan, 9.375%
due 12/01/2008 (c) 3,000,000 3,067,500
B+ B2 3,250,000 Charter Communications Holding LLC,
8.625% due 4/01/2009 (c) 3,240,088 3,168,750
----------- -----------
6,240,088 6,236,250
====================================================================================================================================
Cable-- Australis Media Ltd. (e)(f):
International--5.8% D NR+ 118,416 1.75%/15.75% due 5/15/2003 65,146 1,184
D NR+ 6,922,000 1.75%/15.75% due 5/15/2003 (b) 4,874,096 69,220
BB NR+ 4,000,000 Cablevision SA, 13.75% due 5/01/2009 (c) 4,000,000 3,750,000
Diamond Cable Communications PLC*:
B- B3 1,500,000 11.055% due 9/30/2004 1,475,728 1,554,375
B- B3 2,625,000 10.772% due12/15/2005 2,260,018 2,342,813
B- B3 900,000 11.387% due 2/15/2007 650,547 693,000
B- B3 3,500,000 International Cabletel, Inc., 11.643%*
due 2/01/2006 2,881,769 2,992,500
D Caa3 3,000,000 Supercanal Holdings SA, 11.50%
due 5/15/2005 (c)(e) 1,402,000 1,470,000
B+ B1 5,925,000 Telewest Communications PLC, 9.094%*
due 4/15/2009 (c) 3,866,001 3,851,250
----------- -----------
21,475,305 16,724,342
====================================================================================================================================
Chemicals--5.4% BBB- Baa3 3,500,000 Equistar Chemicals LP, 8.50%
due 2/15/2004 (c) 3,499,720 3,553,361
NR+ B2 3,750,000 Huntsman Corporation, 9.50%
due 7/01/2007 (c) 3,671,250 3,600,000
Lyondell Chemical Company (c):
BB Ba3 3,750,000 9.625% due 5/01/2007 3,870,000 3,787,500
BB Ba3 1,750,000 9.875% due 5/01/2007 1,750,000 1,754,375
B+ B2 2,750,000 Octel Developments PLC, 10%
due 5/01/2006 2,750,000 2,846,250
----------- -----------
15,540,970 15,541,486
====================================================================================================================================
Communications--2.4% B+ B1 6,250,000 Orion Network Systems, Inc., 15.16%*
due 1/15/2007 3,876,888 3,703,125
B- B3 4,250,000 Satelites Mexicanos SA, 10.125%
due 11/01/2004 4,070,000 3,357,500
----------- -----------
7,946,888 7,060,625
====================================================================================================================================
Computer Services/ B Ba3 675,000 Advanced Micro Devices, Inc., 11%
Electronics--5.2% due 8/01/2003 686,812 698,625
BB- Ba3 2,750,000 Amkor Technologies Inc., 9.25%
due 5/01/2006 (c) 2,745,000 2,667,500
B+ B1 1,298,000 Celestica International, 10.50%
due 12/31/2006 1,298,000 1,414,820
CCC+ B3 4,500,000 MCMS Inc., 9.75% due 3/01/2008 3,834,375 2,925,000
NR+ NR+ 3,500,000 Splitrock Services Inc., 11.75%
due 7/15/2008 3,461,500 3,325,000
B- B2 4,750,000 Zilog Inc., 9.50% due 3/01/2005 4,344,375 4,180,000
----------- -----------
16,370,062 15,210,945
====================================================================================================================================
Conglomerates--1.2% Sequa Corp.:
BB Ba2 2,000,000 9.625% due 10/15/1999 2,055,000 2,032,500
B+ B1 1,500,000 9.375% due 12/15/2003 1,411,250 1,522,500
----------- -----------
3,466,250 3,555,000
====================================================================================================================================
Consumer Products-- Chattem Inc.:
3.1% B- B2 3,000,000 12.75% due 6/15/2004 3,389,063 3,266,250
B- B2 1,250,000 8.875% due 4/01/2008 1,254,688 1,234,375
B B3 1,500,000 Corning Consumer Products, 9.625%
due 5/01/2008 1,435,000 1,316,250
B+ B2 1,000,000 Scotts Company, 8.625% due
1/15/2009 (c) 1,000,000 1,010,000
CCC+ Caa1 3,175,000 Syratech Corp., 11% due 4/15/2007 2,621,000 2,127,250
----------- -----------
9,699,751 8,954,125
====================================================================================================================================
Diversified--1.3% CCC+ Caa2 3,750,000 Foamex LP, 13.50% due 8/15/2005 4,275,000 3,750,000
====================================================================================================================================
Energy--4.4% B B3 1,750,000 Chesapeake Energy Corp., 9.625%
due 5/01/2005 1,710,625 1,548,750
NR+ Ca 3,250,000 Forcenergy, Inc., 8.50% due
2/15/2007 1,340,000 2,015,000
BBB- Baa3 4,296,875 Oleoducto Centrale SA, 9.35%
due 9/01/2005 (c)** 4,296,875 3,802,734
BB- B1 3,125,000 Tesoro Petroleum Corp., 9%
due 7/01/2008 3,100,781 3,078,125
D C 10,450,000 TransAmerican Energy Corp., 13.163%*
due 6/15/2002 (e) 10,114,940 1,123,375
B- B3 1,500,000 United Refining Co., 10.75%
due 6/15/2007 1,130,625 1,098,750
----------- -----------
21,693,846 12,666,734
====================================================================================================================================
Entertainment--2.8% BB- Ba2 2,000,000 Imax Corp., 7.875% due 12/01/2005 2,000,000 1,900,000
B+ B1 1,950,000 Intrawest Corp., 9.75% due 8/15/2008 2,008,500 1,998,750
B- B3 3,750,000 Six Flags Theme Parks Inc., 9.937%*
due 6/15/2005 4,136,737 4,129,688
----------- -----------
8,145,237 8,028,438
====================================================================================================================================
</TABLE>
4 & 5
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
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>
Financial Services-- CCC+ Caa3 $ 4,500,000 Amresco Inc., 9.875% due 3/15/2005 $ 4,518,750 $ 3,690,000
1.5% BB- Ba3 750,000 RBF Finance Co., 11% due 3/15/2006 (c) 755,625 750,000
----------- -----------
5,274,375 4,440,000
====================================================================================================================================
Foreign B+ B2 2,000,000 Republic of Brazil, 10.125% due 5/15/2027 1,799,180 1,457,500
Government
Obligations--0.5%
====================================================================================================================================
Gaming--3.9% D Caa1 6,000,000 GB Property Funding Corp., 10.875%
due 1/15/2004 (e) 5,930,000 3,630,000
BB+ Ba2 1,750,000 Harrah's Operating Co. Inc., 7.875%
due 12/15/2005 1,750,000 1,701,875
Jazz Casino Co. LLC:
NR+ NR+ 3,762,219 5.927% due 11/15/2009++ 1,931,567 2,398,415
NR+ NR+ 210,000 Contingent Notes, due 11/15/2009 (d) 0 0
Venetian Casino/LV Sands:
B- B3 750,000 12.25% due 11/15/2004 762,188 770,625
CCC+ Caa1 3,000,000 10% due 11/15/2005 2,947,028 2,955,000
----------- -----------
13,320,783 11,455,915
====================================================================================================================================
Health Services-- B- B3 4,750,000 ALARIS Medical Systems, Inc., 9.75%
9.6% due 12/01/2006 4,716,250 4,750,000
BB+ Ba2 2,250,000 Columbia HCA/Healthcare Corp., 7.15%
due 3/30/2004 2,160,000 2,078,910
B- B2 3,500,000 Extendicare Health Services, 9.35%
due 12/15/2007 3,130,000 2,550,625
B+ ba3 950,000 Fresenius Medical Capital Trust I, 9%
due 12/01/2006 995,125 978,500
B+ ba3 2,050,000 Fresenius Medical Capital Trust II, 7.875%
due 2/01/2008 2,054,750 1,947,500
B- B3 4,000,000 Kinetic Concepts, Inc., 9.625% due
11/01/2007 4,032,500 3,870,000
B- Caa1 3,375,000 Magellan Health Services, 9% due 2/15/2008 3,343,594 2,835,000
CCC B3 3,500,000 Mariner Post--Acute Network, 9.50%
due 11/01/2007 2,138,310 1,155,000
B+ B2 3,000,000 Quest Diagnostic Inc., 10.75% due 12/15/2006 3,000,000 3,300,000
B+ Ba3 4,500,000 Quorum Health Group Inc., 8.75% due 11/01/2005 4,370,625 4,466,250
----------- -----------
29,941,154 27,931,785
====================================================================================================================================
Hotels & Motels-- BB Ba2 4,500,000 HMH Properties, Inc., 8.45% due 12/01/2008 4,484,880 4,291,875
1.5%
====================================================================================================================================
Independent Power B+ Ba3 2,250,000 AES Corporation, 8.50% due 11/01/2007 2,245,500 2,193,750
Producers--1.7% BB Ba2 1,500,000 Calpine Corporation, 8.75% due 7/15/2007 1,494,529 1,537,500
BB B2 1,000,000 Midland Funding II, 13.25% due 7/23/2006** 1,263,750 1,203,480
----------- -----------
5,003,779 4,934,730
====================================================================================================================================
Industrial Neff Corp.:
Services--1.3% B B3 3,000,000 10.25% due 6/01/2008 3,000,000 3,120,000
B B3 750,000 10.25% due 6/01/2008 738,870 753,750
----------- -----------
3,738,870 3,873,750
====================================================================================================================================
Metals & Mining--3.7% B- B3 3,750,000 Great Lakes Carbon Corp., 11.75%
due 5/15/2008++ 3,750,000 3,825,000
CCC+ B3 4,200,000 Kaiser Aluminum & Chemical Corp., 12.75%
due 2/01/2003 4,389,000 4,242,000
CCC+ Caa1 3,250,000 Metal Management Inc., 10% due 5/15/2008 2,025,625 2,600,000
----------- -----------
10,164,625 10,667,000
====================================================================================================================================
Packaging--1.2% B+ Ba3 3,750,000 Vicap SA, 11.375% due 5/15/2007 3,730,125 3,412,500
====================================================================================================================================
Paper & Forest B B3 3,500,000 Ainsworth Lumber Company, 12.50% due
Products--8.7% 7/15/2007++ 3,301,128 3,893,750
B- B2 4,000,000 Container Corporation of America, 9.75%
due 4/01/2003 4,080,000 4,140,000
B+ Caa1 3,125,000 Doman Industries Limited, 8.75%
due 3/15/2004 2,885,000 2,125,000
BB+ Ba3 4,750,000 Malette Inc., 12.25% due 7/15/2004 5,184,900 5,058,750
B+ B1 4,000,000 SD Warren Co., 12% due 12/15/2004 4,000,000 4,320,000
BB+ Ba3 2,500,000 Tembec Industries, Inc., 8.625%
due 6/30/2009 2,486,875 2,512,500
CCC+ Caa1 3,000,000 Tjiwi Kimia Finance Mauritius, 10%
due 8/01/2004 2,983,650 1,935,000
CCC+ Caa1 1,500,000 Tjiwi Kimia International BV, 13.25%
due 8/01/2001 1,665,000 1,170,000
----------- -----------
26,586,553 25,155,000
====================================================================================================================================
Product B- B3 3,000,000 AmeriServe Food Distributors, 10.125%
Distribution--2.9% due 7/15/2007 3,000,000 2,572,500
Fisher Scientific International:
B- B3 2,250,000 9% due 2/01/2008 2,250,000 2,171,250
B- B3 1,500,000 9% due 2/01/2008 1,449,445 1,447,500
B- B3 2,500,000 Nebraska Book Company, 8.75% due 2/15/2008 2,500,000 2,300,000
----------- -----------
9,199,445 8,491,250
====================================================================================================================================
Publishing & B B1 1,500,000 American Lawyer Media, Inc., 9.75%
Printing--2.7% due 12/15/2007 1,569,375 1,526,250
BB+ Ba2 1,500,000 Hollinger International Publishing, Inc.,
8.625% due 3/15/2005 1,492,500 1,548,750
B B2 4,500,000 MDC Communications Corp., 10.50%
due 12/01/2006 4,451,475 4,680,000
----------- -----------
7,513,350 7,755,000
====================================================================================================================================
Real Estate--1.7% BB- Ba3 5,000,000 Forest City Enterprises Inc., 8.50%
due 3/15/2008 5,005,000 5,000,000
====================================================================================================================================
Specialty Retailing-- B B2 3,750,000 Jo-Ann Stores Inc., 10.375%
1.3% due 5/01/2007 (c) 3,693,750 3,712,500
====================================================================================================================================
Steel--0.6% NR+ B2 2,250,000 CSN Iron SA, 9.125% due 6/01/2007 (c) 1,826,250 1,665,000
====================================================================================================================================
Telephony--12.2% BB- B2 3,500,000 Call-Net Enterprises, Inc., 9.27%*
due 8/15/2007 2,616,708 2,187,500
NR+ NR+ 3,250,000 Comtel Brasileira Ltd., 10.75%
due 9/26/2004 (c) 3,212,500 2,811,250
B- Caa1 2,750,000 Esprit Telecom Group PLC, 10.875%
due 6/15/2008 2,807,813 2,928,750
B B2 3,000,000 Intermedia Capital Partners LP, 11.25%
due 8/01/2006 3,011,250 3,352,500
Intermedia Communications Inc.:
B B2 1,500,000 10.503%* due 7/15/2007 1,105,728 1,065,000
B B2 1,000,000 8.60% due 6/01/2008 1,000,000 937,500
Metronet Communications:
B B3 4,500,000 9.95%* due 6/15/2008 3,039,372 3,341,250
B B3 1,500,000 10.625% due 11/01/2008 (c) 1,500,000 1,713,750
</TABLE>
6 & 7
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
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>
Telephony Nextlink Communications Inc.:
(concluded) B B3 $ 3,750,000 12.50% due 4/15/2006 $ 3,750,000 $ 4,087,500
B B3 1,500,000 9% due 3/15/2008 1,496,970 1,370,625
B B3 3,000,000 10.75% due 6/01/2009 3,000,000 3,000,000
NR+ NR+ 3,500,000 Tele1 Europe BV, 13% due 5/15/2009 (c) 3,500,000 3,535,000
BBB- Ba3 5,000,000 Telefonica de Argentina SA, 11.875%
due 11/01/2004 4,900,400 5,200,000
----------- -----------
34,940,741 35,530,625
====================================================================================================================================
Textiles--1.0% B B2 3,000,000 Polymer Group Inc., 8.75% due 3/01/2008 3,000,000 2,902,500
====================================================================================================================================
Transportation-- B- B3 2,750,000 American Reefer Co. Ltd., 10.25% due 3/01/2008 2,750,000 1,732,500
7.9% BB- NR+ 3,750,000 Autopistas del Sol SA, 10.25% due 8/01/2009 (c) 3,675,000 2,850,000
BB- Ba3 4,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 4,013,750 3,815,000
CCC+ Caa2 2,500,000 Hvide Marine, Inc., 8.375% due 2/15/2008 1,443,750 1,400,000
BB- B1 3,750,000 Sea Containers Ltd., 12.50% due 12/01/2004 4,106,250 4,087,500
BB Ba2 1,500,000 Stena AB, 10.50% due 12/15/2005 1,575,000 1,488,750
B+ B2 3,000,000 TFM, SA de CV, 11.974%* due 6/15/2009 2,087,942 1,732,500
B- B2 4,250,000 Transtar Holdings L.P., 12.625%* due 12/15/2003 3,983,264 4,207,500
CCC Caa3 4,450,000 Trism Inc., 10.75% due 12/15/2000 4,238,625 1,557,500
----------- -----------
27,873,581 22,871,250
====================================================================================================================================
Utilities--4.5% BB Ba3 2,750,000 CMS Energy Corp., 7.50% due 1/15/2009 2,750,000 2,651,685
BBB- Ba3 4,750,000 Metrogas SA, 12% due 8/15/2000 4,803,281 4,821,250
NR+ NR+ 5,106,532 Tucson Electric & Power Co., 10.21% due
1/01/2009 (g)** 4,798,574 5,642,003
----------- -----------
12,351,855 13,114,938
====================================================================================================================================
Waste BB Ba3 2,750,000 Allied Waste North America, 7.375%
Management-- due 1/01/2004 2,745,957 2,598,750
0.9% NR+ Ca 4,000,000 Mid-American Waste Systems, Inc., 12.25%
due 2/15/2003 (e) 1,179,539 120,000
----------- -----------
3,925,496 2,718,750
====================================================================================================================================
Wireless B- B2 3,000,000 Cencall Communications Corporation, 13.935%*
Communications-- due 1/15/2004 2,518,286 3,090,000
Domestic Paging & Nextel Communications Inc.*:
Cellular--6.0% B- B2 4,600,000 12.819% due 8/15/2004 3,982,640 4,738,000
B- B2 2,250,000 9.505% due 10/31/2007 1,649,196 1,507,500
NR+ NR+ 5,000,000 Pinnacle Holdings Inc., 11.675%* due 3/15/2008 3,050,810 3,062,500
NR+ B3 3,225,000 TeleCorp PCS Inc., 11.625%* due 4/15/2009 (c) 1,859,289 1,660,875
B- B3 3,000,000 Western Wireless Corp., 10.50% due 2/01/2007 2,987,813 3,255,000
----------- -----------
16,048,034 17,313,875
====================================================================================================================================
Wireless NR+ NR+ 3,000,000 Celcaribe SA, 11.318%* due 3/15/2004 3,162,487 2,422,500
Communications-- B+ B3 6,208,000 Comunicacion Celular SA, 13.154%*
International Paging due 3/01/2005 (c) 4,992,936 3,724,800
& Cellular--7.2% CCC+ Caa1 1,750,000 Dolphin Telecom PLC, 17.456%* due 6/01/2008 724,955 927,500
B- Caa1 2,000,000 McCaw International Ltd., 11.757%*
due 4/15/2007 1,468,321 1,200,000
B- Caa1 6,000,000 Millicom International Cellular SA, 13.622%*
due 6/01/2006 4,573,555 4,680,000
BB- Ba3 3,500,000 Orange PLC, 8% due 8/01/2008 3,473,330 3,395,000
CCC+ Caa1 7,500,000 Telesystem International Wireless Inc.,
17.158%* due 6/30/2007 4,066,713 4,425,000
----------- -----------
22,462,297 20,774,800
====================================================================================================================================
Total Investments in Corporate Bonds--124.9% 393,984,695 362,460,194
====================================================================================================================================
Shares
Held Common Stocks
====================================================================================================================================
Energy--1.4% 321,384 CHI Energy, Inc. (e) 5,096,857 4,177,992
====================================================================================================================================
Entertainment--0.9% 191,749 On Command Corporation (e) 5,573,706 2,672,502
====================================================================================================================================
Gaming--0.2% 60,892 JCC Holding Company (Class A) (e) 243,568 441,467
====================================================================================================================================
Wireless 10,611 Nextel Communications, Inc. (Class A) (e) 171,223 390,617
Communications--
Domestic Paging &
Cellular--0.1%
====================================================================================================================================
Total Investments in Common Stocks--2.6% 11,085,354 7,682,578
====================================================================================================================================
Preferred Stocks & Warrants
====================================================================================================================================
Broadcasting/Radio & 1,653 Cumulus Media, Inc., Series A, 13.75% (a)++ 1,669,920 1,834,830
Television--0.7%
====================================================================================================================================
Cable--0.0% 45,725 American Telecasting Inc. (Warrants) (a) 0 457
5,747 Wireless One Inc. (Warrants) (a) 121,377 57
----------- -----------
121,377 514
====================================================================================================================================
Computer Services/ 3,500 Splitrock Services Inc. (Warrants) (a) 38,500 280,000
Electronics--0.1%
====================================================================================================================================
Entertainment--0.1% 61,014 On Command Corporation (Warrants) (a) 488,120 305,070
====================================================================================================================================
Supermarkets--0.0% 3,745 Grand Union Co. (Warrants) (a) 37 6,554
====================================================================================================================================
Telephony--0.7% 1,974 Intermedia Communication Inc. (Convertible)++ 2,019,440 2,072,700
====================================================================================================================================
Wireless 6,208 Comunicacion Celular SA (Warrants) (a)(c) 6,782 1,940
Communications--
International Paging &
Cellular--0.0%
====================================================================================================================================
Total Investments in Preferred Stocks &
Warrants--1.6% 4,344,176 4,501,608
====================================================================================================================================
</TABLE>
8 & 9
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value
Amount Short-Term Securities Cost (Note la)
====================================================================================================================================
<S> <C> <C> <C>
Commercial $ 249,000 General Electric Capital Corp., 4.93%
Paper***--0.1% due 6/01/1999 $ 249,000 $ 249,000
====================================================================================================================================
Total Investments in Short-Term Securities--0.1% 249,000 249,000
====================================================================================================================================
Total Investments--129.2% $409,663,225 374,893,380
============
Liabilities in Excess of Other Assets--(29.2%) (84,626,381)
------------
Net Assets--100.0% $290,266,999
============
====================================================================================================================================
</TABLE>
* Represents a zero coupon or step bond; the interest rate shown reflects 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
reflects the discount rate paid at the time of purchase by the Fund.
+ Not Rated.
++ Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(a) Warrants entitle the Fund to purchase a predetermined number of shares of
Common Stock and are non-income producing. The purchase price and number
of shares are subject to adjustment under certain conditions until the
expiration date.
(b) Each $1,000 face amount contains one warrant of Australis Media Ltd.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) Represents an obligation by Jazz Casino Co. LLC to pay a semi-annual
amount to the Fund through 11/15/2009. The payments are based upon varying
interest rates and the amounts, which may be paid-in-kind, are contingent
upon the earnings before income taxes, depreciation and amortization of
Jazz Casino Co. LLC on a fiscal year basis.
(e) Non-income producing security.
(f) 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.
(g) Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $5,642,000, representing 1.9% of
net assets.
- --------------------------------------------------------------------------------
Acquisition Value
Issue Dates Cost (Note 1a)
- --------------------------------------------------------------------------------
Tucson Electric & Power Co., 10.21%
due 1/01/2009 6/25/1993-
7/28/1993 $ 4,798,574 $ 5,642,003
- --------------------------------------------------------------------------------
Total $ 4,798,574 $ 5,642,003
=========== ===========
- --------------------------------------------------------------------------------
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of May 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$409,663,225) (Note 1a) .......... $374,893,380
Receivables:
Interest ............................................................... $ 8,587,927
Securities sold ........................................................ 1,898,958 10,486,885
-----------
Prepaid expenses and other assets ........................................ 345,554
------------
Total assets ............................................................. 385,725,819
------------
====================================================================================================================================
Liabilities: Loans (Note 5) ........................................................... 88,600,000
Payables:
Securities purchased ................................................... 4,265,781
Custodian bank (Note 1f) ............................................... 1,929,801
Interest on loans (Note 5) ............................................. 418,440
Investment adviser (Note 2) ............................................ 154,848
Commitment fees ........................................................ 9,790 6,778,660
-----------
Accrued expenses and other liabilities ................................... 80,160
------------
Total liabilities ........................................................ 95,458,820
------------
====================================================================================================================================
Net Assets: Net assets ............................................................... $290,266,999
============
====================================================================================================================================
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized .............. $ 2,395,597
Paid-in capital in excess of par ......................................... 334,058,651
Undistributed investment income--net ..................................... 3,989,318
Accumulated realized capital losses on investments--net (Note 6) ......... (12,697,718)
Accumulated distributions in excess of realized capital gains on
investments--net (Note 1e) ............................................. (2,709,004)
Unrealized depreciation on investments--net .............................. (34,769,845)
------------
Total--Equivalent to $12.12 per share based on 23,955,966 shares
of capital stock outstanding (market price $12.1875) ..................... $290,266,999
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended May 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Income Interest and discount earned ............................................. $ 40,089,672
(Note 1d): Dividends ................................................................ 851,229
Other .................................................................... 398,621
------------
Total income ............................................................. 41,339,522
------------
====================================================================================================================================
Expenses: Loan interest expense (Note 5) ........................................... $ 5,264,927
Investment advisory fees (Note 2) ........................................ 1,955,144
Borrowing costs (Note 5) ................................................. 267,298
Transfer agent fees ...................................................... 83,484
Professional fees ........................................................ 79,506
Accounting services (Note 2) ............................................. 78,896
Printing and shareholder reports ......................................... 44,931
Directors' fees and expenses ............................................. 40,092
Custodian fees ........................................................... 25,455
Pricing services ......................................................... 12,214
Listing fees ............................................................. 10,108
Organization expenses .................................................... 1,083
Other .................................................................... 35,530
------------
Total expenses ........................................................... 7,898,668
------------
Investment income--net ................................................... 33,440,854
------------
====================================================================================================================================
Realized & Realized loss on investment--net ......................................... (14,532,211)
Unrealized Loss on Change in unrealized depreciation on investments--net .................... (25,800,296)
Investments--Net Net Decrease in Net Assets Resulting from Operations ..................... ------------
(Notes 1b,1d &3): $ (6,891,653)
============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended May 31,
-----------------------------
Increase (Decrease) in Net Assets: 1999 1998
====================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ................................................... $ 33,440,854 $ 32,679,569
Realized gain (loss) on investments--net ................................. (14,532,211) 9,402,781
Change in unrealized depreciation on investments--net .................... (25,800,296) (4,365,077)
------------ ------------
Net increase (decrease) in net assets resulting from operations .......... (6,891,653) 37,717,273
------------ ------------
====================================================================================================================================
Dividends & Investment income--net ................................................... (33,542,325) (33,072,339)
Distributions to In excess of realized gain on investments--net ........................... (2,709,004) --
Shareholders ------------ ------------
(Note 1e): Net decrease in net assets resulting from dividends and
distributions to shareholders ............................................ (36,251,329) (33,072,339)
------------ ------------
====================================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions (Note 4): reinvestment of dividends and distributions ............................ 6,481,447 9,374,343
------------ ------------
====================================================================================================================================
Net Assets: Total increase (decrease) in net assets .................................. (36,661,535) 14,019,277
Beginning of year ........................................................ 326,928,534 312,909,257
------------ ------------
End of year* ............................................................. $290,266,999 $326,928,534
============ ============
====================================================================================================================================
*Undistributed investment income--net (Note 1g) .......................... $ 3,989,318 $ 3,590,273
============ ============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended May 31, 1999
====================================================================================================================================
<S> <C> <C>
Cash Provided by Net decrease in net assets resulting from operations ..................................... $ (6,891,653)
Operating Activities: Adjustments to reconcile net decrease in net assets resulting
from operations to net cash provided by operating activities:
Increase in receivables ................................................................ (346,655)
Increase in other assets ............................................................... (244,285)
Increase in other liabilities .......................................................... 1,651,492
Realized and unrealized loss on investments--net ....................................... 40,332,507
Amortization of discount ............................................................... (6,090,615)
------------
Net cash provided by operating activities ................................................ 28,410,791
------------
====================================================================================================================================
Cash Used for Proceeds from sales of long-term investments ............................................. 193,487,831
Investing Activities: Purchases of long-term investments ....................................................... (210,499,870)
Purchases of short-term investments ...................................................... (94,058,812)
Proceeds from sales and maturities of short-term investments ............................. 94,128,000
------------
Net cash used for investing activities ................................................... (16,942,851)
------------
====================================================================================================================================
Cash Used for Cash receipts from borrowings ............................................................ 191,900,000
Financing Activities: Cash payments on borrowings .............................................................. (173,600,000)
Dividends and distributions paid to shareholders ......................................... (29,769,882)
------------
Net cash used for financing activities ................................................... (11,469,882)
------------
====================================================================================================================================
Cash: Net decrease in cash ..................................................................... (1,942)
Cash at beginning of year ................................................................ 1,942
------------
Cash at end of year ...................................................................... $ 0
============
====================================================================================================================================
Cash Flow Cash paid for interest ................................................................... $ 5,524,981
Information: ============
====================================================================================================================================
Non-Cash Financing Reinvestment of dividends and distributions paid to shareholders ......................... $ 6,481,447
Activities: ============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been
derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
For the Year Ended May 31,+
--------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year .............. $ 13.95 $ 13.74 $ 13.68 $ 13.35 $ 13.21
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .......................... 1.41 1.42 1.44 1.46 1.62
Realized and unrealized gain
(loss) on investments--net .................... (1.71) .25 .08 .33 .14
-------- -------- -------- -------- --------
Total from investment operations ................ (.30) 1.67 1.52 1.79 1.76
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ........................ (1.42) (1.46) (1.46) (1.46) (1.62)
In excess of realized gain on
investments--net ............................ (.11) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions ............... (1.53) (1.46) (1.46) (1.46) (1.62)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 12.12 $ 13.95 $ 13.74 $ 13.68 $ 13.35
======== ======== ======== ======== ========
Market price per share, end of year ............. $12.1875 $14.1875 $ 14.125 $ 13.375 $ 13.625
======== ======== ======== ======== ========
===============================================================================================================================
Total Investment Based on market price per share ................. (2.82%) 11.33% 17.44% 9.35% 11.67%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share .............. (1.71%) 12.53% 11.69% 14.15% 14.92%
======== ======== ======== ======== ========
===============================================================================================================================
Ratios to Average Expenses, excluding interest expense ............ .88% .64% .66% .70% .69%
Net Assets: ======== ======== ======== ======== ========
Expenses ........................................ 2.65% 1.45% 1.27% 1.62% 2.53%
======== ======== ======== ======== ========
Investment income--net .......................... 11.22% 8.71% 9.43% 9.20% 9.03%
======== ======== ======== ======== ========
===============================================================================================================================
Leverage: Amount of borrowings outstanding,
end of year (in thousands) .................... $ 88,600 $ 70,300 $ 28,000 $ 54,000 $ 46,000
======== ======== ======== ======== ========
Average amount of borrowings outstanding
during the year (in thousands) ................ $ 93,258 $ 52,080 $ 36,667 $ 49,424 $107,934
======== ======== ======== ======== ========
Average amount of borrowings outstanding
per share during the year ..................... $ 3.93 $ 2.26 $ 1.64 $ 2.27 $ 5.13
======== ======== ======== ======== ========
===============================================================================================================================
Supplemental Net assets, end of year (in thousands) .......... $290,267 $326,929 $312,909 $300,904 $287,285
Data: ======== ======== ======== ======== ========
Portfolio turnover .............................. 48.80% 55.42% 52.91% 65.68% 45.73%
======== ======== ======== ======== ========
===============================================================================================================================
</TABLE>
* 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.
+ Based on average shares outstanding.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Corporate High Yield Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, closed-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management accruals
and estimates. 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 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). Obligations with remaining maturities of sixty days
or less are valued at amortized cost, which approximates market value, unless
this method no longer produces fair valuations. Rights or warrants to acquire
stock, or stock acquired pursuant to the exercise of a right or warrant, may be
valued taking into account various factors such as original cost to the Fund,
earnings and net worth of the issuer, market prices for securities of similar
issuers, assessment of the issuer's future prosperity, liquidation value or
third party transactions involving the issuer's securities. Securities for which
there exist no price quotations or valuations and all other assets including
futures contracts and related options are valued at fair value as determined in
good faith by or on behalf of the Board of Directors of the Fund.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Options--The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
14 & 15
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as 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) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. Distributions in excess of realized capital gains are due
primarily to post-October losses.
(f) Custodian bank--The Fund recorded an amount payable to the Custodian Bank
reflecting an overnight overdraft which resulted from management estimates of
available cash.
(g) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $500,516 have been reclassified between accumulated net
realized capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets plus the
proceeds of any outstanding principal borrowed.
For the year ended May 31, 1999, the Fund paid Merrill Lynch Security Pricing
Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), $2,053 for security price quotations to compute the net asset value
of the Fund.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended May 31, 1999 were $199,599,777 and $186,925,329, respectively.
Net realized losses for the year ended May 31, 1999 and net unrealized losses as
of May 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
- --------------------------------------------------------------------------------
Long-term investments ..................... $(14,532,211) $(34,769,845)
------------ ------------
Total ..................................... $(14,532,211) $(34,769,845)
============ ============
- --------------------------------------------------------------------------------
As of May 31, 1999, net unrealized depreciation for financial reporting and
Federal income tax purposes aggregated $35,749,059, of which $11,227,755 related
to appreciated securities and $46,976,814 related to depreciated securities. The
aggregate cost of investments at May 31, 1999 for Federal income tax purposes
was $410,642,439.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10, all of which were initially classified as Common Stock. The Board of
Directors is authorized, however, to classify and reclassify any unissued shares
of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding during the years ended May 31, 1999 and May 31,
1998 increased by 517,151 and 664,216, respectively, as a result of dividend
reinvestment.
5. Short-Term Borrowings:
On August 11, 1998, the Fund entered into a one-year credit agreement with State
Street Bank and Trust Company, Fleet National Bank and certain other
institutions party thereto. The agreement is a $150,000,000 credit facility
bearing interest at the Federal Funds Rate plus 0.50% and/or LIBOR plus 0.50%.
For the year ended May 31, 1999, the average amount borrowed was approximately
$93,258,000 and the daily weighted average interest rate was 5.65%. For the year
ended May 31, 1999, facility and commitment fees aggregated $267,298.
6. Capital Loss Carryforward:
At May 31, 1999, the Fund had a net capital loss carryforward of approximately
$8,611,000, all of which expires in 2007. This amount will be available to
offset like amounts of any future taxable gains.
7. Subsequent Event:
On June 9, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.111563 per share,
payable on June 30, 1999 to shareholders of record as of June 23, 1999.
16 & 17
<PAGE>
Corporate High Yield Fund, Inc., May 31, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, Corporate High Yield Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of Corporate High Yield Fund, Inc. as of
May 31, 1999, the related statements of operations and cash flows for the year
then ended, changes in net assets for each of the years in the two-year period
then ended and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at May 31,
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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Corporate High Yield
Fund, Inc. as of May 31, 1999, the results of its operations, its cash flows,
the changes in its net assets and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
July 6, 1999
YEAR 2000 ISSUES (unaudited)
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the issuers of securities
in which the Fund invests. This negative impact may be greater for companies in
foreign markets, particularly emerging markets, since they may be less prepared
for the Year 2000 Problem than domestic companies and markets. If the companies
in which the Fund invests have Year 2000 Problems, the Fund's returns could be
adversely affected.
PORTFOLIO INFORMATION (unaudited)
<TABLE>
<CAPTION>
Percent of Total
As of May 31, 1999 Long-Term Investments
====================================================================================================================================
<S> <C> <C> <C>
Ten Largest Holdings Nextel Communications Inc. Nextel is building a network to provide digital
wireless communications services that ultimately
will have a nationwide footprint. The company
currently has service in over 225 cities with
service covering over 85% of the US population.
The company has over 1.2 million units in
service. Our holdings include bonds of 100%-owned
Cencall Communications. 2.6%
-----------------------------------------------------------------------------------------------------------
Nextlink Communications Inc. Nextlink provides local, long distance and enhanced
telephone communications services to commercial customers.
The company operates in 23 facilities-based networks
in 14 states. 2.3
-----------------------------------------------------------------------------------------------------------
NTL, Inc. NTL provides communications services to residential,
business and wholesale customers.
The company offers residential telephony, cable
television and Internet access services.
NTL also provides national and international
telecommunications and satellite and radio
communications. We hold bonds of International Cabletel
(renamed NTL, Inc.) and wholly-owned Diamond Cable. 2.1
-----------------------------------------------------------------------------------------------------------
Tucson Electric & Power Co. This electric utility serves Tucson, Arizona and
surrounding areas. Our bonds are secured lease
obligation bonds on the company's Springerville
coal-fired power generation plant. 1.5
-----------------------------------------------------------------------------------------------------------
Lyondell Chemical Company Lyondell is a global commodity chemical company.
The company is the world's largest
producer of propylene oxide and produces a variety
of derivative chemicals based on propylene oxide.
Styrene monomer and tertiary butyl alcohol are also
important products. Lyondell's chemicals have end
uses such as flexible foam for automotive seating
and furniture, antifreeze and coolants, personal care
products, coatings, adhesives, sealants, resins
and solvents. 1.5
-----------------------------------------------------------------------------------------------------------
Telefonica de Argentina SA Telefonica de Argentina provides monopoly telephone
service to the southern half of Argentina, including
about half the Buenos Aires metropolitan area where
nearly one-third of Argentina's population is located. 1.4
-----------------------------------------------------------------------------------------------------------
Malette Inc. Malette is a Canadian producer of oriented strand
board panels and commodity 2x4 lumber with facilities
primarily located in the province of Quebec. Malette
is a wholly-owned subsidiary of Canadian paper and
forest roducts producer Tembec, Inc. 1.3
-----------------------------------------------------------------------------------------------------------
Metronet Communications Metronet, operating as AT&T Canada, provides
telecommunications and Internet services to
business and government users throughout Canada.
Services include local and long distance telephone
service and data transmission. 1.3
-----------------------------------------------------------------------------------------------------------
L-3 Communications Corp. The company is a supplier of secure communications
systems, avionics, telemetry, instrumentation and
other communications and support services. Customers
include aerospace contractors and the US military and
Federal agencies. 1.3
-----------------------------------------------------------------------------------------------------------
Forest City Enterprises Inc. Forest City is a diversified real estate developer.
The company develops, acquires, owns and manages
commercial and residential real estate projects in
21 states and the District of Columbia. 1.3
-----------------------------------------------------------------------------------------------------------
</TABLE>
18 & 19
<PAGE>
Officers and Directors
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Elizabeth M. Phillips, Vice President
Donald C. Burke, Vice President
and Treasurer
Patrick D. Sweeney, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer of Corporate High Yield Fund, Inc. has recently
retired. His colleagues at Merrill Lynch Asset Management, L.P. join the Fund's
Board of Directors in wishing Mr. Richard well in his retirement.
- --------------------------------------------------------------------------------
Custodian
The Chase Manhattan Bank
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
COY
This report, including the financial information herein, is transmitted to the
shareholders of Corporate High Yield Fund, Inc. for their information. It is not
a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a representation of future
performance. The Fund has leveraged its Common Stock to provide Common Stock
shareholders with a potentially higher rate of return. Leverage creates risk for
Common Stock shareholders, including the likelihood of greater volatility of net
asset value and market price of Common Stock shares, and the risk that
fluctuations in short-term interest rates may reduce the Common Stock's yield.
Statements and other information herein are as dated and are subject to change.
Corporate High
Yield Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #16718--5/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
