CORPORATE
HIGH YIELD
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
May 31, 2000
<PAGE>
CORPORATE HIGH YIELD FUND, INC.
The Benefits and Risks of Leveraging
Corporate High Yield Fund, Inc. utilizes leveraging 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.
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
William E. Zitelli, Secretary
Custodian
The Chase Manhattan Bank
4 MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
COY
<PAGE>
Corporate High Yield Fund, Inc., May 31, 2000
DEAR SHAREHOLDER
High-Yield Market Overview
During the six months ended May 31, 2000, the high-yield market suffered from a
bear market psychology. Contributing factors to the malaise were interest rate
pressure, a flagging stock market, weak technicals, limited liquidity and weak
investment performance. The high-yield market delivered negative returns in four
of the six months ended May 31, 2000, and a 1.84% loss for the period, as
measured by the unmanaged benchmark CS First Boston Global High Yield Index.
To some degree, the high-yield market has reflected equity markets. The
high-yield market has experienced a wide dichotomy between the haves and the
have-nots that pushed up prices of selected bonds in popular sectors such as
communications, while leaving bonds in most sectors to languish in both price
and market interest. The high-yield market was also pressured by the March slump
in Internet stocks. Investors became concerned that equity markets would not be
available to fund the ongoing build-out plans of the fast-growing communications
companies that have bonds outstanding in the high-yield market. The resulting
price declines particularly hurt bonds of the weaker companies in the
communications sector. However, more liquid issues of better-quality companies
also suffered in the sell-off, as these represent easy sources of cash in a
sagging market.
Beyond the communications sector, equity market volatility has focused attention
on the ability of highly leveraged companies to raise needed capital. In recent
years, the equity market has been a significant source of capital for high-yield
companies, which tapped the equity market to fund both debt reduction and
business expansion. With less access to the equity markets and increasingly
conservative lending restrictions by banks, leveraged companies face greater
challenges to meet corporate liquidity needs.
Although the high-yield market remains in the doldrums, we remain confident that
the high-yield market represents value for those with a long-term time horizon.
At 714 basis points (7.14%), the yield spread or difference between yields of US
Treasury bonds and high-yield bonds remains at historically wide levels. It
appears to us that investors are discounting a default rate well in excess of
the current experience. As a result, investors are being paid well for the
incremental risk of investing in this market. Furthermore, absolute yields are
attractive, with the CS First Boston Global High Yield Index yield at 13.56%.
While there is no clear near-term catalyst for improvement in the high-yield
market, the eventual stabilization of interest rates should provide price
support, as could more settled conditions in equity markets.
Fund Performance
For the year ended May 31, 2000, the total investment return on the Fund's
Common Stock was -3.04%, based on a change in the per share net asset value from
$12.12 to $10.35, and assuming reinvestment of $1.322 per share income
dividends. For the six months ended May 31, 2000, total investment return for
the Fund was -2.04%, based on a change in the per share net asset value from
$11.30 to $10.35, and assuming reinvestment of $.647 per share income dividends.
During this period, the net annualized yield of the Fund's Common Stock was
12.58%. Fund performance was weak, reflecting a sell-off in high-yield markets
and emerging markets in May. Leverage also contributed to the Fund's
underperformance, particularly relative to the benchmark CS First Boston Global
High Yield Index. (For a complete explanation of the benefits and risks of
leveraging, see page 1 of this report to shareholders.) Several positions
suffered from the market trend to severely punish earnings disappointments.
Market concerns in many cases have been exacerbated by the potential for
liquidity crises should banks restrict borrowing because of earnings shortfalls.
We will continue to evaluate whether the value of each company exceeds market
value of outstanding debt, and the likelihood of recovery in the business. In
general, we have opted to hold our positions in such cases. Prices for our
emerging markets holdings fell, reflecting fundamental concern about the impact
of higher interest rates and unfavorable technicals as a result of hedge fund
and high-yield selling pressure in that asset class.
Leverage Strategy
The Fund was on average about 24% leveraged during the six-month period ended
May 31, 2000. Thus, the Fund borrowed the equivalent of 24% of total assets
invested, earning incremental yield on the investments we made with the borrowed
funds. On May 31, 2000, the Fund was 24.5% leveraged, having borrowed $81.3
million at a borrowing cost of 7.3125%. Our leverage hurt performance in this
period, as is typical when bond prices fall. Given our view that the high-yield
market represents value over the long term, we expect to maintain leverage in a
range near current levels, with moderate variations depending on market
conditions.
Investment Strategy
Within the context of ongoing market illiquidity and caution among high-yield
market investors, we attempted to strengthen our position in better
credit-quality names, to take advantage of growth sectors in the market and to
avoid credit problems in our larger holdings. We maintained overweighted
positions in emerging markets, chemicals, transportation and healthcare because
of our belief in the favorable long-term prospects and asset valuations in these
sectors.
We continue to evaluate our positions relative to valuations throughout the
market and to monitor operating trends of individual companies. To this end, we
sold our positions in Cumulus Media, Inc. during the period ended May 31, 2000.
While Cumulus Media's radio properties had continued to grow nicely, the bonds
and preferred stock in our positions appeared fully valued relative to the risk
profile of the company. This move proved correct as the bonds have since dropped
significantly. For a slightly better yield, we replaced Cumulus Media with
better-rated bonds of Global Crossing Holding Limited. Global Crossing is a
worldwide telecommunications provider, specializing in data communications and
primarily serving as a carrier's carrier. We believe growth prospects for the
company are excellent given the ever-increasing demand for communications
capacity and the competitive benefits of the company's state-of-the-art
worldwide fiber optic network.
In better-quality securities, we added to our holdings in HMH Properties, Inc.,
whose bonds are rated Ba2/BB. HMH Properties owns positions in a portfolio of
Marriott and Ritz Carlton hotels. We view HMH Properties as a well-managed
company with relatively predictable earnings growth. We also sold at a
substantial loss our holdings in AmeriServe Food Distributors, a distributor to
fast food restaurants such as Burger King. The company had been unable to put an
expected turnaround in place and had faced considerable liquidity constraints,
while asset value diminished. Shortly after our sale, the company declared
bankruptcy, and the bonds fell further.
We continue to review our communications holdings in light of equity market
volatility and the potential for companies in that sector to be unable to fund
their growth plans. We recognize that this sector has come under pressure
because of increasing concerns about adequate funding. However, we believe that
the companies represented in our Fund have favorable market positions and good
track records, which represent strategic value that will attract capital. Most
of the Fund's holdings are either well funded, with adequate cash holdings to
fund current plans, or have solid equity sponsorship that will be able to meet
any cash shortfalls.
In Conclusion
We thank you for your investment in Corporate High Yield Fund, Inc., and we look
forward to assisting you with your financial needs in the months and years
ahead.
Sincerely,
/s/ 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
June 23, 2000
2 & 3
<PAGE>
Corporate High Yield Fund, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Rating Rating Amount Corporate Bonds Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Aerospace & L-3 Communications Corp.:
Defense--1.8% B B2 $1,850,000 10.375% due 5/01/2007 $ 1,850,000
B B2 3,000,000 8.50% due 5/15/2008 2,700,000
-----------
4,550,000
====================================================================================================================================
Automotive--0.4% NR* NR* 3,000,000 Breed Technologies Inc., 9.25% due 4/15/2008 (c) 22,500
BB+ Ba2 1,500,000 Federal-Mogul Corporation, 7.375% due 1/15/2006 1,074,588
-----------
1,097,088
====================================================================================================================================
Broadcasting/Radio BB- Ba3 3,000,000 Antenna TV SA, 9% due 8/01/2007 2,640,000
& Television--1.8% B+ B2 2,250,000 Globo Comunicacoes e Participacoes, Ltd., 10.50% due 12/20/2006(h) 1,766,250
-----------
4,406,250
====================================================================================================================================
Building BB Ba3 3,250,000 Building Materials Corporation, 8% due 12/01/2008 2,693,437
Materials--1.1%
====================================================================================================================================
Cable--1.1% B+ B2 3,250,000 Charter Communications Holdings LLC, 8.625% due 4/01/2009 2,713,750
====================================================================================================================================
Cable-- Australis Media Ltd. (c):
International--6.5% D NR* 118,416 15.75% due 5/15/2003 1,184
D NR* 6,922,000 15.75% due 5/15/2003 (a) 69,220
BB B1 4,000,000 Cablevision SA, 13.75% due 5/01/2009 3,420,000
B- B3 1,500,000 Diamond Cable Communications PLC, 13.25% due 9/30/2004 1,578,750
B- B3 3,500,000 International Cabletel, Inc., 11.643%** due 2/01/2006 3,185,000
BB+ Ba1 1,750,000 Rogers Cablesystems Ltd., 10% due 12/01/2007 (h) 1,767,500
D Caa3 3,000,000 Supercanal Holdings SA, 11.50% due 5/15/2005 (c)(h) 1,380,000
B+ B1 2,250,000 TeleWest Communications PLC, 11.001%** due 10/01/2007 2,126,250
B B2 5,925,000 United Pan-Europe Communications, 13.511%** due 2/01/2010 (h) 2,621,813
-----------
16,149,717
====================================================================================================================================
Chemicals--8.1% BBB- Baa3 3,500,000 Equistar Chemicals LP, 8.50% due 2/15/2004 3,399,140
NR* B2 3,750,000 Huntsman Corporation, 9.50% due 7/01/2007 (h) 3,337,500
B+ B3 5,000,000 Huntsman ICI Holdings, 12.381%** due 12/31/2009 1,525,000
BB Ba3 5,500,000 Lyondell Chemical Company, 9.625% due 5/01/2007 5,321,250
B+ B2 2,750,000 Octel Developments PLC, 10% due 5/01/2006 2,543,750
Sterling Chemicals Inc.:
BB- B3 2,000,000 12.375% due 7/15/2006 2,030,000
B Caa3 2,425,000 11.75% due 8/15/2006 1,964,250
-----------
20,120,890
====================================================================================================================================
Communications-- B+ B2 6,250,000 Orion Network Systems, Inc., 15.16%** due 1/15/2007 2,125,000
1.9% B- B3 4,250,000 Satelites Mexicanos SA, 10.125% due 11/01/2004 2,746,562
-----------
4,871,562
====================================================================================================================================
Computer Services/ BB- Ba3 2,750,000 Amkor Technologies Inc., 9.25% due 5/01/2006 2,667,500
Electronics--4.8% CCC+ Caa3 4,500,000 MCMS Inc., 9.75% due 3/01/2008 2,407,500
B B2 2,597,000 SCG Holdings Corporation, 12% due 8/01/2009 2,752,820
B B2 4,750,000 Zilog Inc., 9.50% due 3/01/2005 4,132,500
-----------
11,960,320
====================================================================================================================================
Consumer Products-- B- B2 500,000 Chattem, Inc., 8.875% due 4/01/2008 423,750
2.3% B B3 1,500,000 Corning Consumer Products, 9.625% due 5/01/2008 1,020,000
B B3 2,500,000 Jostens Inc., 12.75% due 5/01/2010 (f) 2,450,000
CCC+ Caa1 3,175,000 Syratech Corp., 11% due 4/15/2007 1,809,750
-----------
5,703,500
====================================================================================================================================
Diversified--1.3% CCC+ Caa2 3,750,000 Foamex LP, 13.50% due 8/15/2005 3,206,250
====================================================================================================================================
Energy--3.8% CCC- Caa3 1,350,000 Belden & Blake Corp., 9.875% due 6/15/2007 891,000
CCC B3 3,500,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 2,900,625
BB- B1 2,750,000 Tesoro Petroleum Corp., 9% due 7/01/2008 2,585,000
B- B3 2,000,000 United Refining Co., 10.75% due 6/15/2007 1,215,000
CCC- Caa3 2,350,000 Wiser Oil Company, 9.50% due 5/15/2007 1,868,250
-----------
9,459,875
====================================================================================================================================
Entertainment--2.7% B+ B1 1,950,000 Intrawest Corp., 9.75% due 8/15/2008 1,872,000
B- B3 3,750,000 Premier Parks Inc., 9.75% due 6/15/2007 3,571,875
B- Caa2 3,250,000 Regal Cinemas Inc., 9.50% due 6/01/2008 1,316,250
-----------
6,760,125
====================================================================================================================================
Financial Services-- CCC- Caa3 4,500,000 Amresco Inc., 9.875% due 3/15/2005 2,115,000
5.0% BB Ba3 2,750,000 Port Arthur Finance Corporation, 12.50% due 1/15/2009 2,646,875
BB- Ba3 5,000,000 RBF Finance Company, 11% due 3/15/2006 5,312,500
BB+ Ba3 2,500,000 Sovereign Bancorp, 10.50% due 11/15/2006 2,462,500
-----------
12,536,875
====================================================================================================================================
Foreign Government B+ B2 2,000,000 Republic of Brazil, 10.125% due 5/15/2027 1,500,000
Obligations--0.6%
====================================================================================================================================
</TABLE>
4 & 5
<PAGE>
Corporate High Yield Fund, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Rating Rating Amount Corporate Bonds Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Gaming--3.3% D Caa1 $6,000,000 GB Property Funding Corp., 10.875% due 1/15/2004 (c) $ 3,780,000
Jazz Casino Co. LLC:
NR* NR* 3,999,146 5.987% due 11/15/2009 (d) 959,795
NR* NR* 210,000 Contingent Notes, due 11/15/2009 (e) 0
Venetian Casino/LV Sands:
B- Caa1 750,000 12.25% due 11/15/2004 727,500
CCC+ Caa3 3,000,000 10% due 11/15/2005 2,700,000
-----------
8,167,295
====================================================================================================================================
Health Services-- B- B3 4,750,000 ALARIS Medical Systems, Inc., 9.75% due 12/01/2006 3,515,000
10.4% BB+ Ba2 2,250,000 Columbia HCA/Healthcare Corp., 7.15% due 3/30/2004 2,047,500
CCC+ B3 4,000,000 Extendicare Health Services, 9.35% due 12/15/2007 1,480,000
B+ ba3 950,000 Fresenius Medical Capital Trust I, 9% due 12/01/2006 876,375
B+ ba3 2,050,000 Fresenius Medical Capital Trust II, 7.875% due 2/01/2008 1,804,000
BB Ba3 4,000,000 ICN Pharmaceutical Inc., 8.75% due 11/15/2008 (h) 3,740,000
CCC+ B3 5,250,000 Kinetic Concepts, Inc., 9.625% due 11/01/2007 3,911,250
B- Caa1 3,375,000 Magellan Health Services, 9% due 2/15/2008 1,181,250
D C 3,500,000 Mariner Post--Acute Network, 9.50% due 11/01/2007 (c) 30,625
NR* B2 3,000,000 Quest Diagnostic Inc., 10.75% due 12/15/2006 3,127,500
B+ Ba3 4,500,000 Quorum Health Group Inc., 8.75% due 11/01/2005 4,185,000
-----------
25,898,500
====================================================================================================================================
Hotels--2.3% BB Ba2 6,500,000 HMH Properties, Inc., 8.45% due 12/01/2008 5,752,500
====================================================================================================================================
Independent Power BB Ba1 1,500,000 ESI Tractebel Acquisition Corp., 7.99% due 12/30/2011 1,303,545
Producers--0.8% BB Ba3 500,000 Midland Funding II, 13.25% due 7/23/2006 (g) 581,630
-----------
1,885,175
====================================================================================================================================
Industrial Services-- B B3 3,750,000 Neff Corp., 10.25% due 6/01/2008 2,437,500
1.0%
====================================================================================================================================
Internet Transport-- B- B3 4,000,000 PSINet Inc., 11% due 8/01/2009 3,600,000
1.4%
====================================================================================================================================
Metals & Mining-- B- B3 3,750,000 Great Lakes Carbon Corp., 11.75% due 5/15/2008 (d) 3,215,625
2.9% CCC+ B3 4,200,000 Kaiser Aluminum & Chemical Corp., 12.75% due 2/01/2003 3,906,000
-----------
7,121,625
====================================================================================================================================
Packaging--1.0% B B3 2,500,000 Huntsman Packaging Corporation, 13% due 6/01/2010 (h) 2,456,250
====================================================================================================================================
Paper & Forest CCC+ B3 3,250,000 APP China Group Ltd., 14% due 3/15/2010 (h) 2,080,000
Products--5.5% B B2 2,400,000 Ainsworth Lumber Company, 12.50% due 7/15/2007 (d) 2,466,000
Doman Industries Limited:
B Caa1 4,000,000 8.75% due 3/15/2004 3,300,000
B+ B3 1,500,000 12% due 7/01/2004 1,522,500
CCC+ Caa1 3,500,000 Repap New Brunswick, 10.625% due 4/15/2005 3,115,000
CCC+ B3 1,500,000 Tjiwi Kimia International BV, 13.25% due 8/01/2001 1,260,000
-----------
13,743,500
====================================================================================================================================
Product CCC- Ca 3,400,000 US Office Products Co., 9.75% due 6/15/2008 442,000
Distribution--0.2%
====================================================================================================================================
Publishing & B B2 4,500,000 MDC Communications Corp., 10.50% due 12/01/2006 4,185,000
Printing--2.0% BB- Ba3 1,000,000 Primedia, Inc., 7.625% due 4/01/2008 895,000
-----------
5,080,000
====================================================================================================================================
Real Estate--1.9% BB- Ba3 5,250,000 Forest City Enterprises Inc., 8.50% due 3/15/2008 4,659,375
====================================================================================================================================
Specialty Retailing-- B B2 3,750,000 Jo-Ann Stores Inc., 10.375% due 5/01/2007 3,412,500
1.4%
====================================================================================================================================
Steel--1.6% NR* B2 2,250,000 CSN Iron SA, 9.125% due 6/01/2007 (h) 1,687,500
CCC+ Caa2 3,250,000 Metal Management Inc., 10% due 5/15/2008 2,145,000
CC Caa3 1,750,000 Republic Technologies, 13.75% due 7/15/2009 (Convertible) (b) 188,125
-----------
4,020,625
====================================================================================================================================
Telephony--14.4% B+ B2 3,500,000 Call-Net Enterprises, Inc., 9.27%** due 8/15/2007 1,540,000
NR* NR* 3,250,000 Comtel Brasileira Ltd., 10.75% due 9/26/2004 (h) 2,957,500
B- B3 2,750,000 Esprit Telecom Group PLC, 10.875% due 6/15/2008 2,172,500
B- B3 2,750,000 Fairpoint Communications, 12.50% due 5/01/2010 2,763,750
BB- Ba3 1,750,000 Flag Limited, 8.25% due 1/30/2008 1,505,000
B B2 3,500,000 Flag Telecom Holding Ltd., 11.625% due 3/30/2010 (h) 3,220,000
CCC+ Caa1 4,500,000 GT Group Telecom, 13.25%** due 2/01/2010 (h) 2,340,000
NR* NR* 5,250,000 Global Crossing Holding Limited, 9.50% due 11/15/2009 4,974,375
B B3 7,500,000 Level 3 Communications Inc., 12.667%** due 3/15/2010 (h) 3,900,000
Nextlink Communications Inc.:
B B2 3,750,000 12.50% due 4/15/2006 3,881,250
B B2 1,500,000 9% due 3/15/2008 1,335,000
B B2 2,000,000 10.75% due 6/01/2009 1,915,000
B- B3 3,500,000 Tele1 Europe BV, 13% due 5/15/2009 3,325,000
-----------
35,829,375
====================================================================================================================================
</TABLE>
6 & 7
<PAGE>
Corporate High Yield Fund, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<TABLE>
<CAPTION>
S&P Moody's Face
INDUSTRIES Rating Rating Amount Corporate Bonds Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Textiles--1.0% B B2 $3,000,000 Polymer Group Inc., 8.75% due 3/01/2008 $ 2,400,000
====================================================================================================================================
Transportation-- B- B3 4,000,000 American Reefer Co. Ltd., 10.25% due 3/01/2008 2,190,000
8.5% BB- NR* 3,750,000 Autopistas del Sol SA, 10.25% due 8/01/2009 (h) 2,737,500
BB- Ba3 4,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 3,680,000
BB- B1 3,750,000 Sea Containers Ltd., 12.50% due 12/01/2004 2,700,000
BB Ba2 1,500,000 Stena AB, 10.50% due 12/15/2005 1,398,750
B+ B2 3,000,000 TFM, SA de CV, 11.974%** due 6/15/2009 1,890,000
BB- Ba3 1,750,000 Transportacion Maritima Mexicana, SA de CV, 9.25% due 5/15/2003 1,417,500
B- B2 4,250,000 Transtar Holdings LP, 13.375% due 12/15/2003 4,292,500
NR* NR* 1,548,185 Trism, Inc., 12% due 2/15/2005 967,616
------------
21,273,866
====================================================================================================================================
Utilities--3.1% BB Ba3 2,750,000 Azurix Corporation, 10.375% due 2/15/2007 (h) 2,557,500
BBB- Ba2 5,028,810 Tucson Electric & Power Co., 10.211% due 1/01/2009 (f)(g) 5,151,614
------------
7,709,114
====================================================================================================================================
Waste NR* Ca 4,000,000 Mid-American Waste Systems, Inc., 12.25% due 2/15/2003 (c) 120,000
Management--0.0%
====================================================================================================================================
Wireless CCC Caa1 2,750,000 Airgate PCS Inc., 12.713%** due 10/01/2009 1,553,750
Communications-- Nextel Communications, Inc.:
7.8% B B1 2,250,000 9.505%** due 10/31/2007 1,608,750
B B1 3,000,000 9.375% due 11/15/2009 2,820,000
D Caa3 1,750,000 Paging Network, Inc., 10.125% due 8/01/2007 (c) 560,000
B B3 5,000,000 Pinnacle Holdings Inc., 11.675%** due 3/15/2008 3,200,000
B- B3 6,000,000 Spectrasite Holdings Inc., 12.875%** due 3/15/2010 (h) 3,060,000
B- B2 3,500,000 VoiceStream Wireless, 10.375% due 11/15/2009 3,587,500
B+ B1 3,000,000 Western Wireless Corp., 10.50% due 2/01/2007 3,060,000
------------
19,450,000
====================================================================================================================================
Wireless NR* NR* 3,000,000 Celcaribe SA, 14.50% due 3/15/2004 2,422,500
Communications-- ClearNet Communications:
International--9.6% NR* B3 2,000,000 12.473%** due 12/15/2005 2,040,000
NR* B3 3,000,000 11.455%** due 5/01/2009 1,695,000
B B3 6,208,000 Comunicacion Celular SA, 13.154%** due 3/01/2005 (h) 3,848,960
CCC+ Caa1 2,900,000 Dolphin Telecom PLC, 20.499%** due 6/01/2008 957,000
B- Caa1 2,250,000 McCaw International Ltd., 12.011%** due 4/15/2007 1,597,500
B- Caa1 7,750,000 Millicom International Cellular, 14.147%** due 6/01/2006 6,587,500
CCC+ Caa1 7,500,000 Telesystem International Wireless Inc., 17.158%** due 6/30/2007 4,875,000
------------
24,023,460
====================================================================================================================================
Total Investments in Corporate Bonds
(Cost--$369,445,574)--123.3% 307,212,299
====================================================================================================================================
Shares
Held Common Stocks
====================================================================================================================================
<S> <C> <C> <C>
Energy--3.0% 321,384 CHI Energy, Inc. (c) 3,535,224
182,867 Forcenergy Inc. (c) 4,011,645
------------
7,546,869
====================================================================================================================================
Entertainment--1.1% 171,974 On Command Corporation (c) 2,773,081
====================================================================================================================================
Gaming--0.0% 60,892 JCC Holding Company (Class A) (c) 49,475
====================================================================================================================================
Telephony--0.6% 32,002 McLeodUSA Incorporated (Class A) (c) 640,036
61,644 Tele1 Europe Holding AB (ADR) (c)(j) 708,906
------------
1,348,942
====================================================================================================================================
Transportation-- 130,666 HMI (c) 751,330
0.3% 98,052 Trism, Inc. (c) 51,477
------------
802,807
====================================================================================================================================
Total Investments in Common Stocks
(Cost--$14,155,370)--5.0% 12,521,174
====================================================================================================================================
Preferred Stocks & Warrants
====================================================================================================================================
Cable--0.0% 5,747 Wireless One Inc. (Warrants) (i) 57
====================================================================================================================================
Entertainment--0.1% 61,014 On Command Corporation (Warrants) (i) 305,070
====================================================================================================================================
Steel--0.0% 1,750 Republic Technologies (Warrants) (i) 18
====================================================================================================================================
Supermarkets--0.0% 3,745 Grand Union Co. (Warrants) (i) 468
====================================================================================================================================
Telephony--0.9% 2,252 Intermedia Communications Inc. (Convertible) (d) 2,094,360
====================================================================================================================================
Wireless 6,208 Comunicacion Celular SA (Warrants) (h)(i) 62,080
Communications--
International--0.0%
====================================================================================================================================
Total Investments in Preferred Stocks & Warrants
(Cost--$3,091,451)--1.0 2,462,053
====================================================================================================================================
</TABLE>
8 & 9
<PAGE>
Corporate High Yield Fund, Inc., May 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Face
Amount Short-Term Securities Value
===========================================================================================================
<S> <C> <C> <C>
Commercial $ 173,000 General Motors Acceptance Corp., 6.81% due 6/01/2000 $ 173,000
Paper***--0.1%
===========================================================================================================
Total Short-Term Investments (Cost--$173,000)--0.1% 173,000
===========================================================================================================
Total Investments (Cost--$386,865,395)--129.4% 322,368,526
Liabilities in Excess of Other Assets--(29.4%) (73,280,475)
------------
Net Assets--100.0% $249,088,051
============
===========================================================================================================
</TABLE>
* Not Rated.
** Represents a zero coupon or step bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
*** 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.
(a) Each $1,000 face amount contains one warrant of Australis Media Ltd.
(b) Each $1,000 face amount contains one warrant of Republic Technologies.
(c) Non-income producing security.
(d) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(e) 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.
(f) Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $7,602,000, representing 3.1% of
net assets.
(g) Subject to principal paydowns.
(h) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(i) 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.
(j) American Depositary Receipts.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
--------------------------------------------------------------------------
Acquisition
Issue Date(s) Cost Value
--------------------------------------------------------------------------
Jostens Inc., 12.75% due 5/01/2010 5/05/2000 $ 2,398,858 $ 2,450,000
Tucson Electric & Power Co.,
10.211% due 1/01/2009 6/25/1993-
7/28/1993 4,725,128 5,151,614
--------------------------------------------------------------------------
Total $ 7,123,986 $ 7,601,614
=========== ===========
--------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of May 31, 2000
=================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$386,865,395) .............................. $322,368,526
Cash ............................................................................... 1,147
Receivables:
Interest ........................................................................ $ 7,925,763
Securities sold ................................................................. 1,668,786 9,594,549
-----------
Prepaid expenses and other assets .................................................. 94,307
------------
Total assets ....................................................................... 332,058,529
------------
=================================================================================================================================
Liabilities: Loans .............................................................................. 81,300,000
Payables:
Dividends to shareholders ....................................................... 494,343
Interest on loans ............................................................... 464,497
Investment adviser .............................................................. 109,383
Securities purchased ............................................................ 38,713
Commitment fees ................................................................. 11,704 1,118,640
-----------
Accrued expenses and other liabilities ............................................. 551,838
------------
Total liabilities .................................................................. 82,970,478
------------
=================================================================================================================================
Net Assets: Net assets ......................................................................... $249,088,051
============
=================================================================================================================================
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized ........................ $ 2,406,221
Paid-in capital in excess of par ................................................... 335,311,297
Undistributed investment income--net ............................................... 3,479,013
Accumulated realized capital losses on investments--net ............................ (24,902,607)
Accumulated distributions in excess of realized capital gains on investments--net .. (2,709,004)
Unrealized depreciation on investments--net ........................................ (64,496,869)
------------
Total--Equivalent to $10.35 per share based on 24,062,214 shares of
capital stock outstanding (market price $9.25) ................................... $249,088,051
============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
Corporate High Yield Fund, Inc., May 31, 2000
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended May 31, 2000
=================================================================================================================================
<S> <C> <C> <C>
Investment Income: Interest and discount earned ............................................. $ 38,574,006
Dividends ................................................................ 394,228
Other .................................................................... 164,764
------------
Total income ............................................................. 39,132,998
------------
=================================================================================================================================
Expenses: Loan interest expense .................................................... $ 5,424,308
Investment advisory fees ................................................. 1,814,560
Borrowing costs .......................................................... 294,312
Professional fees ........................................................ 76,373
Transfer agent fees ...................................................... 72,460
Accounting services ...................................................... 63,905
Printing and shareholder reports ......................................... 46,655
Directors' fees and expenses ............................................. 40,640
Listing fees ............................................................. 24,260
Custodian fees ........................................................... 22,621
Pricing services ......................................................... 10,788
Other .................................................................... 32,487
-----------
Total expenses ........................................................... 7,923,369
------------
Investment income--net ................................................... 31,209,629
------------
=================================================================================================================================
Realized & Realized loss on investments--net ........................................ (12,132,813)
Unrealized Loss on Change in unrealized depreciation on investments--net .................... (29,727,024)
Investments--Net: ------------
Net Decrease in Net Assets Resulting from Operations ..................... $(10,650,208)
============
=================================================================================================================================
</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: 2000 1999
=================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ................................................... $ 31,209,629 $ 33,440,854
Realized loss on investments--net ........................................ (12,132,813) (14,532,211)
Change in unrealized depreciation on investments--net .................... (29,727,024) (25,800,296)
------------- -------------
Net decrease in net assets resulting from operations ..................... (10,650,208) (6,891,653)
------------- -------------
=================================================================================================================================
Dividends & Investment income--net ................................................... (31,792,010) (33,542,325)
Distributions to In excess of realized gain on investments--net ........................... -- (2,709,004)
Shareholders: ------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ........................................................ (31,792,010) (36,251,329)
------------- -------------
=================================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions: of dividends and distributions ......................................... 1,263,270 6,481,447
------------- -------------
=================================================================================================================================
Net Assets: Total decrease in net assets ............................................. (41,178,948) (36,661,535)
Beginning of year ........................................................ 290,266,999 326,928,534
------------- -------------
End of year* ............................................................. $ 249,088,051 $ 290,266,999
============= =============
=================================================================================================================================
*Undistributed investment income--net ..................................... $ 3,479,013 $ 3,989,318
============= =============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended May 31, 2000
=================================================================================================================================
<S> <C> <C>
Cash Provided by Net decrease in net assets resulting from operations ..................... $ (10,650,208)
Operating Activities: Adjustments to reconcile net decrease in net assets resulting
from operations to net cash provided by operating activities:
Decrease in receivables ............................................... 662,164
Decrease in other assets .............................................. 251,247
Decrease in other liabilities ......................................... (1,455,617)
Realized and unrealized loss on investments--net ...................... 41,859,837
Amortization of discount .............................................. (6,782,841)
-------------
Net cash provided by operating activities ................................ 23,884,582
-------------
=================================================================================================================================
Cash Provided by Proceeds from sales of long-term investments ............................. 200,254,699
Investing Activities: Purchases of long-term investments ....................................... (186,894,272)
Purchases of short-term investments ...................................... (66,510,465)
Proceeds from sales and maturities of short-term investments ............. 66,601,000
-------------
Net cash provided by investing activities ................................ 13,450,962
-------------
=================================================================================================================================
Cash Used for Cash receipts from borrowings ............................................ 156,350,000
Financing Activities: Cash payments on borrowings .............................................. (163,650,000)
Dividend paid to shareholders ............................................ (30,034,397)
-------------
Net cash used for financing activities ................................... (37,334,397)
-------------
=================================================================================================================================
Cash: Net increase in cash ..................................................... 1,147
Cash at beginning of year ................................................ --
-------------
Cash at end of year ...................................................... $ 1,147
=============
=================================================================================================================================
Cash Flow Cash paid for interest ................................................... $ 5,378,251
Information: =============
=================================================================================================================================
Non-Cash Financing Reinvestment of dividends paid to shareholders ........................... $ 1,263,270
Activities: =============
=================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
Corporate High Yield Fund, Inc., May 31, 2000
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have
been derived from information provided in the
financial statements. For the Year Ended May 31,+
------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year .......................... $ 12.12 $ 13.95 $ 13.74 $ 13.68 $ 13.35
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ...................................... 1.30 1.41 1.42 1.44 1.46
Realized and unrealized gain (loss) on investments--net ..... (1.75) (1.71) .25 .08 .33
-------- -------- -------- -------- --------
Total from investment operations ............................ (.45) (.30) 1.67 1.52 1.79
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................................... (1.32) (1.42) (1.46) (1.46) (1.46)
In excess of realized gain on investments--net ............ -- (.11) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions ........................... (1.32) (1.53) (1.46) (1.46) (1.46)
-------- -------- -------- -------- --------
Net asset value, end of year ................................ $ 10.35 $ 12.12 $ 13.95 $ 13.74 $ 13.68
======== ======== ======== ======== ========
Market price per share, end of year ......................... $ 9.25 $12.1875 $14.1875 $ 14.125 $ 13.375
======== ======== ======== ======== ========
===================================================================================================================================
Total Based on market price per share ............................. (13.82%) (2.82%) 11.33% 17.44% 9.35%
Investment ======== ======== ======== ======== ========
Return:* Based on net asset value per share .......................... (3.04%) (1.71%) 12.53% 11.69% 14.15%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Expenses, excluding interest expense ........................ .91% .88% .64% .66% .70%
Average ======== ======== ======== ======== ========
Net Assets: Expenses .................................................... 2.88% 2.65% 1.45% 1.27% 1.62%
======== ======== ======== ======== ========
Investment income--net ...................................... 11.34% 11.22% 8.71% 9.43% 9.20%
======== ======== ======== ======== ========
===================================================================================================================================
Leverage: Amount of borrowings outstanding, end of year (in thousands) $ 81,300 $ 88,600 $ 70,300 $ 28,000 $ 54,000
======== ======== ======== ======== ========
Average amount of borrowings outstanding during the
year (in thousands) ....................................... $ 89,162 $ 93,258 $ 52,080 $ 36,667 $ 49,424
======== ======== ======== ======== ========
Average amount of borrowings outstanding per share
during the year ........................................... $ 3.71 $ 3.93 $ 2.26 $ 1.64 $ 2.27
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, end of year (in thousands) ...................... $249,088 $290,267 $326,929 $312,909 $300,904
Date: ======== ======== ======== ======== ========
Portfolio turnover .......................................... 51.50% 48.80% 55.42% 52.91% 65.68%
======== ======== ======== ======== ========
===================================================================================================================================
</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
charges.
+ 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 accounting
principles generally accepted in the United States of America, 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. The following is a summary of significant accounting policies
followed by the Fund.
(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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. 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, 2000
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) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, the current year's permanent
book/tax differences of $72,076 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 .50% of the Fund's average weekly net assets plus the proceeds
of any outstanding principal borrowed.
For the year ended May 31, 2000, the Fund paid Merrill Lynch Security Pricing
Service, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated,
$2,329 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, 2000 were $182,667,205 and $200,024,527, respectively.
Net realized losses for the year ended May 31, 2000 and net unrealized losses as
of May 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments .............. $(12,132,813) $(64,496,869)
------------ ------------
Total .............................. $(12,132,813) $(64,496,869)
============ ============
--------------------------------------------------------------------------------
As of May 31, 2000, net unrealized depreciation for financial reporting and
Federal income tax purposes aggregated $65,673,606, of which $7,094,125 related
to appreciated securities and $72,767,731 related to depreciated securities. The
aggregate cost of investments at May 31, 2000 for Federal income tax purposes
was $388,042,132.
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, 2000 and May 31,
1999 increased by 106,248 and 517,151, respectively, as a result of dividend
reinvestment.
5. Short-Term Borrowings:
On August 10, 1999, the Fund extended its one-year credit agreement with State
Street Bank and Trust Company, Fleet National Bank and certain other
institutions party thereto. The agreement is for a $150,000,000 credit facility
bearing interest at the Federal Funds rate plus .50% and/or LIBOR plus .50%. For
the year ended May 31, 2000, the average amount borrowed was approximately
$89,162,000 and the daily weighted average interest rate was 6.07%. For the year
ended May 31, 2000, facility and commitment fees aggregated approximately
$294,000.
6. Capital Loss Carryforward:
At May 31, 2000, the Fund had a net capital loss carryforward of approximately
$15,171,000, of which $8,611,000 expires in 2007 and $6,560,000 expires in 2008.
This amount will be available to offset like amounts of any future taxable
gains.
7. Subsequent Event:
On June 7, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.110363 per share,
payable on June 30, 2000 to shareholders of record as of June 19, 2000.
16 & 17
<PAGE>
Corporate High Yield Fund, Inc., May 31, 2000
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, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000 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, 2000, the results of its operations, its cash flows,
the changes in its net assets and the financial highlights for the respective
stated periods in accordance with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 10, 2000
PORTFOLIO INFORMATION (unaudited)
<TABLE>
<CAPTION>
Percent of
As of May 31, 2000 Long-Term Investments
==================================================================================================================================
<S> <C> <C> <C>
Ten Largest Holdings Nextlink Communications Nextlink provides local, long distance and enhanced telephone
Inc. communications services to commercial customers. The company
operates over 23 facilities-based networks throughout the
United States. 2.2%
-----------------------------------------------------------------------------------------------------
Millicom International Millicom International develops and operates cellular
Cellular telephone systems worldwide. The company has interest in 33
cellular systems in 20 countries, primarily in emerging
markets in Asia, Latin America, Europe and Africa. 2.0
-----------------------------------------------------------------------------------------------------
Nextel Communications, Inc. Nextel offers digital and analog wireless communications
services throughout the United States. The company's digital
service covers nearly one-half of the total US population and,
once completed, will enable Nextel to offer nationwide digital
wireless service. Our holdings include bonds of 100%-owned
McCaw International. 1.9
-----------------------------------------------------------------------------------------------------
HMH Properties, Inc. HMH, a wholly-owned subsidiary of Host Marriott Corporation,
owns or holds controlling interests in 69 full-service lodging
properties. The 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. 1.8
-----------------------------------------------------------------------------------------------------
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 such end uses as
flexible foam for automotive seating and furniture, antifreeze
and coolants, personal care products, coatings, adhesives,
sealants, resins and solvents. 1.7
-----------------------------------------------------------------------------------------------------
RBF Finance Company R&B Falcon (the parent company of RBF Finance) owns and
operates the world's largest fleet of marine drilling rigs.
The company operates in most of the world's major offshore
hydrocarbon- producing regions and in all water depths. The
RBF notes are guaranteed by R&B Falcon, as well as secured by
first-priority liens on certain new rigs and related long-term
contracts. 1.7
-----------------------------------------------------------------------------------------------------
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. 1.6
-----------------------------------------------------------------------------------------------------
Global Crossing This provider of global telecommunications service has a
Holding Limited global network that is based on Internet protocol and focused
on data transport. The network includes both undersea and
land-based digital fiber optic cable systems. Global Crossing
operates as a carrier's carrier, offering its services to
licensed providers of international telecommunications
service. 1.5
-----------------------------------------------------------------------------------------------------
Telesystem International The company is a global wireless telecommunications company,
Wireless Inc. which develops, acquires, owns and operates wireless
communications companies in developing markets throughout the
world. Operations are in Romania, Brazil, India and China. The
company also offers specialized mobile radio and paging
services. 1.5
-----------------------------------------------------------------------------------------------------
Doman Industries Limited Doman is an integrated Canadian producer of lumber and pulp.
The company grows and harvests timber and sells lumber,
including remanufactured value-added lumber. Doman produces
both dissolving sulphite pulp and NBSK pulp. Based in British
Columbia, Doman exports a significant amount of its output. 1.5
</TABLE>
Portfolio Profile
The quality ratings* of securities in the Fund as of May 31, 2000 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Long-Term Investments
--------------------------------------------------------------------------------
BBB/Baa ......................................................... 3.3%
BB/Ba ........................................................... 26.2
B/B ............................................................. 60.2
CCC/Caa or Lower ................................................ 5.6
NR (Not Rated) .................................................. 4.7
--------------------------------------------------------------------------------
* In cases where bonds are rated differently by Standard & Poor's Corp. and
Moody's Investors Service, Inc., bonds are categorized according to the
higher of the two ratings.
--------------------------------------------------------------------------------
Percent of
Foreign Holdings Long-Term Investments
--------------------------------------------------------------------------------
Total Foreign Holdings .......................................... 33.6%
Emerging Market Holdings ........................................ 12.3
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Average Portfolio Maturity 6.3 Years
--------------------------------------------------------------------------------
Percent of
Five Largest Foreign Countries* Long-Term Investments
--------------------------------------------------------------------------------
Canada .......................................................... 9.5%
United Kingdom .................................................. 4.7
Brazil .......................................................... 2.5
Argentina ....................................................... 2.3
Netherlands ..................................................... 2.1
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* All holdings are denominated in US dollars.
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Percent of
Top Five Industries Total Assets
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Telephony ....................................................... 11.8%
Health Services ................................................. 7.8
Wireless Communications--International .......................... 7.3
Transportation .................................................. 6.6
Chemicals ....................................................... 6.1
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18 & 19
<PAGE>
Corporate High Yield Fund, Inc. seeks to provide shareholders with as high a
level of current income as is consistent with reasonable risk, as determined by
the Fund's investment adviser, by investing principally in fixed-income
securities that are rated in the lower rating categories of the established
rating services (Baa or Lower by Moody's Investors Service, Inc. or BBB or lower
by Standard & Poor's Corporation) or are unrated securities of comparable
quality.
This report, including the financial information herein, is transmitted to
shareholders of Corporate High Yield Fund, Inc. for their information. It is not
a prospectus. 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.
Past performance results shown in this report should not be considered a
representation of future performance. 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--5/00
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