CORPORATE
HIGH YIELD
FUND, INC.
Annual Report May 31, 1994
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.
Corporate High
Yield Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<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.
<PAGE>
<TABLE>
Per Share
Selected Quarterly
Financial Data*
Net Realized Unrealized Dividends
Investment Gains Gains Net Investment
For the Period Income (Losses) (Losses) Income
<S> <C> <C> <C> <C>
June 25, 1993++ to August 31, 1993 $.16 -- $(.03) --
September 1, 1993 to November 30, 1993 .37 $(.01) .28 $.39
December 1, 1993 to February 28, 1994 .38 .10 .18 .40
March 1, 1994 to May 31, 1994 .39 (.05) (1.57) .38
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
June 25, 1993++ to August 31, 1993 $14.28 $14.15 $15.125 $15.00 923
September 1, 1993 to November 30, 1993 14.58 14.07 15.375 14.75 2,156
December 1, 1993 to February 28, 1994 15.06 14.58 15.625 14.75 1,705
March 1, 1994 to May 31, 1994 14.58 13.21 14.25 12.50 1,588
<FN>
*Calculations are based upon shares of Common Stock outstanding at the end of each period.
**As reported in the consolidated transaction reporting system.
***In thousands.
++Commencement of Operations.
</TABLE>
DEAR SHAREHOLDER
The six months ended May 31, 1994 proved to be difficult for a broad
cross section of investment markets. While the high-yield corporate
bond market fared better than others, the total return of the
unmanaged Merrill Lynch High Yield Master Index was -0.59%. For the
six-month period ended May 31, 1994, the total investment return on
the Fund's Common Stock was -3.98%, based on a change in the per
share net asset value from $14.54 to $13.21, and assuming
reinvestment of $0.781 per share income dividends. During the same
period, the net annualized yield of the Fund's Common Stock was
11.80%. Throughout the period, the Fund was on average 29%
leveraged. On May 31, 1994, the Fund was 31.4% leveraged, having
borrowed $124 million of the $150 million of credit available at an
average borrowing cost of 5.49%.
<PAGE>
Investment Outlook
While the six months ended May 31, 1994 commenced with strong demand
and an upward bias in high-yield bond prices, in late February the
market succumbed to the pressure of rising interest rates in
competing bond sectors and prices retreated. The price decline was
moderated by the postponement of a large amount of new-issue supply.
Price declines were more pronounced in the higher-quality BB-rated
bonds than in lesser-rated issues and in issues priced during the
strong market earlier in the year. At May 31, 1994, the yield on
average B-rated industrials maturing in seven years--ten years was
near 11%, and the yield on BB-rated securities was about 9.5%. The
yield spread between high-yield bonds and US Treasury bonds and
notes narrowed over the course of the period by 40 basis points
(0.40%), providing yield premiums in the 50% range.
The impact of a 50 basis-point rise in short-term interest rates on
the long-term bond market surprised most forecasters. With an
extraordinarily wide spread between short-term and long-term
interest rates, the yield curve was historically quite steep prior
to the Federal Reserve Board's tightening of monetary policy. It
appeared that the long-term bond market investors were assuming or
building in an anticipated rise in short-term interest rates.
However, long-term interest rates rose about twice as much as short-
term interest rates in the wake of the increases in the Federal
Funds rate. The sharp volatility of the long-term market seems to
reflect the unwinding of speculative leveraging. When investors
begin to adopt a more rational view, we believe that yields in the
long-term US Treasury market will settle in the 7% range, and the
yield curve will remain extraordinarily steep. We also believe that
likely further rises in short-term interest rates in 1994 will have
a minimal impact on the long-term market.
In a relatively robust economic environment, credit sensitivity of
investors is likely to remain low. Last year's default rates in the
high-yield universe were about 1%, the lowest since 1984. We believe
that results will be similar this year as strong corporate profits
and reequitization continue to benefit the high-yield market. For
these reasons, it seems likely that yield spreads between high-yield
bonds and US Treasury securities will remain stable or perhaps nar-
row a bit more over the remainder of the year.
Cash flows into high-yield mutual funds reversed sharply in late
February and have been erratic ever since. We believe that the
investment case for high-yield securities remains compelling, and
that cash flows will reestablish themselves. However, the pressure
of new-issue supply seems likely to create erratic price
fluctuations which may offset cash inflows. We expect the coming
months to be conducive to accumulating attractively priced new
issues.
<PAGE>
Portfolio Strategy
During the May period, Fund performance was hurt by various factors.
Notably the negative impact of leverage magnified the reduction in
net asset value as borrowings remained fixed in the face of falling
asset values. (For a complete description of the benefits and risks
of leveraging, see page 1 of this report to shareholders.) The
relatively long average maturity of the portfolio, which primarily
reflects our investment in secured airline equipment and utilities,
also exposed us to the dramatic drops in long-term bond prices. We
believe that over the long term, these factors that were affected by
the downward adjustment in prices will contribute to improved
performance prospects.
With the Fund fully invested and leveraged, our strategy is to
selectively upgrade the portfolio while reducing our investments in
bonds we view as fully valued. Our emphasis will be on improving
credit quality for a given yield level and on enhancing upside
potential. We will continue to invest selectively in attractively
priced new issues. Under current market conditions, we intend to
remain fully leveraged.
At May 31, 1994, the average portfolio maturity was 13 years, 8
months. Major industries represented in the portfolio included:
energy, 16.3% of net assets; food and beverage, 16.3%; hotels and
casinos, 8.2%; paper, 8.2%; and conglomerates, 7.8%.
We thank you for your investment in Corporate High Yield Fund, Inc.,
and we look forward to assisting you with your financial goals in
the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent T. Lathbury III)
Vincent T. Lathbury III
Vice President and Portfolio Manager
(Elizabeth M. Phillips)
Elizabeth M. Phillips
Vice President and Portfolio Manager
July 8, 1994
<PAGE>
Officers and
Directors
Arthur Zeikel, President and Director
Walter Mintz, Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Harry Woolf, Director
Terry K. Glenn, Executive Vice President
N. John Hewitt, Senior Vice President
Donald C. Burke, Vice President
Vincent T. Lathbury III, Vice President
Elizabeth M. Phillips, Vice President
Gerald M. Richard, Treasurer
Michael J. Hennewinkel, Secretary
Custodian
The Chase Manhattan Bank, N.A.
4 MetroTech Center, 18th Floor
Brooklyn, New York 11245
Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
NYSE Symbol
COY
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face Value
Ratings Rating Amount Corporate Bonds Cost (Note 1a)
INDUSTRIES
<S> <S> <C> <S> <C> <C>
Airlines--6.4%
BB+ Baa3 $ 7,250,000 Delta Air Lines Inc., 10.06% due 1/02/2016 $ 7,322,500 $ 6,929,477
BB Baa1 4,000,000 United Airlines, Inc., 9.21% due 1/21/2017 4,067,280 3,440,200
USAir Inc.:
BB B1 368,000 Series A, 10.33% due 6/27/2002 386,113 312,042
BB B1 740,000 Series C, 10.33% due 6/27/2002 776,423 627,476
BB B1 892,000 Series D, 10.33% due 6/27/2002 935,904 756,362
B B2 3,000,000 9.625% due 2/01/2001 2,385,000 1,950,000
BB B1 4,000,000 10.375% due 3/01/2013 3,955,000 3,369,320
------------ ------------
19,828,220 17,384,877
Automobiles--0.7%
B B3 2,000,000 SPX, Inc., 11.75% due 6/01/2002 2,000,000 2,030,000
Broadcasting & Publishing--6.5%
B B3 5,000,000 Katz Corporation (The), 12.75% due 11/15/2002 5,418,750 5,400,000
CCC+ B3 5,000,000 SCI Television Inc., 11.00% due 6/30/2005 5,272,500 5,062,500
B+ B3 2,500,000 Sinclair Broadcast Group, Inc., 10.00% due 12/15/2003 2,500,000 2,440,625
BB- B1 5,000,000 World Color Press Inc., 9.125% due 3/15/2003 4,987,500 4,700,000
------------ ------------
18,178,750 17,603,125
Building Materials--5.2%
CCC Caa 4,000,000 Nortek, Inc., 9.875% due 3/01/2004 3,968,560 3,520,000
B+ B3 5,000,000 Pacific Lumber Co., 10.50% due 3/01/2003 5,150,000 4,837,500
B B2 6,500,000 USG Corp., 8.75% due 3/01/2017 5,885,625 5,850,000
------------ ------------
15,004,185 14,207,500
Building Products--3.2%
American Standard Inc.:
NR NR 3,715,000 11.37%* due 6/01/2005 2,293,267 2,284,725
B+ Ba3 2,500,000 9.25% due 12/01/2016 2,518,750 2,300,000
B Ba3 5,000,000 Inter-City Products Corp., 9.75% due 3/01/2000 4,836,250 4,212,500
------------ ------------
9,648,267 8,797,225
<PAGE>
Capital Goods--2.5%
BB- Ba3 3,000,000 AMETEK, Inc., 9.75% due 3/15/2004 3,000,000 2,977,500
Sequa Corp.:
BB B2 2,000,000 9.625% due 10/15/1999 2,055,000 1,960,000
B+ B3 2,000,000 9.375% due 12/15/2003 2,028,750 1,860,000
------------ ------------
7,083,750 6,797,500
Cellular Telephones--3.8%
B- B3 5,000,000 Dial Page, Inc., 12.25% due 2/15/2000 5,400,000 5,075,000
CCC+ Caa 7,784,000 Horizon Cellular Telephone Co., 11.38%* due 10/01/2000 5,214,873 5,370,960
------------ ------------
10,614,873 10,445,960
Chemicals--3.1%
B B2 3,000,000 Agriculture Minerals & Chemicals, 10.75% due 9/30/2003 3,000,000 3,022,500
B Ba3 8,680,000++++G-I Holding Inc., 11.38%* due 10/01/1998 5,372,617 5,294,800
------------ ------------
8,372,617 8,317,300
Communications--4.3%
B- Caa 9,312,000 EchoStar Communications Corp., 12.78%* due 6/01/2004 5,000,265 5,000,265
B- B3 10,685,000 Pan Am Sat L.P., 11.38%* due 8/01/2003 6,477,247 6,758,263
------------ ------------
11,477,512 11,758,528
Conglomerates--7.7%
B+ B1 5,000,000 Coltec Industries, Inc., 10.25% due 4/01/2002 5,325,000 5,000,000
B+ Ba3 5,995,000 Interco Inc., 10.00% due 6/01/2001 6,061,169 5,920,063
B- B3 5,050,000 Interlake Corp., 12.125% due 3/01/2002 5,353,000 4,797,500
BB- Ba3 5,500,000 Sherritt Gordon Ltd., 9.75% due 4/01/2003 5,568,750 5,376,250
------------ ------------
22,307,919 21,093,813
Consumer Products--3.9%
NR NR 750,000 ++Formica Corporation, 9.77%* due 10/01/2001 697,529 708,750
B- B3 3,000,000 Revlon Consumer Products Corp., 10.50% due 2/15/2003 3,007,500 2,460,000
B B3 6,665,000 Revlon Worldwide Corp., 15.78%* due 3/15/1998 3,811,606 2,799,300
B+ B1 5,000,000 Sealy Corp., 9.50% due 5/01/2003 5,091,625 4,750,000
------------ ------------
12,608,260 10,718,050
Containers--3.2%
B- Caa 10,000,000 Ivex Packaging Corp., 13.25%* due 3/15/2005 5,257,598 4,750,000
B- B3 5,000,000 Silgan Holdings, Inc., 13.375%* due 6/15/1996 4,081,594 3,868,750
------------ ------------
9,339,192 8,618,750
<PAGE>
Drugstores--1.1%
B B2 3,000,000 Thrifty Payless Holdings, Inc., 11.75% due 4/15/2003 3,000,000 3,082,500
Energy--16.2%
B+ B1 11,500,000 Clark R&M Holdings, Inc., 10.53%* due 2/15/2000 6,403,795 6,325,000
NR NR 6,500,000++++Consolidated Hydro Inc., 11.80%* due 7/15/2003 3,855,483 4,030,000
B B2 5,500,000 Ferrell Gas Companies Inc., 11.625% due 12/15/2003 5,981,250 6,050,000
Gulf Canada Resource Ltd.:
BB B1 5,000,000 9.00% due 8/15/1999 4,950,000 4,550,000
B+ B2 1,000,000 9.25% due 1/15/2004 988,750 915,000
BB+ Ba3 4,000,000 Maxus Energy Corp., 11.50% due 11/15/2015 4,257,500 4,020,000
BB- Ba3 3,000,000 Noble Drilling Corp., 9.25% due 10/01/2003 3,000,000 2,850,000
BB+ Ba3 4,000,000 Seagull Energy Corp., 8.625% due 8/01/2005 4,000,000 3,700,000
BB- B1 5,000,000 Trans Texas Gas Corp., 10.50% due 9/01/2000 5,000,000 5,000,000
B+ B1 9,525,000 Triton Energy Corp., 10.29%* due 11/01/1997 6,818,233 6,762,750
------------ ------------
45,255,011 44,202,750
Entertainment--3.2%
B B3 7,000,000 Marvel Holdings Inc., 10.92%* due 4/15/1998 4,618,684 4,270,000
B+ B2 6,985,000 SPI Holdings, Inc., 11.50%* due 10/01/2001 5,139,037 4,260,850
------------ ------------
9,757,721 8,530,850
Financial Services--2.0%
BB- B1 6,000,000 Reliance Group Holdings Inc., 9.75% due 11/15/2003 6,008,750 5,490,000
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face Value
Ratings Rating Amount Corporate Bonds Cost (Note 1a)
INDUSTRIES
<S> <S> <C> <S> <C> <C>
Food & Beverage--16.2%
B+ B3 $ 6,000,000 Chiquita Brands International Inc., 11.50% due 6/01/2001 $ 6,292,500 $ 6,240,000
B B2 5,000,000 Coca Cola Bottling Group, 9.00% due 11/15/2003 5,000,000 4,550,000
BB- B1 5,000,000 Fresh Del Monte Produce, 10.00% due 5/01/2003 4,801,875 4,550,000
Grand Union Co.:
B+ B2 1,000,000 11.25% due 7/15/2000 1,051,250 1,005,000
B- B2 4,000,000 12.25% due 7/15/2002 4,152,500 4,000,000
B B2 5,000,000 Penn Traffic Co., 9.625% due 4/15/2005 5,197,500 4,737,500
B- B2 5,000,000 Pueblo Xtra International Inc., 9.50% due 8/01/2003 5,000,000 4,500,000
B B2 4,000,000 Ralphs Grocery Co., 9.00% due 4/01/2003 3,941,250 3,740,000
B+ B1 5,000,000 Royal Crown Corp., 9.75% due 8/01/2000 5,005,000 4,700,000
B B2 6,000,000 Specialty Foods Corp., 10.25% due 8/15/2001 5,987,500 6,060,000
------------ ------------
46,429,375 44,082,500
<PAGE>
Health Services--2.4%
B+ B1 5,000,000 Continental Medsystem Inc., 10.375% due 4/01/2003 5,063,750 4,550,000
B B1 2,000,000 Healthtrust Inc., 10.25% due 4/15/2004 2,000,000 2,010,000
------------ ------------
7,063,750 6,560,000
Home Builders--6.2%
B- B2 5,000,000 Baldwin Homes Company, 10.375% due 8/01/2003 5,010,000 4,250,000
B B3 3,000,000 Greystone Homes, Inc., 10.75% due 3/01/2004 3,000,000 2,906,250
B B2 5,000,000 NVR Development Inc., 11.00% due 4/15/2003 5,000,000 4,950,000
B B1 5,000,000 U.S. Home Corp., 9.75% due 6/15/2003 5,095,000 4,675,000
------------ ------------
18,105,000 16,781,250
Hotels & Casinos--8.1%
BB B1 3,000,000 Bally's Park Place, Inc., 9.25% due 3/15/2004 2,887,500 2,737,500
B+ B2 2,000,000 GNS Mirage Finance Corp., 9.25% due 3/15/2003 1,990,000 1,885,000
B+ B2 6,000,000 Great Bay Property Funding, 10.875% due 1/15/2004 5,930,000 4,800,000
BB- B1 3,000,000 Host Marriott Corp., 10.375% due 6/15/2011 3,007,500 2,940,000
BB- Ba3 5,000,000 Showboat, Inc., 9.25% due 5/01/2008 5,033,000 4,637,500
B B3 6,000,000 Trump Plaza Funding, Inc., 10.875% due 6/15/2001 5,953,750 5,190,000
------------ ------------
24,801,750 22,190,000
Industrial Services--1.7%
BB- B2 5,000,000 ADT Operations, Inc., 9.25% due 8/01/2003 5,000,000 4,725,000
Metals & Mining--1.8%
B- B3 8,000,000 Maxxam Group, Inc., 12.25%* due 8/01/2003 4,639,925 4,920,000
Paper--8.2%
B+ B2 4,000,000 Container Corporation of America, 9.75% due 4/01/2003 4,080,000 3,880,000
B B2 6,000,000 Fort Howard Corp., 9.00% due 2/01/2006 5,923,750 5,085,000
B+ B1 2,000,000 Repap Wisconsin, Inc., 9.25% due 2/01/2002 2,000,000 1,840,000
B B1 7,000,000 Riverwood International Corp., 11.25% due 6/15/2002 7,723,750 7,253,750
B B1 4,000,000 Stone Container Corp., 12.625% due 7/15/1998 4,000,000 4,180,000
------------ ------------
23,727,500 22,238,750
Pollution Control--1.5%
B B3 4,000,000 Mid-American Waste Systems, Inc., 12.25% due 2/15/2003 4,000,000 4,030,000
Railroads--1.8%
B+ Ba3 5,000,000 Southern Pacific Rail Corp., 9.375% due 8/15/2005 5,000,000 4,900,000
Restaurants--3.7%
B- B2 7,000,000 Flagstar Corp., 11.375% due 9/15/2003 7,262,500 6,510,000
B- B2 4,000,000 Foodmaker, Inc., 9.75% due 6/01/2002 4,000,000 3,560,000
------------ ------------
11,262,500 10,070,000
<PAGE>
Retail Specialty--3.6%
B- B3 5,000,000 Pamida Holdings Inc., 11.75% due 3/15/2003 4,978,750 5,025,000
B- B3 5,000,000 Specialty Retailers, Inc., 11.00% due 8/15/2003 5,000,000 4,900,000
------------ ------------
9,978,750 9,925,000
Steel--0.4%
BB- B1 1,250,000 Wheeling-Pittsburg Steel Corp., 9.375% due 11/15/2003 1,184,375 1,162,500
Textiles--2.3%
B+ B3 7,000,000 Westpoint Stevens Inc., 9.375% due 12/15/2005 6,976,250 6,265,000
Transport Services--1.0%
BB Ba2 3,000,000 Eletson Holdings, Inc., 9.25% due 11/15/2003 3,045,000 2,850,000
Transportation--1.3%
BB- B1 3,750,000 International Shipholding Corp., 9.00% due 7/01/2003 3,738,438 3,525,000
Utilities--7.7%
BB+ Ba1 3,000,000 CTC Mansfield Funding, 11.125% due 9/30/2016 3,213,750 3,023,610
BB Ba2 4,610,891 Midland Congeneration Venture Limited Partnership,
10.33% due 7/23/2002** 4,795,327 4,558,603
Public Service Company of New Mexico:
B Ba3 1,000,000 10.30% due 1/15/2014 1,030,000 940,000
BB+ Ba3 4,000,000 10.15% due 1/15/2016 4,090,000 3,740,000
B B1 4,000,000 Texas-New Mexico Power Co., 10.75% due 9/15/2003 4,085,000 4,000,000
NR NR 5,106,532 ++Tucson Electric & Power Co., 10.211% due 1/01/2009 4,798,574 4,685,243
------------ ------------
22,012,651 20,947,456
Total Investments in Corporate Bonds--140.9% 407,450,291 384,251,184
<CAPTION>
Shares
Held Preferred Stock
<S> <S> <C> <S> <C> <C>
Broadcasting & Publishing--0.9%
B B1 95,665 K-III Communications Corp. 2,606,871 2,523,164
Total Investments in Preferred Stock--0.9% 2,606,871 2,523,164
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
SHORT-TERM Face Value
SECURITIES Amount Issue Cost (Note 1a)
<S> <C> <S> <C> <C>
Commercial $1,773,000 General Electric Capital Corp., 4.22% due 6/01/1994 $ 1,773,000 $ 1,773,000
Paper***--0.7%
Total Investments in Short-Term Securities--0.7% 1,773,000 1,773,000
Total Investments--142.5% $411,830,162 388,547,348
============
Liabilities in Excess of Other Assets--(42.5%) (115,810,378)
------------
Net Assets--100.0% $272,736,970
============
<FN>
*Represents the effective yield at the time of purchase.
**Subject to principal paydowns.
***Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the Fund.
++Restricted securities as to resale.
Acquisition Value
Issue Date(s) Cost (Note 1a)
Formica Corporation,
9.77% due 10/01/2001 9/23/1993 $ 697,529 $ 708,750
Tucson Electric & Power
Co., 10.211% due 1/01/2009 6/25/1993-7/28/1993 4,798,574 4,685,243
Total $5,496,103 5,393,993
---------- -----------
++++Restricted securities pursuant to Rule 144A. 12,231,050
-----------
Total Restricted Securities--6.50% $17,625,043
===========
Ratings shown have not been audited by Deloitte & Touche.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of May 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$411,830,162)(Note 1a) $388,547,348
Receivables:
Securities sold $ 10,307,551
Interest 9,659,928 19,967,479
------------
Deferred organization expenses (Note 1d) 69,881
Prepaid registration fees and other assets (Note 1d) 129,654
------------
Total assets 408,714,362
------------
Liabilities: Loans (Note 5) 124,000,000
Payables:
Securities purchased 11,374,279
Interest on loans (Note 5) 265,420
Investment adviser (Note 2) 162,662
Commitment fees 11,007 11,813,368
------------
Deferred income 4,237
Accrued expenses and other liabilities 159,787
------------
Total liabilities 135,977,392
------------
Net Assets: Net assets $272,736,970
============
Net Assets Common Stock, par value $.10 per share; 200,000,000 shares authorized $ 2,064,370
Consist of: Paid-in capital in excess of par 290,295,677
Undistributed investment income--net 2,597,356
Undistributed realized capital gains--net 1,062,381
Unrealized depreciation on investments--net (23,282,814)
------------
Net Assets--Equivalent to $13.21 per share based on 20,643,698 shares of
capital stock outstanding (market price $13.875) $272,736,970
============
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period
June 25, 1993++
to May 31, 1994
<S> <S> <C>
Investment Income Interest and discount earned $ 31,857,907
(Note 1c): Dividends 93,125
Other 11,400
------------
Total income 31,962,432
------------
Expenses: Loan interest expense (Note 5) 3,696,711
Investment advisory fees (Note 2) 1,713,004
Borrowing costs (Note 5) 96,930
Accounting services (Note 2) 82,506
Professional fees 47,069
Printing and shareholder reports 29,500
Custodian fees 23,943
Directors' fees and expenses 21,257
Amortization of organization expenses (Note 1d) 16,058
Transfer agent fees 15,847
Pricing services 12,398
Other 289,190
------------
Total expenses 6,044,413
------------
Investment income--net 25,918,019
------------
Realized & Realized gain on investments--net 1,062,381
Unrealized Unrealized depreciation on investments--net (23,282,814)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 3,697,586
(Notes 1c & 3): ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
June 25, 1993++
Increase (Decrease) in Net Assets: to May 31, 1994
<S> <S> <C>
Operations: Investment income--net $ 25,918,019
Realized gain on investments--net 1,062,381
Unrealized depreciation on investments--net (23,282,814)
------------
Net increase in net assets resulting from operations 3,697,586
-----------
Dividends to Investment income--net (23,320,663)
Shareholders ------------
(Note 1e): Net decrease in net assets resulting from dividends to shareholders (23,320,663)
------------
Capital Share Proceeds from issuance of Common Stock 279,956,250
Transactions Offering costs resulting from issuance of Common Stock (372,991)
(Note 4): Value of shares issued for reinvestment of dividends 12,676,783
------------
Net increase in net assets resulting from capital share transactions 292,260,042
============
Net Assets: Total increase in net assets 272,636,965
Beginning of period 100,005
------------
End of period* $272,736,970
============
<FN>
*Undistributed investment income--net $ 2,597,356
============
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
For the Period
June 25, 1993++
to May 31, 1994
<S> <S> <C>
Cash Provided Net increase in net assets resulting from operations $ 3,697,586
by Operating Adjustments to reconcile net increase in net assets resulting from operations
Activities: to net cash provided by operating activities:
Increase in receivables (9,659,928)
Decrease in other assets 280,465
Increase in other liabilities 123,113
Realized and unrealized loss on investments--net 22,220,433
Amortization of discount (4,273,342)
--------------
Net cash provided by operating activities 12,388,327
--------------
Cash Used for Proceeds from sales of long-term investments 134,602,940
Investing Purchases of long-term investments (538,905,825)
Activities: Purchases of short-term investments (1,074,523,952)
Proceeds from sales and maturities of short-term investments 1,073,399,126
--------------
Net cash used for investing activities (405,427,711)
--------------
Cash Provided Cash receipts on capital shares sold 279,583,259
by Financing Dividends paid to shareholders (10,643,880)
Activities: Short-term borrowings 124,000,000
--------------
Net cash provided by financing activities 392,939,379
--------------
Cash: Net decrease in cash (100,005)
Cash at beginning of period 100,005
--------------
Cash at end of period $ 0
==============
Cash Flow Cash paid for interest $ 3,431,291
Information: ==============
Non-Cash Reinvestment of dividends paid to shareholders $ 12,676,783
Financing ==============
Activities:
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
June 25, 1993++
Increase (Decrease) in Net Asset Value: to May 31, 1994
<S> <S> <C>
Per Share Net asset value, beginning of period $ 14.18
Operating ------------
Performance: Investment income--net 1.30
Realized and unrealized loss on investments--net (1.10)
------------
Total from investment operations .20
------------
Less dividends and distributions:
Investment income--net (1.17)
------------
Net asset value, end of period $ 13.21
============
Market price per share, end of period $ 13.875
============
Total Investment Based on net asset value per share 1.08%+++
Return:** ============
Based on market price per share 0.36%+++
============
Ratios to Average Expenses 1.76%*
Net Assets: ============
Investment income--net 7.55%*
============
Supplemental Net assets, end of period (in thousands) $ 272,737
Data: ============
Portfolio turnover 45.82%
============
<FN>
++Commencement of Operations.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads. Total investment
returns based on market value, which can be significantly greater or lesser than
the net asset value, result in substantially different returns.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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. Prior to commencement of operations
on June 25, 1993, the Fund had no operations other than those
relating to organizational matters and the issue of 7,055 capital
shares of the Fund to Fund Asset Management, L.P. ("FAM") for
$100,005. 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.
Obligations with remaining maturities of sixty days or less are
valued at amortized cost unless this method no longer produces fair
valuations. Securities for which there exist no price quotations or
valuations and all other assets are valued at fair value as
determined in good faith by or on behalf of the Board of Directors
of the Fund.
(b) 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.
(c) 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
exdividend 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.
(d) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(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.
<PAGE>
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM.
Effective January 1, 1994, the investment advisory business of FAM
was reorganized from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate control of FAM was
vested with Merrill Lynch and Co., Inc. ("ML & Co."). The general
partner of FAM is Princeton Services, Inc., an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Merrill
Lynch Investment Management, Inc. ("MLIM"), which is also an
indirect wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to perform the investment advisory
function. 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 borrowings used for leverage.
During the period May 23, 1994 to May 31, 1994, Merrill Lynch
Security Pricing Service, an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), provided 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 MLIM, FAM, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period ended May 31, 1994 were $550,280,104 and
$144,675,389, respectively.
Net realized and unrealized gains (losses) as of May 31, 1994 were
as follows:
Realized Unrealized
Gains Losses
Long-term investments $ 1,052,336 $(23,282,814)
Short-term investments 10,045 --
----------- ------------
Total $ 1,062,381 $(23,282,814)
=========== ============
As of May 31, 1994, net unrealized depreciation for financial
reporting and Federal income tax purposes aggregated $23,282,814, of
which $1,445,415 related to appreciated securities and $24,728,229
related to depreciated securities. The aggregate cost of investments
at May 31, 1994 for Federal income tax purposes was $411,830,162.
<PAGE>
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of Common Stock,
par value $.10 per share. For the period ended May 31, 1994,
19,750,000 shares were sold and increased by 886,643 to 20,643,698
as a result of dividend reinvestment. At May 31, 1994, total paid-in
capital amounted to $292,360,047.
5. Short-Term Borrowings:
On August 26, 1993, the Fund entered into a one-year loan commit-
ment in the amount of $150,000,000. For this commitment, the Fund
pays one quarter of 1%. For the period ended May 31, 1994, the
maximum amount borrowed was $141,000,000, the average amount
borrowed was approximately $98,601,000 and the daily weighted
average interest rate was 4.74%. For the period ended May 31, 1994,
facility and commitment fees aggregated approximately $96,930.
6. Subsequent Event:
On June 10, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.125818 per share, payable on June 30, 1994 to shareholders of
record as of June 20, 1994.
<AUDIT-REPORT>
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, 1994, the related statements of
operations, changes in net assets, and cash flows and the financial
highlights for the period June 25, 1993 (commencement of operations)
to May 31, 1994. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
<PAGE>
Our procedures included confirmation of securities owned at May 31,
1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Corporate High Yield Fund, Inc. as of May 31, 1994, the results of
its operations, the changes in its net assets, its cash flows, and
the financial highlights for the period June 25, 1993 to May 31,
1994 in conformity with generally accepted accounting principles.
Deloitte & Touche
Princeton, New Jersey
June 30, 1994
</AUDIT-REPORT>
<TABLE>
PORTFOLIO INFORMATION
<CAPTION>
Ten Largest
Holdings
Percent of
Net Assets
<S> <S> <C>
Riverwood International Riverwood is an international packaging and paper products company which is one of the
Corp. two US producers of beverage carrying containers. The company also manufactures folding
11.25% 6/15/2002 carton board and liner board. 2.7%
USAir Inc. USAir is the sixth largest US airline with major hubs in Pittsburgh, Charlotte, Philadelphia
10.375% 3/01/2013 and Baltimore. Over two-thirds of our investment is in equipment trust certificates
10.33% 6/27/2002 secured by aircrafts.
9.625% 2/01/2001 2.6
Delta Air Lines Inc. Delta is the third largest US airline with major hubs in Atlanta, Cincinnati, Salt Lake City,
10.06% 1/02/2016 Dallas and Frankfurt. Our investment is in equipment trust certificates secured by aircrafts. 2.5
Triton Energy Corp. Triton Energy is an independent oil and gas exploration company. Triton has interests in
10.29% 11/01/1997 properties throughout the world, with its largest site in the potentially high production
Cusiana field in Colombia. 2.5
Pan Am Sat L.P. Pan Am Sat operates a communications satellite that services the Americas, especially
11.38% 8/01/2003 Latin America. Three additional satellites are scheduled for launch in 1994 and 1995. 2.5
<PAGE>
Flagstar Corp. Flagstar owns a portfolio of restaurant and food service businesses, including Denny's
11.375% 9/15/2003 and Quincy's. 2.4
Clark R&M Holdings, Inc. Clark Oil is an independent refiner and marketer of petroleum products in the Midwest. The
10.53% 2/15/2000 company operates gas stations under the Clark name. 2.3
Westpoint Stevens Inc. The company is a US manufacturer of bed and bath products such as sheets, comforters,
9.375% 12/15/2005 blankets, bedspreads and towels. Brand names include Martex, Stevens, and Lady Pepperell. 2.3
Chiquita Brands Chiquita's primary business is worldwide marketing of fresh fruits and vegetables, primarily
International Inc. bananas, but also tropical fruit and other fresh produce. The company also markets fruit and
11.50% 6/01/2001 vegetable juices under the Chiquita and other brand names. 2.3
Specialty Foods Corp. Specialty Foods produces and distributes Italian cheeses, breads, cookies, pre-cooked meat
10.25% 8/15/2001 products, pickles and peppers, and snack foods. Primary brands include Stella cheeses, Taystee,
Holsum and Old Home baked goods in the Midwest, Parisian, Colombo and Toscanan sourdough
breads and Mothers cookies. 2.2
</TABLE>
Quality Ratings
The quality ratings of securities in the Fund as of
May 31, 1994 were as follows:
Percent of
Rating Net Assets
BBB 2.7%
BB 30.1
B 61.8
CCC 2.3
NR(Not Rated) 3.1
