UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-8497
Name of Fund: Corporate High Yield Fund III, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Corporate High
Yield Fund III, Inc., 800 Scudders Mill Road, Plainsboro, NJ 08536.
Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 05/31/03
Date of reporting period: 06/01/02 - 05/31/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Annual Report
May 31, 2003
Corporate
High Yield
Fund III, Inc.
www.mlim.ml.com
CORPORATE HIGH YIELD FUND III, INC.
The Benefits and
Risks of
Leveraging
Corporate High Yield Fund III, 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.
Corporate High Yield Fund III, Inc., May 31, 2003
DEAR SHAREHOLDER
The High Yield Market Overview
An impressive high yield market rally that started in mid October 2002 continued
through the end of the Fund's fiscal year. For the 12-month and six-month
periods ended May 31, 2003, the high yield market returned +13.25% and +15.37%,
respectively, as measured by the unmanaged benchmark Credit Suisse First Boston
(CSFB) High Yield Index. Fundamental drivers of the recent market performance
included investors' improved outlook on the economy, modestly favorable
corporate earnings reports, a shrinking number of defaults by high yield
corporate borrowers and falling interest rates. Certain technicals also provided
solid support to the high yield market, including strong cash inflows from
institutional investors increasing their allocations to high yield and from
retail investors who were searching for yield in the low interest rate
environment. The yield for the CSFB High Yield Index at May 31, 2003 was 9.8%
compared to 12.6% at November 30, 2002. Yield spreads relative to U.S. Treasury
bonds fell from 929 basis points (9.29%) at November 30, 2002 to 742 basis
points as of May 31, 2003, still well above the mid-500 basis point average we
saw throughout much of the 1990s.
After such a run, the obvious question is: "Where will the high yield market go
from here?" Near-term risks for the high yield market include recession and/or
further earnings weakness. Sharply rising interest rates could also hurt the
high yield market. In our view, the earnings-sensitive high yield market is
supported in the near term by a flat-to-slightly improving economy, which we
believe will result in increased earnings stability and continuing low interest
rates. From a technical perspective, the high yield market is supported by
investors seeking alternatives to low-yielding money market funds. Based on
historical spreads to Treasury bonds near 580 basis points, the high yield
market does not appear to be over valued at the current levels of 742 basis
points. We would expect that the high default levels of recent years, at least
in the near term, would drive investors to demand a spread greater than what
historically has been expected to compensate for the additional risk of
investing in the high yield arena. Therefore, we do not foresee dramatic spread
tightening without the expectation of considerably lower default rates.
Fund Performance
For the year ended May 31, 2003, the Common Stock of Corporate High Yield Fund
III, Inc. had a net annualized yield of 11.60%, based on a year-end per share
net asset value of $7.86 and $.912 per share income dividends. For the same
period, the total investment return of the Fund's Common Stock was +16.46%,
based on a change in per share net asset value from $7.68 to $7.86, and assuming
reinvestment of $.912 per share ordinary income dividends. For the six-month
period ended May 31, 2003, the total investment return of the Fund's Common
Stock was +25.80%, based on a change in per share net asset value from $6.67 to
$7.86, and assuming reinvestment of $.490 per share income dividends. In
addition to outperforming the benchmark, the Fund also outperformed its peer
group of Lipper closed-end high yield leveraged funds, which had average returns
of +10.23% and +22.07% for the 12-month and six-month periods ended May 31,
2003, respectively.
For a description of the Fund's total investment return based on a change in the
per share market value (as measured by the trading price of the Fund's shares on
the New York Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section of the Financial Statements included
in this report. As a closed-end fund, the Fund's shares may trade in the
secondary market at a premium or a discount to the Fund's net asset value. As a
result, total investment returns based on changes in the Fund's market value can
vary significantly from total investment return based on changes in the Fund's
net asset value.
Fund performance benefited significantly from leverage during the period, as is
expected in a rising price environment. Our decision to overweight the utility
and wireless sectors contributed meaningfully to the Fund's performance, as
investors' views on these sectors became more positive. The utility sector, in
particular, was drastically undervalued in the aftermath of Enron's financial
misdealings and because of fears that a faltering economy would doom the more
highly leveraged players in the sector. The improving economy, as well as
investors' search for yield, led to recovery in both sectors. Within both the
utility and the wireless sectors, credit selection also helped enhance Fund
returns. In utilities, bonds of The AES Corporation and Calpine Corporation
recovered dramatically as the companies regained financial flexibility through
asset sales and refinancings. Mission Energy Holdings gained as investors grew
more confident that the strengthening economy would support future earnings and
permit continued servicing of the company's debt obligations. In the wireless
sector, bonds of Millicom International Cellular SA, Nextel Communications,
Inc., Nextel Partners Inc. and Nextel International Inc. benefited from
refinancing and from investor recognition of solid operating performance.
Leverage Strategy
For the six-month period ended May 31, 2003, the Fund was on average about 22.8%
leveraged, slightly below our mid-20% comfort range. Thus, the Fund borrowed the
equivalent of 22.8% of total assets invested, earning incremental yield on the
investments we made with the borrowed funds. For the year ended May 31, 2003,
the average amount borrowed was approximately $75,558,000 and the daily weighted
average interest rate was 1.84%. While leverage hurts total return in a weak
market, the converse also is true. We believe that market timing generally is
not successful. Such a strategy adds to incremental yield, but increases
volatility both in weak and in strong markets. (For a more complete explanation
of the benefits and risks of leveraging, see page 1 of this report to
shareholders.)
Investment Strategy
We did not change our investment strategy significantly in response to the
run-up in the high yield market. We believe that long-term results in our market
come from valuation and attention to credit quality. We continue to invest in a
core of solid credits and to maintain a diverse portfolio, identifying
downtrodden names that, in our opinion, represent significant value. We attempt
to take advantage of market volatility and to add to, or establish positions in,
companies that we believe have favorable long-term fundamentals.
The dramatic undervaluations found in the market over the past year have largely
evaporated, leaving more limited potential for strong market moves for high
yield as a whole and for individual sectors. We believe the utility and
independent power producer sector still represents good relative value in the
high yield market and, as of May 31, 2003, had our largest sector allocation in
utilities, at approximately 8.1% of total assets. Representing a weighting
similar to that of the benchmark CSFB High Yield Index, our investments in this
area were both in bonds of higher-quality utilities, pipelines and independent
power producers and in bonds of several more downtrodden names in the sector.
During the period, the Fund was overweight in the chemicals, energy--other and
packaging sectors. Our position in chemicals primarily consisted of holdings in
less cyclical, specialty chemical names that we believe have solid credit
quality. In the energy--
2 & 3
Corporate High Yield Fund III, Inc., May 31, 2003
other category, we focused on the refining sector, where we saw the near-term
fundamentals as strong and valuations attractive. Given continued market
volatility, the packaging sector served as an important defensive position
during the period.
In Conclusion
We thank you for your investment in Corporate High Yield Fund III, Inc., and we
look forward to updating you again in our next report to shareholders.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ B. Daniel Evans
B. Daniel Evans
Vice President and Portfolio Manager
/s/ Elizabeth M. Phillips
Elizabeth M. Phillips
Vice President and Portfolio Manager
June 20, 2003
PORTFOLIO PROFILE (unaudited)
Quality Ratings by Percent of
Standard & Poor's Long-Term Investments
--------------------------------------------------------------------------------
BBB ..................................................................... 5%
BB ...................................................................... 25
B ....................................................................... 53
CCC ..................................................................... 15
NR (Not Rated) .......................................................... 2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Percent of
Five Largest Industries* Total Assets
--------------------------------------------------------------------------------
Utility ................................................................. 8.1%
Energy--Other ........................................................... 7.8
Chemicals ............................................................... 7.0
Wireless ................................................................ 6.1
Gaming .................................................................. 5.2
--------------------------------------------------------------------------------
* For Fund compliance purposes, "Industries" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
industry classifications are unaudited.
--------------------------------------------------------------------------------
Percent of
Five Largest Foreign Countries* Long-Term Investments
--------------------------------------------------------------------------------
Canada .................................................................. 5.5%
Luxembourg .............................................................. 1.9
Netherlands ............................................................. 1.2
France .................................................................. 1.2
Bermuda ................................................................. 1.1
--------------------------------------------------------------------------------
* All holdings are denominated in U.S. dollars.
--------------------------------------------------------------------------------
Percent of
Foreign Holdings* Long-Term Investments
--------------------------------------------------------------------------------
Total Foreign Holdings .................................................. 15.1%
Emerging Market Holdings ................................................ 0.0
--------------------------------------------------------------------------------
* All holdings are denominated in U.S. dollars.
SCHEDULE OF INVESTMENTS (in U.S. dollars)
S&P Moody's Face
INDUSTRY+ Ratings++ Ratings++ Amount Corporate Bonds Value
===================================================================================================================================
Aerospace & Hexcel Corporation:
Defense--2.1% B B3 $ 250,000 9.875% due 10/01/2008 (e) $ 266,250
CCC+ Caa2 850,000 9.75% due 1/15/2009 818,125
B B3 350,000 K & F Industries, 9.625% due 12/15/2010 375,375
BB- Ba3 3,000,000 L-3 Communications Corp., 8% due 8/01/2008 3,120,000
B B2 1,000,000 Titan Corporation, 8% due 5/15/2011 (e) 1,027,500
B- B3 500,000 Transdigm Inc., 10.375% due 12/01/2008 530,000
----------
6,137,250
===================================================================================================================================
Airlines--0.8% BB- B1 750,000 American Airlines, 7.80% due 10/01/2006 345,913
Continental Airlines Inc.:
BB B2 1,066,888 7.033% due 6/15/2011 752,679
BBB- Ba2 380,375 6.90% due 1/02/2017 262,923
NR* Ca 4,000,000 USAir Inc., 10.375% due 3/01/2013 (c) 1,080,000
----------
2,441,515
===================================================================================================================================
Automotive--1.5% BB+ Ba2 1,725,000 AutoNation Inc., 9% due 8/01/2008 1,880,250
B B2 1,375,000 Dura Operating Corporation, 9% due 5/01/2009 1,216,875
B Caa1 223,000 Metaldyne Corporation, 11% due 6/15/2012 171,710
Tenneco Automotive Inc. (b):
B B2 375,000 Term B, 5.30% due 12/31/2007 365,104
B B2 375,000 Term C, 5.55% due 6/30/2008 365,834
B B3 250,000 United Auto Group, Inc., 9.625% due 3/15/2012 257,500
----------
4,257,273
===================================================================================================================================
Broadcasting--1.8% NR* NR* 1,694,000 Acme Intermediate Holdings/Finance, 12% due 9/30/2005 1,738,468
B- B3 1,375,000 Nextmedia Operating Inc., 10.75% due 7/01/2011 1,505,625
B- B3 2,000,000 Salem Communications Holding Corporation, 9% due 7/01/2011 2,125,000
----------
5,369,093
===================================================================================================================================
Cable-- C Caa2 4,400,000 Comcast UK Cable Partners Ltd., 11.20% due 11/15/2007 4,004,000
International--2.2% C Caa2 2,500,000 Diamond Holdings PLC, 9.125% due 2/01/2008 (g) 2,237,500
----------
6,241,500
===================================================================================================================================
Cable--U.S.--5.6% CSC Holdings Inc.:
BB- B1 2,750,000 8.125% due 8/15/2009 2,839,375
BB- B1 2,600,000 7.625% due 4/01/2011 2,658,500
Charter Communications Holdings:
CCC- Ca 3,500,000 8.625% due 4/01/2009 2,520,000
CCC- Ca 2,000,000 10.75% due 10/01/2009 1,460,000
B- Caa1 3,025,000 Insight Communications, 12.25%** due 2/15/2011 2,329,250
4 & 5
Corporate High Yield Fund III, Inc., May 31, 2003
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
S&P Moody's Face
INDUSTRY+ Ratings++ Ratings++ Amount Corporate Bonds Value
====================================================================================================================================
Cable--U.S. Insight Midwest, LP:
(concluded) B+ B2 $1,025,000 9.75% due 10/01/2009 (e) $ 1,068,563
B+ B2 1,400,000 10.50% due 11/01/2010 1,512,000
CCC+ Caa1 4,019,000 Loral Cyberstar Inc., 10% due 7/15/2006 1,768,360
-----------
16,156,048
====================================================================================================================================
Chemicals--9.5% B- NR* 2,200,000 HMP Equity Holdings Corporation, 14.909%** due 5/15/2008 (g) 1,045,000
B- Caa1 2,500,000 Huntsman ICI Chemicals, 10.125% due 7/01/2009 2,350,000
B- Caa2 2,300,000 Huntsman ICI Holdings, 13.898%** due 12/31/2009 874,000
B B3 525,000 Huntsman International LLC, 9.875% due 3/01/2009 (e) 535,500
B- Ba3 2,225,000 IMC Global Inc., 7.625% due 11/01/2005 2,247,250
BB- B2 2,025,000 ISP ChemCo., 10.25% due 7/01/2011 2,217,375
B+ B2 2,000,000 ISP Holdings, Inc., 10.625% due 12/15/2009 2,030,000
BB- Ba3 1,350,000 MacDermid, Inc., 9.125% due 7/15/2011 1,498,500
Millennium America Inc.:
BB+ Ba1 2,400,000 7% due 11/15/2006 2,400,000
BB+ Ba1 1,100,000 9.25% due 6/15/2008 1,188,000
BB B2 3,275,000 Omnova Solutions Inc., 11.25% due 6/01/2010 3,406,000
BB- B2 350,000 Polyone Corporation, 10.625% due 5/15/2010 (e) 332,500
B- Caa1 1,600,000 Resolution Performance, 13.50% due 11/15/2010 1,608,000
B Caa1 1,625,000 Terra Capital Inc., 11.50% due 6/01/2010 (e) 1,576,250
B Caa3 4,350,000 Terra Industries, 10.50% due 6/15/2005 4,339,125
-----------
27,647,500
====================================================================================================================================
Consumer BB+ Ba3 3,450,000 American Greetings, 11.75% due 7/15/2008 3,997,688
Products--4.5% B- B2 1,350,000 Armkel LLC/Armkel Finance, 9.50% due 8/15/2009 1,508,625
B- B2 2,887,000 Chattem, Inc., 8.875% due 4/01/2008 2,973,610
NR* NR* 8,500,000 Corning Consumer Products, 9.625% due 5/01/2008 (c) 435,625
B- B2 375,000 Remington Arms Company, 10.50% due 2/01/2011 (e) 375,938
CCC Caa2 3,875,000 Samsonite Corporation, 10.75% due 6/15/2008 3,875,000
-----------
13,166,486
====================================================================================================================================
Diversified B B2 525,000 DEX Media East LLC, 9.875% due 11/15/2009 593,250
Media--6.2% Houghton Mifflin Company (e):
B B2 1,175,000 8.25% due 2/01/2011 1,223,468
B B3 425,000 9.875% due 2/01/2013 456,344
B B2 800,000 PEI Holdings Inc., 11% due 3/15/2010 (e) 872,000
Primedia, Inc.:
B B3 3,175,000 7.625% due 4/01/2008 3,135,313
B B3 2,000,000 8.875% due 5/15/2011 2,090,000
R.H. Donnelley Financial Corporation I (e):
B+ B1 200,000 8.875% due 12/15/2010 218,000
B+ B2 725,000 10.875% due 12/15/2012 821,063
B- B2 1,400,000 Universal City Development, 11.75% due 4/01/2010 (e) 1,491,000
B+ B1 2,500,000 Vivendi Universal, 9.25% due 4/15/2010 (e) 2,840,625
B B2 5,080,000 Yell Finance BV, 12.863%** due 8/01/2011 4,102,100
-----------
17,843,163
====================================================================================================================================
Energy--Exploration & B Caa1 2,025,000 Coastal Corporation, 7.75% due 6/15/2010 1,776,938
Production--3.7% CCC+ Caa1 825,000 Continental Resources, 10.25% due 8/01/2008 812,625
B B2 1,300,000 Nuevo Energy Company, 9.375% due 10/01/2010 1,384,500
Plains E&P Company:
B B2 825,000 8.75% due 7/01/2012 878,625
B B2 1,700,000 8.75% due 7/01/2012 (e) 1,810,500
BB- Ba3 1,150,000 Vintage Petroleum, 8.25% due 5/01/2012 1,242,000
B+ Ba3 2,675,000 Westport Resources Corporation, 8.25% due 11/01/2011 2,902,375
-----------
10,807,563
====================================================================================================================================
Energy-- BB- Ba3 1,925,000 Citgo Petroleum Corporation, 11.375% due 2/01/2011 (e) 2,146,374
Other--10.7% B B2 1,225,000 Dresser Inc., 9.375% due 4/15/2011 1,252,563
B B2 2,075,000 Ferrellgas Partners LP, 8.75% due 6/15/2012 2,241,000
B- B3 1,375,000 Giant Industries, Inc., 9% due 9/01/2007 1,268,438
Hanover Equipment Trust:
B+ B2 525,000 8.50% due 9/01/2008 535,500
B+ B2 1,650,000 8.75% due 9/01/2011 1,666,500
CCC B3 3,500,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 2,905,000
BB Ba3 3,864,000 Port Arthur Finance Corporation, 12.50% due 1/15/2009 4,506,390
B B3 2,250,000 Star Gas Partners, LP, 10.25% due 2/15/2013 (e) 2,306,250
Tesoro Petroleum Corp.:
BB Ba3 350,000 8% due 4/15/2008 (e) 350,000
B B3 1,875,000 9% due 7/01/2008 1,668,750
B B2 1,400,000 Trico Marine Services, 8.875% due 5/15/2012 1,190,000
B- B3 2,750,000 United Refining Co., 10.75% due 6/15/2007 2,337,500
Williams Companies Inc.:
B+ Caa1 1,400,000 9.25% due 3/15/2004 1,428,000
B+ Caa1 1,975,000 6.50% due 8/01/2006 1,876,250
B+ Caa1 3,350,000 8.125% due 3/15/2012 (e) 3,283,000
-----------
30,961,515
====================================================================================================================================
Food/Tobacco--5.8% B B3 750,000 American Seafood Group LLC, 10.125% due 4/15/2010 847,500
B- B2 1,925,000 Commonwealth Brands Inc., 9.75% due 4/15/2008 (e) 1,982,749
B+ Ba3 725,000 Constellation Brands Inc., 8.125% due 1/15/2012 759,438
B+ B2 3,250,000 Cott Beverages Inc., 8% due 12/15/2011 3,461,250
B B2 1,250,000 Del Monte Corporation, 8.625% due 12/15/2012 (e) 1,326,562
B- B2 1,250,000 Doane Pet Care Company, 10.75% due 3/01/2010 (e) 1,325,000
B+ B2 1,400,000 Dole Foods Company, 8.875% due 3/15/2011 (e) 1,477,000
CCC- Caa3 1,375,000 New World Pasta Company, 9.25% due 2/15/2009 357,500
BB Ba2 2,100,000 Smithfield Foods Inc., 8% due 10/15/2009 2,199,750
BB+ Ba1 2,700,000 Tricon Global Restaurants, 8.875% due 4/15/2011 3,091,500
-----------
16,828,249
====================================================================================================================================
6 & 7
Corporate High Yield Fund III, Inc., May 31, 2003
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
S&P Moody's Face
INDUSTRY+ Ratings++ Ratings++ Amount Corporate Bonds Value
====================================================================================================================================
Gaming--7.2% B+ B1 $3,250,000 Boyd Gaming Corporation, 8.75% due 4/15/2012 $ 3,469,375
B B2 1,175,000 Isle of Capri Casinos, 9% due 3/15/2012 1,242,563
BBB- Ba1 1,550,000 MGM Mirage, Inc., 8.50% due 9/15/2010 1,778,625
BB+ Ba2 3,000,000 Park Place Entertainment, 7.875% due 3/15/2010 3,131,250
B B2 2,500,000 Resorts International Hotel/Casino, 11.50% due 3/15/2009 2,268,750
B+ B2 2,250,000 Sun International Hotels, 8.875% due 8/15/2011 2,401,875
B- B3 1,925,000 Trump Holdings & Funding, 11.625% due 3/15/2010 (e) 1,771,000
B- B3 2,800,000 Venetian Casino/LV Sands, 11% due 6/15/2010 3,062,500
CCC+ B3 1,475,000 Wynn Las Vegas LLC, 12% due 11/01/2010 1,596,688
-----------
20,722,626
====================================================================================================================================
Health Care--6.2% B- Caa1 3,225,000 ALARIS Medical Systems, Inc., 9.75% due 12/01/2006 3,337,875
B+ B3 425,000 Alpharma Inc., 8.625% due 5/01/2011 (e) 437,750
Fisher Scientific International:
B+ B2 1,525,000 8.125% due 5/01/2012 1,635,562
B+ B2 1,500,000 8.125% due 5/01/2012 (e) 1,608,750
BB- Ba2 3,750,000 Fresenius Medical Capital Trust II, 7.875% due 2/01/2008 3,918,750
B+ NR* 1,000,000 ICN Pharmaceuticals Inc., 6.50% due 7/15/2008 (Convertible) 981,250
B- B3 1,600,000 Insight Health Services, 9.875% due 11/01/2011 1,560,000
BBB Ba1 1,475,000 Manor Care Inc., 8% due 3/01/2008 1,657,531
Tenet Healthcare Corporation:
BBB- Baa3 1,000,000 5.375% due 11/15/2006 990,000
BBB- Baa3 2,000,000 6.375% due 12/01/2011 1,945,000
-----------
18,072,468
====================================================================================================================================
Housing--4.2% Building Materials Corporation:
B B2 400,000 7.75% due 7/15/2005 380,000
B B2 4,250,000 8% due 12/01/2008 3,809,063
BB Ba1 1,800,000 D.R. Horton, Inc., 7.50% due 12/01/2007 1,921,500
Forest City Enterprises Inc.:
BB- Ba3 3,250,000 8.50% due 3/15/2008 3,363,750
BB- Ba3 1,600,000 7.625% due 6/01/2015 1,644,000
BB- B1 975,000 Texas Industries Inc., 10.25% due 6/15/2011 (e) 975,000
-----------
12,093,313
====================================================================================================================================
Information CCC+ Caa2 3,350,000 SCG Holdings Corporation, 12% due 8/01/2009 2,730,250
Technology--0.9%
====================================================================================================================================
Leisure--4.0% B+ Ba3 1,550,000 Felcor Lodging LP, 9.50% due 9/15/2008 1,542,250
B+ Ba3 975,000 HMH Properties, Inc., 8.45% due 12/01/2008 999,374
BBB- Ba1 2,300,000 Hilton Hotels Corporation, 8.25% due 2/15/2011 2,541,500
B+ Ba3 1,525,000 Host Marriott LP, 9.50% due 1/15/2007 1,616,500
BB+ Ba1 1,900,000 ITT Corporation, 7.375% due 11/15/2015 1,885,750
Intrawest Corporation:
B+ B1 1,050,000 9.75% due 8/15/2008 1,081,500
B+ B1 1,225,000 10.50% due 2/01/2010 1,310,750
B B2 475,000 Vail Resorts Inc., 8.75% due 5/15/2009 489,250
-----------
11,466,874
====================================================================================================================================
Manufacturing--5.5% CCC+ Caa1 1,825,000 Columbus McKinnon Corp., 8.50% due 4/01/2008 1,231,875
B- Caa1 3,300,000 Eagle-Picher Industries, 9.375% due 3/01/2008 3,003,000
CCC- Caa1 2,250,000 International Wire Group, Inc., 11.75% due 6/01/2005 1,552,500
B B2 2,475,000 JohnsonDiversey Inc., 9.625% due 5/15/2012 2,747,250
B- B3 775,000 Rexnord Corporation, 10.125% due 12/15/2012 (e) 844,750
BB+ Ba3 1,900,000 SPX Corporation, 7.50% due 1/01/2013 1,999,750
Tyco International Group SA:
BBB- Ba2 1,425,000 6.375% due 2/15/2006 1,467,750
BBB- Ba2 2,600,000 6.375% due 10/15/2011 2,606,500
BBB- Ba2 500,000 2.75% due 1/15/2018 (Convertible) (e) 534,375
-----------
15,987,750
====================================================================================================================================
Metal--Other--2.1% B- B3 1,120,157 Great Lakes Carbon Corp., 10.25% due 5/15/2008 (d) 940,932
BB Ba3 2,925,000 Luscar Coal Ltd., 9.75% due 10/15/2011 3,276,000
NR* NR* 5,000,000 Ormet Corporation, 11% due 8/15/2008 (c)(e) 1,750,000
-----------
5,966,932
====================================================================================================================================
Multi-Sector Morgan Stanley (TRACERS) (a)(e):
Holdings--1.5% NR* Ba2 1,950,000 8.193% due 5/01/2012 (b) 2,107,619
B+ B2 2,100,000 9.374% due 12/15/2012 2,173,710
-----------
4,281,329
====================================================================================================================================
Packaging--6.3% B+ B2 1,800,000 Anchor Glass Container Corporation, 11% due 2/15/2013 (e) 1,872,000
B- B3 775,000 Bway Corporation, 10% due 10/15/2010 (e) 798,250
Crown Euro Holdings SA (e):
B+ B1 950,000 9.50% due 3/01/2011 990,375
B B2 500,000 10.875% due 3/01/2013 527,500
CCC+ Caa2 2,625,000 Graham Packaging Company, 10.75% due 1/15/2009 2,677,500
B- Caa1 1,525,000 Huntsman Packaging Corporation, 13% due 6/01/2010 1,387,750
BB B1 2,500,000 Owens-Brockway Glass Container, 8.875% due 2/15/2009 2,650,000
B+ B3 1,550,000 Owens-Illinois Inc., 7.15% due 5/15/2005 1,550,000
B- Caa1 2,025,000 Pliant Corporation, 13% due 6/01/2010 1,842,750
B- B3 2,325,000 Tekni-Plex Inc., 12.75% due 6/15/2010 2,278,500
CCC+ Caa1 2,450,000 US Can Corporation, 12.375% due 10/01/2010 1,715,000
-----------
18,289,625
====================================================================================================================================
Paper--7.1% D Ca 1,000,000 APP International Finance, 11.75% due 10/01/2005 (c) 392,500
BB+ Ba1 1,400,000 Abitibi Consolidated Inc., 8.55% due 8/01/2010 1,596,196
B- B3 2,275,000 Ainsworth Lumber Company, 12.50% due 7/15/2007 (d) 2,525,250
B+ Ba2 1,750,000 Caraustar Industries Inc., 9.875% due 4/01/2011 1,785,000
Doman Industries Limited (c):
D Ca 9,700,000 8.75% due 3/15/2004 1,988,500
D Ca 550,000 9.25% due 11/15/2007 112,750
8 & 9
Corporate High Yield Fund III, Inc., May 31, 2003
SCHEDULE OF INVESTMENTS (continued) (in U.S. dollars)
S&P Moody's Face
INDUSTRY+ Ratings++ Ratings++ Amount Corporate Bonds Value
====================================================================================================================================
Paper Georgia Pacific Corporation (e):
(concluded) BB+ Ba2 $1,425,000 7.375% due 7/15/2008 $ 1,410,749
BB+ Ba2 1,925,000 9.375% due 2/01/2013 2,040,500
B+ B2 250,000 Graphic Packaging Corporation, 8.625% due 2/15/2012 260,625
Jefferson Smurfit Corporation:
B B2 1,250,000 8.25% due 10/01/2012 1,306,250
B B2 1,025,000 7.50% due 6/01/2013 (e) 1,027,563
MDP Acquisitions PLC:
B B2 1,625,000 9.625% due 10/01/2012 1,748,905
B B3 700,000 15.50% due 10/01/2013 (d)(e) 794,500
B B3 54,987 15.50% due 10/01/2013 (e) 62,410
BB+ Ba2 1,125,000 Norampac Inc., 6.75% due 6/01/2013 (e) 1,150,313
BB Ba2 2,450,000 Norske Skog of Canada, 8.625% due 6/15/2011 2,511,250
-----------
20,713,261
====================================================================================================================================
Services--3.5% B+ Ba2 450,000 Airgas Inc., 9.125% due 10/01/2011 497,250
Allied Waste North America:
BB- Ba3 550,000 7.625% due 1/01/2006 565,125
B+ B2 2,075,000 10% due 8/01/2009 2,181,343
BB- Ba3 950,000 7.875% due 4/15/2013 959,500
B B2 2,250,000 Coinmach Corporation, 9% due 2/01/2010 2,418,750
B B1 250,000 Corrections Corporation of America, 7.50% due 5/01/2011 255,624
B B3 3,500,000 Williams Scotsman, Inc., 9.875% due 6/01/2007 3,307,500
-----------
10,185,092
====================================================================================================================================
Steel--1.7% B+ B1 975,000 Oregon Steel Mills Inc., 10% due 7/15/2009 872,625
B B3 2,950,000 UCAR Finance Inc., 10.25% due 2/15/2012 2,835,688
BB- B1 1,175,000 United States Steel Corporation, 9.75% due 5/15/2010 1,163,250
-----------
4,871,563
====================================================================================================================================
Telecommunications-- B- Caa1 3,250,000 Fairpoint Communications, 12.50% due 5/01/2010 3,315,000
3.9% Qwest Capital Funding:
CCC+ Caa2 850,000 5.875% due 8/03/2004 813,875
CCC+ Caa2 2,100,000 7.25% due 2/15/2011 1,764,000
CCC+ NR* 1,350,000 Qwest Services Corporation, 13.50% due 12/15/2010 (e) 1,535,625
CCC+ B3 2,025,000 Time Warner Telecom Inc., 10.125% due 2/01/2011 1,782,000
CCC+ B3 850,000 Time Warner Telecom LLC, 9.75% due 7/15/2008 748,000
CCC+ Caa2 1,425,000 US West Capital Funding, 6.25% due 7/15/2005 1,321,688
-----------
11,280,188
====================================================================================================================================
Transportation--2.0% B+ B1 1,350,000 General Maritime Corporation, 10% due 3/15/2013 (e) 1,441,125
B+ B2 1,400,000 Laidlaw International Inc., 10.75% due 6/15/2011 (e) 1,428,000
BB- Ba3 325,000 Stena AB, 9.625% due 12/01/2012 353,031
BB- Ba2 2,325,000 Teekay Shipping Corporation, 8.875% due 7/15/2011 2,545,875
-----------
5,768,031
====================================================================================================================================
Utility--11.1% The AES Corporation:
B- B3 1,558,000 9.375% due 9/15/2010 1,472,310
B+ B2 2,100,000 8.75% due 5/15/2013 (e) 2,131,500
B+ B2 3,325,000 9% due 5/15/2015 (e) 3,391,500
D C 850,000 AES Drax Energy Ltd., 11.50% due 8/30/2010 (c) 8,500
BB+ Ba1 750,000 Avista Corporation, 9.75% due 6/01/2008 828,750
B+ B3 1,525,000 CMS Energy Corporation, 6.75% due 1/15/2004 1,521,188
BB Ba2 1,025,000 CMS Panhandle Holding Company, 6.50% due 7/15/2009 1,066,000
CCC+ B1 4,025,000 Calpine Canada Energy Finance, 8.50% due 5/01/2008 2,797,375
Calpine Corporation:
CCC+ B1 1,500,000 8.25% due 8/15/2005 1,222,500
CCC+ B1 100,000 4% due 12/26/2006 (Convertible) (e) 80,625
CCC+ B1 1,100,000 8.625% due 8/15/2010 745,250
BBB- Baa3 1,400,000 Consumers Energy Company, 7.375% due 9/15/2023 1,468,086
BB Ba1 1,401,000 ESI Tractebel Acquisition Corp., 7.99% due 12/30/2011 1,372,979
B- B3 825,000 Edison International Inc., 6.875% due 9/15/2004 831,188
B B3 2,250,000 Illinois Power Corporation, 11.50% due 12/15/2010 (e) 2,469,374
B- Caa2 6,150,000 Mission Energy Holdings, 13.50% due 7/15/2008 4,059,000
BB Ba2 2,050,000 Nevada Power Company, 10.875% due 10/15/2009 2,260,125
Northwest Pipeline Corporation:
B+ B3 550,000 6.625% due 12/01/2007 558,250
B+ B3 250,000 8.125% due 3/01/2010 (e) 270,000
BB Ba2 1,650,000 Sierra Pacific Power Company, 8% due 6/01/2008 1,697,438
B+ B1 450,000 Southern Natural Gas, 8.875% due 3/15/2010 (e) 488,250
BBB- Ba1 1,300,000 Western Resources Inc., 7.875% due 5/01/2007 1,449,500
-----------
32,189,688
====================================================================================================================================
Wireless--7.4% American Tower Corporation:
CCC B3 825,000 14.887%** due 8/01/2008 (e) 515,625
CCC Caa1 2,800,000 9.375% due 2/01/2009 2,758,000
CCC B3 2,800,000 Crown Castle International Corporation, 9.375% due 8/01/2011 2,800,000
Millicom International Cellular:
NR* NR* 2,150,000 11% due 6/01/2006 2,021,000
NR* NR* 306,375 2% due 6/01/2006 (Convertible) (d) 587,090
NR* NR* 2,034,235 NII Holdings Inc., 13.07%** due 11/01/2009 (e) 1,688,415
B B3 625,000 Nextel Communications, Inc., 9.50% due 2/01/2011 681,250
CCC+ Caa1 4,025,000 Nextel Partners Inc., 12.576%** due 2/01/2009 4,075,313
CCC+ B3 925,000 Spectrasite Inc., 8.25% due 5/15/2010 (e) 931,938
Telesystem International Wireless:
CCC+ NR* 1,991,000 14% due 12/30/2003 1,951,180
CCC+ NR* 677,000 14% due 12/30/2003 (e) 663,460
BBB Baa2 2,250,000 Tritel PCS Inc., 10.375% due 1/15/2011 2,711,250
-----------
21,384,521
====================================================================================================================================
Total Investments in Corporate Bonds
(Cost--$379,019,889)--129.0% 373,860,666
====================================================================================================================================
10 & 11
Corporate High Yield Fund III, Inc., May 31, 2003
SCHEDULE OF INVESTMENTS (concluded) (in U.S. dollars)
Shares
INDUSTRY+ Held Common Stocks Value
===================================================================================================================================
Wireless--1.0% 77,203 NII Holdings Inc. (Class B) (c) $ 2,778,536
===================================================================================================================================
Total Investments in Common Stocks (Cost--$394,346)--1.0% 2,778,536
===================================================================================================================================
Preferred Stocks
===================================================================================================================================
Food & Drug--0.0% 60,617 Nebco Evans Holding Co. (c)(d) 606
===================================================================================================================================
Total Investments in Preferred Stocks (Cost--$5,526,167)--0.0% 606
===================================================================================================================================
Warrants (f)
===================================================================================================================================
Packaging--0.0% 4,000 Pliant Corporation 4,000
===================================================================================================================================
Steel--0.0% 2,750 Republic Technologies 28
===================================================================================================================================
Wireless--0.0% 825 American Tower Corporation 92,813
32,981 Loral Space & Communications 330
------------
93,143
===================================================================================================================================
Total Investments in Warrants (Cost--$409,501) - 0.0% 97,171
===================================================================================================================================
Total Investments (Cost--$385,349,903)--130.0% 376,736,979
Liabilities in Excess of Other Assets--(30.0%) (86,917,210)
------------
Net Assets--100.0% $289,819,769
============
===================================================================================================================================
+ For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
industry classifications are unaudited.
++ Ratings of issues shown are unaudited.
* 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.
(a) Tradeable Custodial Receipts (TRACERS).
(b) Floating rate note.
(c) Non-income producing security.
(d) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(f) 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.
(g) Restricted securities as to resale. The value of the Fund's investments in
restricted securities was approximately $3,283,000, representing 1.1% of
net assets.
--------------------------------------------------------------------------
Acquisition
Issue Date(s) Cost Value
--------------------------------------------------------------------------
Diamond Holdings PLC,
9.125% due 2/01/2008 1/30/1998 $2,500,000 $2,237,500
HMP Equity Holdings
Corporation, 14.909% 4/30/2003- 1,079,608 1,045,000
due 5/15/2008 5/07/2003
--------------------------------------------------------------------------
Total $3,579,608 $3,282,500
========== ==========
--------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of May 31, 2003
===================================================================================================================================
Assets: Investments, at value (identified cost--$385,349,903) ................. $ 376,736,979
Cash .................................................................. 812,081
Receivables:
Interest ............................................................ $ 9,773,059
Securities sold ..................................................... 9,288,700 19,061,759
-------------
Prepaid expenses and other assets ..................................... 67,997
-------------
Total assets .......................................................... 396,678,816
-------------
===================================================================================================================================
Liabilities: Loans ................................................................. 98,800,000
Payables:
Securities purchased ................................................ 7,825,190
Investment adviser .................................................. 173,615
Interest on loans ................................................... 34,155
Other affiliates .................................................... 1,022
Dividends to shareholders ........................................... 46 8,034,028
-------------
Accrued expenses ...................................................... 25,019
-------------
Total liabilities ..................................................... 106,859,047
-------------
===================================================================================================================================
Net Assets: Net assets ............................................................ $ 289,819,769
=============
===================================================================================================================================
Capital: Common Stock, $.10 par value, 200,000,000 shares authorized ........... $ 3,689,346
Paid-in capital in excess of par ...................................... 537,241,600
Undistributed investment income--net .................................. $ 5,841,518
Accumulated realized capital losses on investments--net ............... (248,339,771)
Unrealized depreciation on investments--net ........................... (8,612,924)
-------------
Total accumulated losses--net ......................................... (251,111,177)
-------------
Total--Equivalent to $7.86 per share based on 36,893,461 shares
of capital stock outstanding (market price--$8.36) .................... $ 289,819,769
=============
===================================================================================================================================
See Notes to Financial Statements.
12 & 13
Corporate High Yield Fund III, Inc., May 31, 2003
STATEMENT OF OPERATIONS
For the Year Ended May 31, 2003
===================================================================================================================================
Investment Income: Interest .............................................................. $ 37,326,601
Securities lending--net ............................................... 2,498
Other ................................................................. 291,206
-------------
Total income .......................................................... 37,620,305
-------------
===================================================================================================================================
Expenses: Investment advisory fees .............................................. $ 1,964,663
Loan interest expense ................................................. 1,388,618
Borrowing costs ....................................................... 194,917
Professional fees ..................................................... 109,530
Accounting services ................................................... 96,264
Transfer agent fees ................................................... 62,969
Directors' fees and expenses .......................................... 44,599
Printing and shareholder reports ...................................... 40,012
Listing fees .......................................................... 30,819
Custodian fees ........................................................ 24,390
Pricing services ...................................................... 16,419
Other ................................................................. 25,692
-------------
Total expenses ........................................................ 3,998,892
-------------
Investment income--net ................................................ 33,621,413
-------------
===================================================================================================================================
Realized & Unrealized Realized loss on investments--net ..................................... (54,338,746)
Gain (Loss) on Change in unrealized depreciation on investments--net ................. 61,048,097
Investments--Net: -------------
Total realized and unrealized gain on investments--net ................ 6,709,351
-------------
Net Increase in Net Assets Resulting from Operations .................. $ 40,330,764
=============
===================================================================================================================================
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended May 31,
-------------------------------
Increase (Decrease) in Net Assets: 2003 2002
===================================================================================================================================
Operations: Investment income--net ................................................ $ 33,621,413 $ 41,568,319
Realized loss on investments--net ..................................... (54,338,746) (101,928,792)
Change in unrealized depreciation on investments--net ................. 61,048,097 49,263,127
------------- -------------
Net increase (decrease) in net assets resulting from operations ....... 40,330,764 (11,097,346)
------------- -------------
===================================================================================================================================
Dividends to Dividends to shareholders from investment income--net ................. (33,386,856) (40,453,896)
Shareholders: ------------- -------------
===================================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions: of dividends .......................................................... 3,503,982 5,922,956
------------- -------------
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets ............................... 10,447,890 (45,628,286)
Beginning of year ..................................................... 279,371,879 325,000,165
------------- -------------
End of year* .......................................................... $ 289,819,769 $ 279,371,879
============= =============
* Undistributed investment income--net .................................. $ 5,841,518 $ 5,029,934
============= =============
===================================================================================================================================
See Notes to Financial Statements.
STATEMENT OF CASH FLOWS
For the Year Ended May 31, 2003
================================================================================================================================
Cash Provided by Net increase in net assets resulting from operations ........................ $ 40,330,764
Operating Activities: Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Decrease in receivables ................................................... 325,272
Decrease in prepaid expenses and other assets ............................. 118,141
Decrease in other liabilities ............................................. (47,305)
Realized and unrealized gain on investments--net .......................... (6,709,351)
Amortization of discount .................................................. (4,586,962)
-------------
Net cash provided by operating activities ................................... 29,430,559
-------------
================================================================================================================================
Cash Used for Proceeds from sales and paydowns of long-term investments ................... 256,143,990
Investing Activities: Purchases of long-term investments .......................................... (268,800,619)
Proceeds from sales and maturities of short-term investments--net ........... 2,721
-------------
Net cash used for investing activities ...................................... (12,653,908)
-------------
================================================================================================================================
Cash Used for Cash receipts from borrowings ............................................... 151,100,000
Financing Activities: Cash payments on borrowings ................................................. (137,200,000)
Dividends paid to shareholders .............................................. (29,882,843)
-------------
Net cash used for financing activities ...................................... (15,982,843)
-------------
================================================================================================================================
Cash: Net increase in cash ........................................................ 793,808
Cash at beginning of year ................................................... 18,273
-------------
Cash at end of year ......................................................... $ 812,081
=============
================================================================================================================================
Cash Flow Cash paid for interest ...................................................... $ 1,416,480
Information: =============
================================================================================================================================
Non-Cash Financing Reinvestment of dividends paid to shareholders .............................. $ 3,503,982
Activities: =============
================================================================================================================================
See Notes to Financial Statements.
14 & 15
Corporate High Yield Fund III, Inc., May 31, 2003
FINANCIAL HIGHLIGHTS
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: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Net asset value, beginning of year ................. $ 7.68 $ 9.11 $ 10.65 $ 12.98 $ 14.99
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net ............................. .92* 1.15* 1.31* 1.46* 1.47
Realized and unrealized gain (loss) on
investments--net ................................... .17 (1.47) (1.48) (2.30) (1.99)
--------- --------- --------- --------- ---------
Total from investment operations ................... 1.09 (.32) (.17) (.84) (.52)
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ........................... (.91) (1.11) (1.37) (1.49) (1.46)
In excess of realized gain on investments--net ... -- -- -- -- (.03)
--------- --------- --------- --------- ---------
Total dividends and distributions .................. (.91) (1.11) (1.37) (1.49) (1.49)
--------- --------- --------- --------- ---------
Capital charge resulting from issuance of
Common Stock ....................................... -- -- -- --+ --+
--------- --------- --------- --------- ---------
Net asset value, end of year ....................... $ 7.86 $ 7.68 $ 9.11 $ 10.65 $ 12.98
========= ========= ========= ========= =========
Market price per share, end of year ................ $ 8.36 $ 8.22 $ 9.38 $ 10.1875 $ 12.8125
========= ========= ========= ========= =========
==================================================================================================================================
Total Investment Based on net asset value per share ................. 16.46% (3.13%) (1.44%) (6.06%) (2.73%)
Return:** ========= ========= ========= ========= =========
Based on market price per share .................... 15.73% .59% 6.21% (8.96%) 1.45%
========= ========= ========= ========= =========
==================================================================================================================================
Ratios to Average Expenses, excluding interest expense ............... 1.04% 1.10% 1.00% .97% .85%
Net Assets: ========= ========= ========= ========= =========
Expenses ........................................... 1.59% 2.14% 3.47% 3.07% 2.28%
========= ========= ========= ========= =========
Investment income--net ............................. 13.35% 14.37% 13.26% 12.13% 10.58%
========= ========= ========= ========= =========
==================================================================================================================================
Leverage: Amount of borrowings outstanding, end of year
(in thousands) ..................................... $ 98,800 $ 84,900 $ 109,700 $ 137,400 $ 155,700
========= ========= ========= ========= =========
Average amount of borrowings outstanding during the
year (in thousands) ................................ $ 75,558 $ 98,924 $ 132,070 $ 146,410 $ 126,034
========= ========= ========= ========= =========
Average amount of borrowings outstanding per share
during the year .................................... $ 2.07 $ 2.75 $ 3.73 $ 4.16 $ 3.60
========= ========= ========= ========= =========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) ............. $ 289,820 $ 279,372 $ 325,000 $ 375,465 $ 455,178
Data: ========= ========= ========= ========= =========
Portfolio turnover ................................. 76.61% 65.44% 46.99% 45.40% 46.86%
========= ========= ========= ========= =========
==================================================================================================================================
+ Amount is less than $.01 per share.
* Based on average shares outstanding.
** 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.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Corporate High Yield Fund III, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund's financial statements are prepared in
conformity 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 CYE. 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. Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of such exchanges.
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 and
assets 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. Occasionally, events affecting the values of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the market on which such
securities trade) and the close of business on the NYSE. If events (for example,
company announcement, natural disasters, market volatility) occur during such
periods that are expected to materially affect the value for such securities,
those securities may be valued at their fair market value as determined in good
faith by the Fund's Board of Directors or by the investment adviser using a
pricing service and/or procedures approved by the Board of Directors of the
Fund.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movement and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Options--The Fund is authorized to write and purchase call and put options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written.
16 & 17
Corporate High Yield Fund III, Inc., May 31, 2003
NOTES TO FINANCIAL STATEMENTS (continued)
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 trans action exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts. 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 swaps--The Fund is authorized to enter into swap agreements. In
a swap agreement, the Fund exchanges with the counterparty their respective
commitments to pay or receive interest on a specified notional principal amount.
If the counterparty defaults on its obligation, the Fund's ability to receive
interest will be delayed or limited. Furthermore, if the Fund does not have
sufficient income to pay its obligation under the swap agreement, the Fund would
be in default and the counterparty would be able to terminate the swap
agreement. When the swap agreement is closed, the Fund records a realized gain
or loss equal to the difference between the value of the swap agreement at the
time it was entered into and the value at the time it was closed.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(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.
(f) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(g) Reclassification--Accounting principles generally accepted in the United
States of America 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 difference of $577,027 has been
reclassified between accumulated net realized capital losses and undistributed
net investment income. This reclassification has 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 has entered into a Sub-Advisory
Agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an
affiliate of FAM, pursuant to which MLAM U.K. provides investment advisory
services to FAM with respect to the Fund. There is no increase in the aggregate
fees paid by the Fund for these services.
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 operation of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .60% of the Fund's average weekly net assets plus the proceeds
of any outstanding principal borrowed.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral
received by the Fund for such loans, among other things, in a private investment
company managed by MLIM, LLC or in registered money market funds advised by FAM
or its affiliates. For the year ended May 31, 2003, MLIM, LLC received $862 in
securities lending agent fees.
For the year ended May 31, 2003, the Fund paid Merrill Lynch Security Pricing
Service, an affiliate of MLPF&S, $201 for security price quotations to compute
the net asset value of the Fund.
In addition, MLPF&S received $10,859 in commissions on the execution of
portfolio security transactions for the Fund for the year ended May 31, 2003.
For the year ended May 31, 2003, the Fund reimbursed FAM $5,650 for certain
accounting services.
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, 2003 were $261,493,298 and $249,350,104, respectively.
Net realized losses for the year ended May 31, 2003 and net unrealized losses as
of May 31, 2003 were as follows:
-------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
-------------------------------------------------------------------------------
Long-term investments .............. $(54,338,746) $ (8,612,924)
------------ ------------
Total .............................. $(54,338,746) $ (8,612,924)
============ ============
-------------------------------------------------------------------------------
As of May 31, 2003, net unrealized depreciation for Federal income tax purposes
aggregated $6,682,988, of which $28,696,883 related to appreciated securities
and $35,379,871 related to depreciated securities. The aggregate cost of
investments at May 31, 2003 for Federal income tax purposes was $383,419,967.
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, 2003 and May 31,
2002 increased by 496,500 and 736,614, respectively, as a result of dividend
reinvestment.
18 & 19
Corporate High Yield Fund III, Inc., May 31, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
5. Short-Term Borrowings:
On May 28, 2003, the Fund entered into its $160,000,000 revolving credit and
security agreement with Citibank, N.A. and other lenders (the "Lenders"). Under
the revolving credit and security agreement, the Fund may borrow money through
(i) a line of credit from certain Lenders at the Eurodollar rate plus .75% or
the highest of the Federal Funds rate plus .50%, a base rate as determined by
Citibank, N.A. and/or the latest three-week moving average of secondary market
morning offering rates in the United States for three-month certificates of
deposit of major United States money market banks plus .50%, or (ii) the
issuance of commercial paper notes by certain Lenders at rates of interest based
upon the weighted average of the per annum rates paid or payable by such Lenders
in respect of those commercial paper notes. As security for its obligations to
the Lenders under the revolving credit and security agreement, the Fund has
granted a security interest in substantially all of its assets to and in favor
of the Lenders.
For the year ended May 31, 2003, the average amount borrowed was approximately
$75,558,000 and the daily weighted average interest rate was 1.84%.
6. Distributions to Shareholders:
The Fund paid an ordinary income dividend in the amount of $.073485 per share on
June 30, 2003 to shareholders of record on June 16, 2003.
The tax character of distributions paid during the fiscal years ended May 31,
2003 and May 31, 2002 was as follows:
--------------------------------------------------------------------------------
5/31/2003 5/31/2002
--------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $33,386,856 $40,453,896
----------- -----------
Total taxable distributions .............. $33,386,856 $40,453,896
=========== ===========
--------------------------------------------------------------------------------
As of May 31, 2003, the components of accumulated losses on a tax basis were as
follows:
-----------------------------------------------------------------------------
Undistributed ordinary income--net ..................... $ 3,722,543
Undistributed long-term capital gains--net ............. --
-------------
Total undistributed earnings--net ...................... 3,722,543
Capital loss carryforward .............................. (235,005,228)*
Unrealized losses--net ................................. (19,828,492)**
-------------
Total accumulated losses--net .......................... $(251,111,177)
=============
-----------------------------------------------------------------------------
* On May 31, 2003, the Fund had a net capital loss carryforward of
$235,005,228, of which $6,419,421 expires in 2007, $21,954,305 expires in
2008, $34,200,029 expires in 2009, $52,918,036 expires in 2010 and
$119,513,437 expires in 2011. This amount will be available to offset like
amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the tax deferral of losses on wash sales, the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities, other book/tax basis adjustments,
the book/tax differences in the accrual of income on securities in default
and the deferral of post-October capital losses for tax purposes.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Corporate High Yield Fund III, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of Corporate High Yield Fund III, Inc. as
of May 31, 2003, and the related statements of operations and cash flows for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and 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 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 as of May 31, 2003, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Corporate High Yield Fund III, Inc. as of May 31, 2003, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and its financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 15, 2003
20 & 21
Corporate High Yield Fund III, Inc., May 31, 2003
PORTFOLIO INFORMATION (unaudited)
Percent of
As of May 31, 2003 Long-Term Investments
====================================================================================================================================
Top Ten Holdings Williams Companies Inc.* Williams Companies is involved in a number of energy-related businesses.
Activities include transport and storage of natural gas and other
petroleum products, as well as oil and gas exploration and production.
The company is also a refiner of petroleum products and trades energy
and related commodities. 1.9%
----------------------------------------------------------------------------------------------------------------
The AES Corporation* AES is a worldwide power producer with operations in the United States,
Europe, Latin America and Asia. Electricity generation and sales are
primarily made to wholesale customers, although the company has a direct
distribution business to end users. 1.8
----------------------------------------------------------------------------------------------------------------
Comcast UK Cable Comcast provides communications services to residential, business and
Partners Ltd. wholesale customers. The company offers residential telephone, cable
television and Internet acces services. 1.6
----------------------------------------------------------------------------------------------------------------
Terra* Terra is a producer of nitrogen fertilizer and crop protection products.
Customers include agricultural, turf, ornamental plant and other
growers. Terra also produces nitrogen products and methanol for
industrial customers. 1.5
----------------------------------------------------------------------------------------------------------------
Qwest* Qwest provides a broad range of telecommunications services, including
broadband Internet-based data, voice and image communication, local
exchange services, and data and long-distance services to residential
and business customers. The company also provides Web hosting,
high-speed Internet access and private networks. 1.4
----------------------------------------------------------------------------------------------------------------
Cablevision Systems Cablevision provides telecommunications and entertainment services. The
Corporation (CSC)* company has operations in multimedia delivery, subscription cable
television services, championship professional sports teams and national
television program networks. Cablevision serves cable customers
primarily in the New York metropolitan area. 1.4
----------------------------------------------------------------------------------------------------------------
Primedia, Inc.* Primedia, a media company, provides specialized information in the
consumer, business-to-business and education markets. The company's
products include specialty magazines, technical and trade magazines,
information products, supplemental education materials and vocational
networks. Primedia's consumer magazines include Seventeen, New York and
Modern Bride. 1.3
----------------------------------------------------------------------------------------------------------------
Georgia Pacific Georgia Pacific produces pulp, paper and building products. The company's
Corporation* line of paper products includes pulp, communications papers, container
board, packaging and tissue. Consumer brands include Brawny and Mardi
Gras paper towels, Quilted Northern, Angel Soft and Soft 'n Gentle bath
tissue, the Green Forest brand and Dixie disposable tableware and food
service products. Building products include plywood, oriented strand
board and industrial panels, lumber, gypsum products and chemical. 1.3
----------------------------------------------------------------------------------------------------------------
Edison International Inc.* Through its subsidiaries, this utility holding company operates electric
power generation facilities worldwide. The company also is involved in
energy and infrastructure projects. Our bonds are primarily at the
company's Mission Energy Holdings subsidiary. 1.3
----------------------------------------------------------------------------------------------------------------
Forest City Forest City is a diversified real estate developer. The company develops,
Enterprises Inc.* acquires, owns and manages commercial and residential real estate
projects in 21 states and the District of Columbia. 1.3
----------------------------------------------------------------------------------------------------------------
* Includes combined holdings and/or affiliates.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
The following description of the Fund's Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by Federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects,
all dividend and capital gains distri butions will be automatically reinvested
by EquiServe (the "Plan Agent"), as agent for shareholders in administering the
Plan, in additional shares of Common Stock of the Fund. Holders of Common Stock
who elect not to participate in the Plan will receive all distributions in cash
paid by check mailed directly to the shareholder of record (or, if the shares
are held in street or other nominee name then to such nominee) by EquiServe, as
dividend paying agent. Such participants may elect not to participate in the
Plan and to receive all distributions of dividends and capital gains in cash by
sending written instructions to EquiServe, as dividend paying agent, at the
address set forth below. Participation in the Plan is completely voluntary and
may be terminated or resumed at any time without penalty by written notice if
received by the Plan Agent not less than ten days prior to any dividend record
date; otherwise such termination will be effective with respect to any
subsequently declared dividend or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized shares of Common Stock from the Fund ("newly issued shares") or (ii)
by purchase of outstanding shares of Common Stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such conditions being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that the Fund
will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases
22 & 23
Corporate High Yield Fund III, Inc., May 31, 2003
AUTOMATIC DIVIDEND REINVESTMENT PLAN (concluded)
and will invest the uninvested portion of the dividend amount in newly issued
shares at the close of business on the last purchase date determined by dividing
the uninvested portion of the dividend by the net asset value per share.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold shares
of others who are the beneficial owners, the Plan Agent will administer the Plan
on the basis of the number of shares certified from time to time by the record
shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be excluded
from gross income to the extent that the cash amount reinvested would be
excluded from gross income. If, when the Fund's shares are trading at a premium
over net asset value, the Fund issues shares pursuant to the Plan that have a
greater fair market value than the amount of cash reinvested, it is possible
that all or a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable distribution. If
the discount is viewed as a taxable distribution, it is also possible that the
taxable character of this discount would be allocable to all the shareholders,
including shareholders who do not participate in the Plan. Thus, shareholders
who do not participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable share of the
discount.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
EquiServe, P.O. Box 43010, Providence, RI 02940-3010, Telephone: 1-800-426-5523.
OFFICERS AND DIRECTORS
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
====================================================================================================================================
Terry K. P.O. Box 9011 President 1999 to President and Chairman of Merrill Lynch Invest- 114 Funds None
Glenn* Princeton, NJ 08543-9011 and present ment Managers, L.P. ("MLIM")/Fund Asset 159 Portfolios
Age: 62 Director and Management, L.P. ("FAM")--Advised Funds since
1998 to 1999; Chairman (Americas Region) of MLIM from
present 2000 to 2002; Executive Vice President of MLIM
and FAM (which terms as used herein include
their corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc. ("FAMD")
from 1986 to 2002 and Director thereof from 1991
to 2002; Executive Vice President and Director of
Princeton Services, Inc. ("Princeton Services")
from 1993 to 2002; President of Princeton
Administrators, L.P. from 1989 to 2002; Director
of Financial Data Services, Inc. from 1985 to 2002.
==============================================================================================================================
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or
MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the
Fund based on his former positions with FAM, MLIM, FAMD, Princeton Services, and Princeton Administrators, L.P. The
Director's term is unlimited. Directors serve until their resignation, removal, or death, or until December 31 of the
year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors.
====================================================================================================================================
24 & 25
Corporate High Yield Fund III, Inc., May 31, 2003
OFFICERS AND DIRECTORS (concluded)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors
====================================================================================================================================
James H. P.O. Box 9095 Director 2002 to Director and Executive Vice President, The China 40 Funds None
Bodurtha Princeton, present Business Group, Inc. since 1995; Chairman, 59 Portfolios
NJ 08543-9095 Berkshire Holding Corporation since 1982.
Age: 59
====================================================================================================================================
Joe Grills P.O. Box 9095 Director 1998 to Member of the Committee of Investment of 40 Funds Kimco
Princeton, present Employee Benefit Assets of the Association of 59 Portfolios Realty
NJ 08543-9095 Financial Professionals ("CIEBA") since 1986 and Corporation
Age: 68 its Chairman from 1991 to 1992; Member of the
Investment Advisory Committees of the State of
New York Common Retirement Fund since 1989;
Member of the Investment Advisory Committee of
the Howard Hughes Medical Institute from 1997 to
Director, Duke Management Company since
1992 and Vice Chairman thereof since 1998;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of
the Virginia Retirement System since 1998 and Vice
Chairman thereof since 2002; Director, Montpelier
Foundation since 1998 and Vice Chairman thereof
since 2000; Member of the Investment Committee
of the Woodberry Forest School since 2000; Member
of the Investment Committee of the National Trust
for Historic Preservation since 2000.
====================================================================================================================================
Herbert I. P.O. Box 9095 Director 2002 to John M. Olin Professor of Humanities, New York 40 Funds None
London Princeton, present University since 1993 and Professor thereof since 59 Portfolios
NJ 08543-9095 1980; President of Hudson Institute since 1997 and
Age: 64 Trustee thereof since 1980.
====================================================================================================================================
Andre F. P.O. Box 9095 Director 2002 to George Gund Professor of Finance and Banking, 40 Funds None
Perold Princeton, present Harvard Business School since 2000 and a member 59 Portfolios
NJ 08543-9095 of the faculty since 1979; Director and Chairman
Age: 51 of the Board, UNX, Inc. since 2003; Director,
Stockback.com from 2002 to 2002; Director, Sanlam
Limited and Sanlam Life since 2001; Director,
Genbel Securities and Gensec Bank since 1999;
Director, Bulldogresearch.com from 2000 to 2001;
Director, Sanlam Investment Management from
1999 to 2001; Director, Quantec Limited from
1991 to 1999.
====================================================================================================================================
Roberta P.O. Box 9095 Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 40 Funds None
Cooper Ramo Princeton, present Sisk, P.A. since 1993; Director of Cooper's, Inc. 59 Portfolios
NJ 08543-9095 since 1999 and Chairman of the Board since 2000;
Age: 60 Director of ECMC, Inc. since 2001.
====================================================================================================================================
Robert S. P.O. Box 9095 Director 1998 to Principal of STI Management since 1994; 40 Funds None
Salomon, Jr. Princeton, present Trustee of Commonfund from 1980 to 2001; 59 Portfolios
NJ 08543-9095 Director of Rye Country Day School since 2001.
Age: 66
====================================================================================================================================
Stephen B. P.O. Box 9095 Director 1998 to Chairman, Fernwood Advisors (investment adviser) 40 Funds None
Swensrud Princeton, present since 1996; Principal of Fernwood Associates 59 Portfolios
NJ 08543-9095 (financial consultant) since 1975; Chairman of
Age: 69 RPP Corporation since 1978; Director,
International Mobile Communications, Inc.
since 1998.
==========================================================================================================================
* The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72.
====================================================================================================================================
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
====================================================================================================================================
Donald C. P.O. Box 9011 Vice 1998 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof
Burke Princeton, President present since 1999; Senior Vice President and Treasurer of Princeton Services since
NJ 08543-9011 and and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
Age: 42 Treasurer 1999 to since 1990.
present
====================================================================================================================================
B. Daniel P.O. Box 9011 Vice 2002 to Director (Global Fixed Income) of MLIM since 2000; Vice President of MLIM
Evans Princeton, President present from 1995 to 2000.
NJ 08543-9011
Age: 59
====================================================================================================================================
Elizabeth P.O. Box 9011 Vice 1998 to Director (Global Fixed Income) of MLIM since 2001; Vice President of MLIM
M. Phillips Princeton, President present from 1994 to 2001.
NJ 08543-9011
Age: 53
====================================================================================================================================
David P.O. Box 9011 Secretary 2002 to Vice President of MLIM since 2000; Attorney in private practice from
Clayton Princeton, present 1995 to 2000.
NJ 08543-9011
Age: 35
==========================================================================================================================
* Officers of the Fund serve at the pleasure of the Board of Directors.
====================================================================================================================================
Custodian
State Street Bank & Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
EquiServe
P.O. Box 43010
Providence, RI 02940-3010
1-800-426-5523
NYSE Symbol
CYE
26 & 27
[LOGO] Merrill Lynch Investment Managers
[GRAPHIC OMITTED]
Corporate High Yield Fund III, Inc. seeks to provide shareholders with current
income by investing primarily in a diversified portfolio of fixed income
securities that are rated in the lower rating categories of the established
rating services (Ba or lower by Moody's Investors Service, Inc. or BB 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 III, 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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Corporate High Yield Fund III, Inc.
Box 9011
Princeton, NJ
08543-9011
[RECYCLED LOGO] Printed on post-consumer recycled paper #COYIII--5/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (annual requirement only and not required to
be answered until the registrant's fiscal year-end on or after July 15,
2003)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (annual requirement only
and not required to be answered until the registrant's fiscal year-end
on or after July 15, 2003)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's
annual financial statements or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for
those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related
services by the principal accountant that are
reasonably related to the performance of the
audit of the registrant's financial statements
and are not reported under paragraph (a) of this
Item. Registrants shall describe the nature of
the services comprising the fees disclosed under
this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided
by the principal accountant, other than the services
reported in paragraphs (a) through (c) of this Item.
Registrants shall describe the nature of the
services comprising the fees disclosed under this
category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities.
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the Fund's
portfolio securities. The Investment Adviser has adopted policies and
procedures ("Proxy Voting Procedures") with respect to the voting of
proxies related to the portfolio securities held in the account of one or
more of its clients, including a Fund. Pursuant to these Proxy Voting
Procedures, the Investment Adviser's primary objective when voting proxies
is to make proxy voting decisions solely in the best interests of each
Fund and its shareholders, and to act in a manner that the Investment
Adviser believes is most likely to enhance the economic value of the
securities held by the Fund. The Proxy Voting Procedures are designed to
ensure that that the Investment Adviser considers the interests of its
clients, including the Funds, and not the interests of the Investment
Adviser, when voting proxies and that real (or perceived) material
conflicts that may arise between the Investment Adviser's interest and
those of the Investment Adviser's clients are properly addressed and
resolved.
In order to implement the Proxy Voting Procedures, the Investment Adviser
has formed a Proxy Voting Committee (the "Committee"). The Committee is
comprised of the Investment Adviser's Chief Investment Officer (the
"CIO"), one or more other senior investment professionals appointed by the
CIO, portfolio managers and investment analysts appointed by the CIO and
any other personnel the CIO deems appropriate. The Committee will also
include two non-voting representatives from the Investment Adviser's Legal
department appointed by the Investment Adviser's General Counsel. The
Committee's membership shall be limited to full-time employees of the
Investment Adviser. No person with any investment banking, trading, retail
brokerage or research responsibilities for the Investment Adviser's
affiliates may serve as a member of the Committee or participate in its
decision making (except to the extent such person is asked by the
Committee to present information to the Committee, on the same basis as
other interested knowledgeable parties not affiliated with the Investment
Adviser might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes are
consistent with the best interests of those clients and are free from
unwarranted and inappropriate influences. The Committee establishes
general proxy voting policies for the Investment Adviser and is
responsible for determining how those policies are applied to specific
proxy votes, in light of each issuer's unique structure, management,
strategic options and, in certain circumstances, probable economic and
other anticipated consequences of alternate actions. In so doing, the
Committee may determine to vote a particular proxy in a manner contrary to
its generally stated policies. In addition, the Committee will be
responsible for ensuring that all reporting and recordkeeping requirements
related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring proxy
issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not to
adopt a specific voting policy applicable to that issue. The Investment
Adviser believes that certain proxy voting issues require investment
analysis - such as approval of mergers and other significant corporate
transactions - akin to investment decisions, and are, therefore, not
suitable for general guidelines. The Committee may elect to adopt a common
position for the Investment Adviser on certain proxy votes that are akin
to investment decisions, or determine to permit the portfolio manager to
make individual decisions on how best to maximize economic value for a
Fund (similar to normal buy/sell investment decisions made by such
portfolio managers). While it is expected that the Investment Adviser will
generally seek to vote proxies over which the Investment Adviser exercises
voting authority in a uniform manner for all the Investment Adviser's
clients, the Committee, in conjunction with a Fund's portfolio manager,
may determine that the Fund's specific circumstances require that its
proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an independent
adviser that specializes in providing a variety of fiduciary-level
proxy-related services to institutional investment managers, plan
sponsors, custodians, consultants, and other institutional investors. The
services provided to the Investment Adviser by ISS include in-depth
research, voting recommendations (although the Investment Adviser is not
obligated to follow such recommendations), vote execution, and
recordkeeping. ISS will also assist the Fund in fulfilling its reporting
and recordkeeping obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to securities
of foreign issuers only on a best efforts basis and may elect not to vote
at all in certain countries where the Committee determines that the costs
associated with voting generally outweigh the benefits. The Committee may
at any time override these general policies if it determines that such
action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO shall
appoint to the subcommittee, where appropriate, only persons whose job
responsibilities do not include contact with the Client and whose job
evaluations would not be affected by the Investment Adviser's relationship
with the Client (or failure to retain such relationship). The subcommittee
shall determine whether and how to vote all proxies on behalf of the
Investment Adviser's clients or, if the proxy matter is, in their
judgment, akin to an investment decision, to defer to the applicable
portfolio managers, provided that, if the subcommittee determines to alter
the Investment Adviser's normal voting guidelines or, on matters where the
Investment Adviser's policy is case-by-case, does not follow the voting
recommendation of any proxy voting service or other independent fiduciary
that may be retained to provide research or advice to the Investment
Adviser on that matter, no proxies relating to the Client may be voted
unless the Secretary, or in the Secretary's absence, the Assistant
Secretary of the Committee concurs that the subcommittee's determination
is consistent with the Investment Adviser's fiduciary duties.
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances. These
policies are guidelines only, and the Investment Adviser may elect to vote
differently from the recommendation set forth in a voting guideline if the
Committee determines that it is in a Fund's best interest to do so. In
addition, the guidelines may be reviewed at any time upon the request of a
Committee member and may be amended or deleted upon the vote of a majority
of Committee members present at a Committee meeting at which there is a
quorum.
The Investment Adviser has adopted specific voting guidelines with respect
to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation, but
believes that compensation matters are normally best determined by an
issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not be
supported.
o Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders)
is best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by
shareholders.
Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and opposes
shareholder resolutions "micromanaging" corporate conduct or requesting
release of information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the Committee
is generally supportive of proposals to require corporate disclosure of
matters that seem relevant and material to the economic interests of
shareholders, the Committee is generally not supportive of proposals to
require disclosure of corporate matters for other purposes.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and opposes
shareholder resolutions "micromanaging" corporate conduct or requesting
release of information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the Committee
is generally supportive of proposals to require corporate disclosure of
matters that seem relevant and materials to the economic interests of
shareholders, the Committee is generally not supportive of proposals to
require disclosure of corporate matters for other purposes.
Item 8 -- Reserved
Item 9(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Corporate High Yield Fund III, Inc.
By: /s/ Terry K. Glenn
-----------------------------------
Terry K. Glenn,
President of
Corporate High Yield Fund III, Inc.
Date: July 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Terry K. Glenn
-----------------------------------
Terry K. Glenn,
President of
Corporate High Yield Fund III, Inc.
Date: July 23, 2003
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke,
Chief Financial Officer of
Corporate High Yield Fund III, Inc.
Date: July 23, 2003
Attached hereto as a furnished exhibit are the certifications pursuant to
Section 906 of the Sarbanes-Oxley Act.