UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-08497
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: Robert C. Doll, Jr., 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: 05/31/05
Date of reporting period: 06/01/04 - 11/30/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Corporate High Yield
Fund III, Inc.
Semi-Annual Report
November 30, 2004
[LOGO] Merrill Lynch Investment Managers
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 income 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 net asset value and 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.
Proxy Results
During the six-month period ended November 30, 2004, Corporate High Yield Fund
III, Inc.'s shareholders voted on the following proposal. The proposal was
approved at a shareholders' meeting on August 25, 2004. A description of the
proposal and number of shares voted are as follows:
-------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-------------------------------------------------------------------------------------------------------
1. To elect the Fund's Board of Directors: Terry K. Glenn 35,159,801 899,426
James H. Bodurtha 35,162,209 897,018
Joe Grills 35,146,937 912,290
Herbert I. London 35,147,878 911,349
Andre F. Perold 35,145,722 913,505
Roberta Cooper Ramo 35,148,154 911,073
Robert S. Salomon, Jr. 35,147,208 912,019
Stephen B. Swensrud 35,139,120 920,107
-------------------------------------------------------------------------------------------------------
2 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
A Letter From the President
Dear Shareholder
As we ended the current reporting period, several topics weighed heavily on
investors' minds. Among them were questions about economic growth, corporate
earnings, interest rates and inflation, politics, the price of oil and terrorism
-- all issues that are worth addressing here.
While the pace of economic expansion slowed somewhat between the first and
second quarters of 2004, gross domestic product reaccelerated in the third
quarter and is expected to approach 4% for the year. The generally favorable
economic environment has benefited American corporations, which continued to
post strong earnings. Although the extraordinary results seen in 2004 are likely
to moderate in 2005, solid productivity, improved revenue growth and cost
discipline all point to a vital corporate sector.
In terms of inflation and interest rates, the Federal Reserve Board has signaled
its confidence in the economic recovery by increasing the Federal Funds target
rate five times since June 2004, from 1% to 2.25% as of the December 14 Federal
Open Market Committee meeting. Inflation, for its part, has remained fairly
subdued.
While the re-election of President Bush was generally viewed as
business-friendly, the rising price of oil continued to be a concern for
consumers and corporations. Although the price of oil has exceeded $50 per
barrel recently, the situation is far from the crisis proportions we saw in the
1980s. Lastly, but importantly, terrorism and geopolitical tensions are
unwelcome realities we are forced to live with today. Historically, however, the
financial effects of any single event tend to be short-lived.
Amid the ambiguities, fixed income markets provided positive results. The Lehman
Brothers Aggregate Bond Index, for example, returned +4.44% for the 12-month
period and +3.82% for the six-month period ended November 30, 2004. The 10-year
Treasury yield was essentially unchanged year-over-year, while the three-month
Treasury ended the period at 2.23%, up from 1.08% six months ago and .93% 12
months ago.
The key during uncertain times is to remain focused on the big picture.
Investment success comes not from reacting to short-term volatility, but from
maintaining a long-term perspective and adhering to the disciplines of asset
allocation, diversification and rebalancing. We encourage you to work with your
financial advisor to ensure these time-tested techniques are incorporated into
your investment plan.
Finally, after 35 years in the asset management business, it is with great
satisfaction and some nostalgia that I embark on my retirement, effective
January 1, 2005. The industry has evolved significantly over the past three and
a half decades, and I am privileged to have been a part of it. I wish you
continued success as you pursue your investment goals and, as always, I thank
you for allowing Merrill Lynch Investment Managers to be a part of your
financial life.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund outperformed the benchmark CSFB High Yield Index for the
six-month period, benefiting from its use of leverage and strong returns from
several individual holdings.
How did the Fund perform during the period?
For the six-month period ended November 30, 2004, the Common Stock of Corporate
High Yield Fund III, Inc. had net annualized yields of 9.60% and 10.05%, based
on a period-end per share net asset value of $9.02 and a per share market price
of $8.61, respectively, and $.434 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was +12.51%,
based on a change in per share net asset value from $8.43 to $9.02, and assuming
reinvestment of all distributions.
The Fund's return significantly exceeded that of the high yield market, as
measured by the Credit Suisse First Boston (CSFB) High Yield Index, which
returned +9.31% for the six-month period ended November 30, 2004. The Fund
slightly underperformed its comparable Lipper category of High Current Yield
Funds (Leveraged), which had an average return of +13.08% for the same period.
(Funds in this Lipper category aim for relatively high current yield from
investment in fixed income securities, have no quality or maturity restrictions
and tend to invest in lower-grade debt issues.)
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (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
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 market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
For the most part, the high yield market remained strong throughout the past six
months. The market gleaned support from a generally healthy economic
environment, a decline in default rates by high yield issuers and robust demand
for the asset class on the part of both domestic institutional and foreign
investors.
The new-issue calendar remained active in 2004. As of November 30, year-to-date
new issuance totaled some $127.7 billion, with the majority of the proceeds used
for bank loan and other debt repayment. At the same time, the default rate of
high yield corporate borrowers has continued to decline. As reported by Moody's,
the default rate fell sharply over the past two years, from 8.5% at year-end
2002 to just 2% at the end of the third quarter of 2004. This trend, coupled
with a healthy economy and muted inflation, has encouraged investment demand for
the high yield borrowing sector.
What factors contributed to the Fund's performance?
The Fund's performance benefited from the use of leverage and positive results
from several holdings that rebounded during the period. The strongest
performance came from the utility sector, especially independent power producers
Calpine Corporation, Mission Energy and The AES Corporation, as the improving
economy and refinancings led to an improved outlook for these companies. Also
outperforming were the convertible bonds of Tyco International Group SA and
Halliburton Company. Tyco's earnings benefited from the expanding economy, as
well as from corporate streamlining by a new management team. Halliburton
resolved asbestos and silica litigation that had overshadowed the company's
improving earnings picture.
What changes were made to the portfolio during the period?
We added modestly to our convertible bond holdings, raising our total allocation
in that category to 7.6% of the Fund's net assets. We continue to believe that
convertible securities will add incremental performance to the Fund in an
environment where high yield bonds appear to be fully valued. Convertible
securities can be volatile, reflecting movements in the underlying stocks;
therefore, we anticipate that our holdings will be subject to the same risks.
However, we have attempted to mitigate that risk by choosing higher-quality
issues and by purchasing bonds that are somewhat insulated from downside
volatility while benefiting from rising stock prices. Among the Fund's most
significant convertible positions are Liberty Media Corporation (rated BBB-),
which
4 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
converts to shares of Time Warner, and CenterPoint Energy, Inc. (rated BBB-), a
power distributor. During the period, we sold most of our position in Tyco
International convertible bonds for a substantial profit and the securities of
Citizens Utilities (rated BB+), which converted to common stock and paid a
substantial dividend prior to our sale.
With short-term interest rates rising, we invested modestly in floating rate
securities and bank loans, which total near 5.5% of Fund net assets at November
30, 2004. We also have maintained our overweighting in the CCC category,
believing that many bonds in this category have better credit quality than is
implied by the rating and that other bonds in this category will benefit from
the strengthening economy.
The Fund's leverage averaged 25.2% during the past six months. That is, the Fund
borrowed the equivalent of 25.2% of total assets invested, earning incremental
yield on the investments we made with the borrowed funds. For the six months
ended November 30, 2004, the average amount borrowed was $109.7 million, and the
daily weighted average interest rate was 1.86%. While leveraging will hinder the
Fund's total return in a weak market, the converse also is true. We intend to
maintain our leverage position in the mid-20% range, although that level may
vary somewhat as we adjust the portfolio's holdings. (For a more complete
discussion of the benefits and risks of leveraging, see page 2 of this report to
shareholders.)
How would you characterize the Fund's position at the close of the period?
We expect increasing pressure in the market from rising interest rates, but
believe high yield securities will continue to find support from a gradually
improving economy and the resultant positive corporate earnings. We have
positioned the Fund to benefit in this environment and have taken steps -- for
example, adding floating rate securities -- to moderate the impact of higher
interest rates on the portfolio.
We continue to believe that the chemical sector represents good relative value.
We have overweighted that sector, with 8.3% of total investments allocated to
that industry. Our focus in that sector remains on specialty chemicals firms
that have some pricing flexibility and more stable end markets. Another large
industry allocation is in utilities, at 8.5% of total investments. Although we
believe utilities are stable and relatively defensive, we are underweight in the
sector relative to the high yield market as a whole. We believe the sector in
general is fully valued and offers neither substantial appreciation potential
nor significant yield. The exception is Calpine, which, though volatile, offers
both appreciation and yield as the strengthening economy improves its earnings
prospects.
The Fund is underweight in the leisure sector, based on our belief that these
securities already have priced in the upside potential. We maintain an
underweight position in information technology, given our perception of high
valuations, unstable earnings and potentially limited recovery value if earnings
decline in the sector. We have limited exposure to the retail, food and drug,
and finance sectors, based on what we believe is inadequate and uncertain asset
protection in these areas of the market. Similar to the CSFB High Yield Index,
the Fund had an average credit rating of B at the close of the period.
Elizabeth M. Phillips
Vice President and Portfolio Manager
December 16, 2004
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 5
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in U.S. dollars)
Face
Industry+ Amount Corporate Bonds Value
==========================================================================================================================
Aerospace & $2,275,000 Alliant Techsystems Inc., 3% due 8/15/2024 (Convertible) (e) $ 2,491,125
Defense--3.2% 975,000 Esterline Technologies Corporation, 7.75% due 6/15/2013 1,065,187
400,000 K & F Industries, Inc., 7.75% due 11/15/2014 (e) 409,000
1,750,000 Standard Aero Holdings, Inc., 8.25% due 9/01/2014 (e) 1,872,500
1,300,000 TD Funding Corp., 8.375% due 7/15/2011 1,391,000
1,800,000 The Titan Corporation, 8% due 5/15/2011 1,908,000
1,700,000 Vought Aircraft Industries, Inc., 8% due 7/15/2011 1,649,000
-------------
10,785,812
==========================================================================================================================
Airlines--2.3% 1,300,000 American Airlines, Inc., 7.80% due 4/01/2008 1,132,798
Continental Airlines, Inc.:
750,000 7.25% due 11/01/2005 698,553
950,000 8% due 12/15/2005 897,750
482,836 6.541% due 9/15/2009 430,521
1,318,425 7.033% due 6/15/2011 1,055,069
1,328,933 6.90% due 1/02/2017 1,048,149
Delta Air Lines, Inc.:
2,800,000 7.90% due 12/15/2009 1,554,000
1,500,000 2.875% due 2/18/2024 (Convertible) (e) 961,875
-------------
7,778,715
==========================================================================================================================
Automotive--2.3% 1,225,000 Asbury Automotive Group, Inc., 8% due 3/15/2014 1,212,750
1,900,000 Autocam Corporation, 10.875% due 6/15/2014 1,890,500
Metaldyne Corporation:
2,625,000 11% due 6/15/2012 2,205,000
1,190,000 10% due 11/01/2013 (e) 1,154,300
1,300,000 Tenneco Automotive Inc., 8.625% due 11/15/2014 (e) 1,352,000
-------------
7,814,550
==========================================================================================================================
Broadcasting--5.0% 2,275,000 CanWest Media, Inc., 8% due 9/15/2012 (e) 2,434,250
2,675,000 Granite Broadcasting Corporation, 9.75% due 12/01/2010 2,514,500
1,375,000 NextMedia Operating, Inc., 10.75% due 7/01/2011 1,538,281
Paxson Communications Corporation:
2,125,000 10.75% due 7/15/2008 2,183,438
550,000 12.121%** due 1/15/2009 495,000
Salem Communications Holding Corporation:
1,175,000 7.75% due 12/15/2010 1,251,375
1,364,000 9% due 7/01/2011 1,500,400
3,005,000 Sinclair Broadcast Group, Inc., 4.875% due 7/15/2018 (Convertible) 2,663,181
2,300,000 Young Broadcasting Inc., 8.75% due 1/15/2014 2,259,750
-------------
16,840,175
==========================================================================================================================
Cable-- 1,750,000 Kabel Deutschland GmbH, 10.625% due 7/01/2014 (e) 2,012,500
International--1.3% 2,450,000 NTL Cable PLC, 6.07% due 10/15/2012 (d)(e) 2,523,500
-------------
4,536,000
==========================================================================================================================
Cable--U.S.--8.7% Adelphia Communications Corporation (c):
750,000 6% due 2/15/2006 (Convertible) 131,250
1,900,000 12.531%** due 1/15/2008 1,311,000
236,329 Avalon Cable LLC, 11.875% due 12/01/2008 246,373
2,075,000 CSC Holdings, Inc., 7.625% due 4/01/2011 2,220,250
4,850,000 Century Cable Holdings LLC, Term, due 12/31/2009 (a) 4,821,710
Charter Communications Holdings, LLC:
3,500,000 8.625% due 4/01/2009 2,905,000
2,000,000 9.625% due 11/15/2009 1,660,000
945,000 Charter Communications, Inc., 5.875% due 11/16/2009 (Convertible) (e) 1,006,425
2,750,000 Insight Communications Company, Inc., 12.25%** due 2/15/2011 2,640,000
2,594,000 Loral Cyberstar, Inc., 10% due 7/15/2006 (c) 1,958,470
950,000 Loral Space & Communications Ltd., 9.50% due 1/15/2006 (c) 218,500
6 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry+ Amount Corporate Bonds Value
==========================================================================================================================
Cable--U.S. $4,175,000 Mediacom Broadband LLC, 11% due 7/15/2013 $ 4,415,063
(concluded) New Skies Satellites BV (e):
750,000 7.438% due 11/01/2011 (d) 768,750
1,150,000 9.125% due 11/01/2012 1,173,000
2,850,000 Rainbow National Services LLC, 10.375% due 9/01/2014 (e) 3,021,000
300,000 Rogers Cable Inc., 6.75% due 3/15/2015 (e) 304,500
525,000 WDAC Subsidiary Corp., 8.375% due 12/01/2014 (e) 525,000
-------------
29,326,291
==========================================================================================================================
Chemicals--11.4% 2,375,000 BCP Caylux Holdings Luxembourg SCA, 9.625% due 6/15/2014 (e) 2,665,937
Crompton Corporation (e):
1,875,000 7.67% due 8/01/2010 (d) 2,025,000
2,175,000 9.875% due 8/01/2012 2,436,000
Huntsman International LLC:
525,000 9.875% due 3/01/2009 573,562
2,500,000 10.125% due 7/01/2009 2,637,500
2,025,000 ISP Chemco Inc., 10.25% due 7/01/2011 2,268,000
1,125,000 ISP Holdings, Inc., 10.625% due 12/15/2009 1,248,750
1,575,000 Innophos, Inc., 8.875% due 8/15/2014 (e) 1,701,000
3,025,000 Millennium America Inc., 7% due 11/15/2006 3,161,125
Nalco Company:
450,000 7.75% due 11/15/2011 484,875
1,125,000 8.875% due 11/15/2013 1,241,719
3,500,000 Nalco Finance Holdings LLC, 9.037%** due 2/01/2014 2,607,500
3,125,000 Omnova Solutions Inc., 11.25% due 6/01/2010 3,515,625
725,000 PCI Chemicals, Canada, 10% due 12/31/2008 750,375
3,125,000 PolyOne Corporation, 10.625% due 5/15/2010 3,523,438
Rockwood Specialties Group, Inc.:
1,825,000 10.625% due 5/15/2011 2,075,938
250,000 7.50% due 11/15/2014 (e) 256,250
1,966,000 Terra Capital, Inc., 11.50% due 6/01/2010 2,231,410
2,830,000 Wellman, Inc., Second Lien Term, due 2/10/2010 (a) 2,839,432
-------------
38,243,436
==========================================================================================================================
Consumer-- 1,350,000 Sealy Mattress Company, 8.25% due 6/15/2014 1,427,625
Durables--0.7% 785,000 Tempur-Pedic, Inc., 10.25% due 8/15/2010 908,638
-------------
2,336,263
==========================================================================================================================
Consumer-- Chattem, Inc.:
Non-Durables--2.1% 650,000 5.40% due 3/01/2010 (d) 663,000
600,000 7% due 3/01/2014 616,500
3,125,000 Hines Nurseries, Inc., 10.25% due 10/01/2011 3,414,062
2,200,000 Samsonite Corporation, 8.875% due 6/01/2011 2,340,250
-------------
7,033,812
==========================================================================================================================
Diversified 2,150,000 CBD Media LLC, 8.625% due 6/01/2011 2,262,875
Media--6.3% 1,367,000 Dex Media West LLC, 9.875% due 8/15/2013 1,578,885
2,650,000 Houghton Mifflin Company, 8.25% due 2/01/2011 2,848,750
5,600,000 Liberty Media Corporation, 0.75% due 3/30/2023 (Convertible) 6,321,000
PRIMEDIA Inc.:
875,000 7.625% due 4/01/2008 875,000
1,225,000 8.875% due 5/15/2011 1,261,750
2,650,000 Six Flags, Inc., 9.50% due 2/01/2009 2,756,000
3,302,000 Yell Finance BV, 12.52%** due 8/01/2011 3,202,940
-------------
21,107,200
==========================================================================================================================
Energy--Exploration 2,525,000 Plains Exploration & Production Company, 8.75% due 7/01/2012 2,840,625
& Production--0.9%
==========================================================================================================================
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry+ Amount Corporate Bonds Value
==========================================================================================================================
Energy-- $1,875,000 Dresser, Inc., 9.375% due 4/15/2011 $ 2,062,500
Other--4.3% 1,000,000 Dresser-Rand Group Inc., 7.375% due 11/01/2014 (e) 1,027,500
2,300,000 Halliburton Company, 3.125% due 7/15/2023 (Convertible) (e) 2,926,750
3,750,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 3,862,500
Star Gas Partners, LP:
2,625,000 10.25% due 2/15/2013 2,802,188
500,000 10.25% due 2/15/2013 (e) 533,750
2,025,000 Trico Marine Services, Inc., 8.875% due 5/15/2012 (c) 1,093,500
-------------
14,308,688
==========================================================================================================================
Financial--0.9% 2,900,000 Refco Finance Holdings LLC, 9% due 8/01/2012 (e) 3,161,000
==========================================================================================================================
Food / Tobacco--5.2% 750,000 American Seafoods Group LLC, 10.125% due 4/15/2010 802,500
Commonwealth Brands, Inc. (e):
1,925,000 9.75% due 4/15/2008 2,002,000
1,475,000 10.625% due 9/01/2008 1,534,000
3,250,000 Cott Beverages, Inc., 8% due 12/15/2011 3,534,375
1,250,000 Del Monte Corporation, 8.625% due 12/15/2012 1,396,875
2,200,000 Doane Pet Care Company, 10.75% due 3/01/2010 2,392,500
1,275,000 Merisant Company, 9.50% due 7/15/2013 (e) 1,147,500
1,950,000 New World Pasta Company, 9.25% due 2/15/2009 (c) 97,500
2,100,000 Smithfield Foods, Inc., 8% due 10/15/2009 2,310,000
1,250,000 Tabletop Holdings, Inc., 12.25%** due 5/15/2014 (e) 568,750
1,575,000 The Wornick Company, 10.875% due 7/15/2011 (e) 1,724,625
-------------
17,510,625
==========================================================================================================================
Gaming--7.6% 3,250,000 Boyd Gaming Corporation, 8.75% due 4/15/2012 3,648,125
1,925,000 Inn of the Mountain Gods Resort and Casino, 12% due 11/15/2010 2,242,625
1,550,000 MGM Mirage Inc., 8.50% due 9/15/2010 1,761,187
3,625,000 The Majestic Star Casino, LLC, 9.50% due 10/15/2010 3,824,375
2,325,000 Park Place Entertainment Corporation, 7.875% due 3/15/2010 2,615,625
1,425,000 Pinnacle Entertainment, Inc., 8.25% due 3/15/2012 1,474,875
2,575,000 Poster Financial Group, Inc., 8.75% due 12/01/2011 2,645,813
2,700,000 Resorts International Hotel and Casino, Inc., 11.50% due 3/15/2009 3,172,500
Wynn Las Vegas, LLC:
987,000 12% due 11/01/2010 1,243,620
2,825,000 6.625% due 12/01/2014 (e) 2,775,563
-------------
25,404,308
==========================================================================================================================
Government-- 1,100,000 Cosan SA Industria e Comercio, 9% due 11/01/2009 (e) 1,127,500
Foreign--2.1% 2,000,000 Electricidad de Caracas Finance BV, 10.25% due 10/15/2014 (e) 2,100,000
Federal Republic of Brazil:
1,058,425 8% due 4/15/2014 1,062,341
1,625,000 10.50% due 7/14/2014 1,860,625
800,000 Republic of Turkey, 7.25% due 3/15/2015 804,000
-------------
6,954,466
==========================================================================================================================
Health Care--7.1% Alpharma, Inc.:
1,900,000 3% due 6/01/2006 (Convertible) 2,379,750
2,100,000 8.625% due 5/01/2011 (e) 2,194,500
Elan Finance PLC (e):
1,250,000 6.51% due 11/15/2011 (d) 1,303,125
1,550,000 7.75% due 11/15/2011 1,639,125
2,902,000 Fisher Scientific International Inc., 8.125% due 5/01/2012 3,232,102
3,750,000 Fresenius Medical Care Capital Trust II, 7.875% due 2/01/2008 4,068,750
2,825,000 HealthSouth Corporation, 8.375% due 10/01/2011 2,853,250
Tenet Healthcare Corporation:
1,000,000 5.375% due 11/15/2006 1,005,000
1,125,000 9.875% due 7/01/2014 (e) 1,209,375
2,675,000 US Oncology, Inc., 9% due 8/15/2012 (e) 2,969,250
1,000,000 Vanguard Health Holding Company II, LLC, 9% due 10/01/2014 (e) 1,062,500
-------------
23,916,727
8 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry+ Amount Corporate Bonds Value
==========================================================================================================================
Housing--3.4% Building Materials Corporation of America:
$ 400,000 7.75% due 7/15/2005 $ 408,000
1,050,000 8% due 10/15/2007 1,089,375
5,325,000 8% due 12/01/2008 5,498,062
650,000 Forest City Enterprises, Inc., 7.625% due 6/01/2015 688,187
1,875,000 Nortek, Inc., 8.50% due 9/01/2014 (e) 2,015,625
1,475,000 Texas Industries, Inc., 10.25% due 6/15/2011 1,696,250
-------------
11,395,499
==========================================================================================================================
Information 3,600,000 Advanced Micro Devices, Inc., 7.75% due 11/01/2012 (e) 3,672,000
Technology--4.8% Amkor Technology, Inc.:
575,000 9.25% due 2/15/2008 563,500
1,925,000 7.125% due 3/15/2011 1,698,812
2,825,000 Cypress Semiconductor Corporation, 1.25% due 6/15/2008 (Convertible) 2,789,688
1,925,000 Freescale Semiconductor, Inc., 4.82% due 7/15/2009 (d) 1,992,375
1,000,000 Quantum Corporation, 4.375% due 8/01/2010 (Convertible) 1,006,250
1,150,000 UGS Corp., 10% due 6/01/2012 (e) 1,311,000
3,275,000 Viasystems, Inc., 10.50% due 1/15/2011 3,176,750
-------------
16,210,375
==========================================================================================================================
Leisure--1.9% FelCor Lodging LP:
2,850,000 6.874% due 6/01/2011 (d) 2,971,125
1,550,000 9% due 6/01/2011 1,736,000
1,050,000 Intrawest Corporation, 7.50% due 10/15/2013 1,118,250
775,000 True Temper Sports, Inc., 8.375% due 9/15/2011 689,750
-------------
6,515,125
==========================================================================================================================
Manufacturing--6.2% 800,000 Columbus McKinnon Corporation, 8.50% due 4/01/2008 798,000
2,725,000 EaglePicher Incorporated, 9.75% due 9/01/2013 2,793,125
3,450,000 Invensys PLC, 9.875% due 3/15/2011 (e) 3,717,375
2,475,000 JohnsonDiversey, Inc., 9.625% due 5/15/2012 2,796,750
1,175,000 Mueller Group, Inc., 10% due 5/01/2012 1,274,875
775,000 Rexnord Corporation, 10.125% due 12/15/2012 875,750
975,000 Sensus Metering Systems Inc., 8.625% due 12/15/2013 1,004,250
1,825,000 Superior Essex Communications LLC, 9% due 4/15/2012 1,902,563
3,125,000 TriMas Corporation, 9.875% due 6/15/2012 3,234,375
1,605,000 Tyco International Group SA, 2.75% due 1/15/2018 (Convertible) 2,451,638
-------------
20,848,701
==========================================================================================================================
Metal--Other--2.2% 1,200,000 Century Aluminum Company, 7.50% due 8/15/2014 (e) 1,260,000
1,150,000 Foundation PA Coal Company, 7.25% due 8/01/2014 (e) 1,230,500
2,925,000 Luscar Coal Ltd., 9.75% due 10/15/2011 3,319,875
1,375,000 Vale Overseas Ltd., 8.25% due 1/17/2034 1,412,813
-------------
7,223,188
==========================================================================================================================
Packaging--5.6% 1,400,000 Consolidated Container Company LLC, 10.75%** due 6/15/2009 1,176,000
Crown Euro Holdings SA:
950,000 9.50% due 3/01/2011 1,075,875
500,000 10.875% due 3/01/2013 591,250
Owens-Brockway Glass Container, Inc.:
3,325,000 8.875% due 2/15/2009 3,591,000
775,000 8.25% due 5/15/2013 842,813
Pliant Corporation:
2,200,000 11.125%** due 6/15/2009 1,980,000
3,550,000 13% due 6/01/2010 3,408,000
Tekni-Plex, Inc.:
2,375,000 12.75% due 6/15/2010 2,101,875
400,000 8.75% due 11/15/2013 (e) 398,000
U.S. Can Corporation:
375,000 10.875% due 7/15/2010 394,688
2,825,000 12.375% due 10/01/2010 2,627,250
650,000 Wise Metals Group LLC, 10.25% due 5/15/2012 (e) 656,500
-------------
18,843,251
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry+ Amount Corporate Bonds Value
==========================================================================================================================
Paper--6.9% $3,400,000 Abitibi-Consolidated Inc., 5.38% due 6/15/2011 (d) $ 3,442,500
Ainsworth Lumber Co. Ltd. (e):
1,900,000 5.669% due 10/01/2010 (d) 1,909,500
1,150,000 7.25% due 10/01/2012 1,150,000
Boise Cascade LLC (e):
250,000 5.005% due 10/15/2012 (d) 256,250
500,000 7.125% due 10/15/2014 522,500
3,025,000 Bowater Incorporated, 4.88% due 3/15/2010 (d) 3,040,125
2,125,000 Caraustar Industries, Inc., 9.875% due 4/01/2011 2,284,375
1,425,000 Georgia-Pacific Corporation, 7.375% due 7/15/2008 1,549,687
Graphic Packaging International Inc.:
825,000 8.50% due 8/15/2011 913,687
950,000 9.50% due 8/15/2013 1,083,000
1,900,000 JSG Funding PLC, 9.625% due 10/01/2012 2,166,000
875,000 Jefferson Smurfit Corporation, 8.25% due 10/01/2012 958,125
Norske Skog Canada Ltd.:
2,450,000 8.625% due 6/15/2011 2,633,750
150,000 7.375% due 3/01/2014 155,625
1,003,000 Western Forest Products Inc., 15% due 7/28/2009 (g) 1,128,375
-------------
23,193,499
==========================================================================================================================
Retail--0.4% 1,250,000 The Jean Coutu Group, Inc., 8.50% due 8/01/2014 (e) 1,268,750
==========================================================================================================================
Services--6.4% 2,625,000 Allied Waste North America, Inc., 8.875% due 4/01/2008 2,756,250
2,900,000 The Coinmach Corporation, 9% due 2/01/2010 3,045,000
2,725,000 Corrections Corporation of America, 7.50% due 5/01/2011 2,908,937
875,000 MSW Energy Finance Co. II Inc., 7.375% due 9/01/2010 923,125
1,500,000 MSW Energy Holdings LLC, 8.50% due 9/01/2010 1,650,000
3,200,000 United Rentals (North America), Inc., 7.75% due 11/15/2013 (e) 3,072,000
3,100,000 Waste Services, Inc., 9.50% due 4/15/2014 (e) 3,084,500
Williams Scotsman, Inc.:
3,750,000 9.875% due 6/01/2007 3,712,500
375,000 10% due 8/15/2008 416,250
-------------
21,568,562
==========================================================================================================================
Steel--0.9% 1,425,000 CSN Islands VIII Corp., 9.75% due 12/16/2013 (e) 1,528,312
1,200,000 UCAR Finance Inc., 10.25% due 2/15/2012 1,356,000
-------------
2,884,312
==========================================================================================================================
Telecommunications-- ADC Telecommunications, Inc. (Convertible):
7.0% 2,200,000 1% due 6/15/2008 2,095,500
750,000 2.235% due 6/15/2013 (d) 727,500
2,475,000 Alaska Communications System Holdings, Inc., 9.875% due 8/15/2011 2,598,750
2,850,000 Cincinnati Bell Inc., 8.375% due 1/15/2014 2,842,875
3,250,000 FairPoint Communications, Inc., 12.50% due 5/01/2010 3,493,750
2,750,000 LCI International, Inc., 7.25% due 6/15/2007 2,605,625
1,725,000 Qwest Capital Funding, Inc., 7.25% due 2/15/2011 1,643,063
1,350,000 Qwest Services Corp., 14% due 12/15/2010 (e) 1,599,750
1,000,000 Terremark Worldwide, Inc., 9% due 6/15/2009 (Convertible) (e) 940,000
850,000 Time Warner Telecom Holdings, Inc., 6.29% due 2/15/2011 (d) 847,875
Time Warner Telecom, Inc.:
500,000 9.75% due 7/15/2008 497,500
3,875,000 10.125% due 2/01/2011 3,720,000
-------------
23,612,188
==========================================================================================================================
Transportation--1.4% 1,900,000 Laidlaw International, Inc., 10.75% due 6/15/2011 2,187,375
2,325,000 Teekay Shipping Corporation, 8.875% due 7/15/2011 2,685,375
-------------
4,872,750
==========================================================================================================================
10 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Schedule of Investments (continued) (in U.S. dollars)
Face
Industry+ Amount Corporate Bonds Value
==========================================================================================================================
Utility--11.7% The AES Corporation:
$4,458,000 9.375% due 9/15/2010 $ 5,154,562
2,100,000 8.75% due 5/15/2013 (e) 2,378,250
850,000 AES Drax Energy Limited, 11.50%** due 8/30/2010 (c) 4,250
7,025,000 Calpine Canada Energy Finance ULC, 8.50% due 5/01/2008 5,022,875
Calpine Corporation:
1,500,000 8.25% due 8/15/2005 1,492,500
950,000 8.75% due 7/15/2007 779,000
4,600,000 CenterPoint Energy, Inc., 3.75% due 5/15/2023 (Convertible) 5,232,500
2,071,000 ESI Tractebel Acquisition Corp., 7.99% due 12/30/2011 2,180,266
1,900,000 Edison Mission Energy, 9.875% due 4/15/2011 2,246,750
2,725,000 El Paso CGP Company, 7.75% due 6/15/2010 2,806,750
2,600,000 Mission Energy Holding Company, 13.50% due 7/15/2008 3,259,750
Nevada Power Company:
3,300,000 10.875% due 10/15/2009 3,836,250
600,000 9% due 8/15/2013 696,000
1,650,000 Sierra Pacific Power Company, 8% due 6/01/2008 1,810,875
1,200,000 Sierra Pacific Resources, 8.625% due 3/15/2014 1,368,000
925,000 Southern Natural Gas Company, 8.875% due 3/15/2010 1,042,938
-------------
39,311,516
==========================================================================================================================
Wireless--3.8% 825,000 American Tower Escrow Corporation, 14.887%** due 8/01/2008 618,750
2,000,000 Centennial Communications Corp., 10.125% due 6/15/2013 2,180,000
2,800,000 Crown Castle International Corp., 9.375% due 8/01/2011 3,136,000
Rogers Wireless Inc:
250,000 5.525% due 12/15/2010 (d)(e) 258,750
250,000 8% due 12/15/2012 (e) 259,375
3,400,000 6.375% due 3/01/2014 3,315,000
625,000 Rural Cellular Corporation, 6.38% due 3/15/2010 (d) 643,750
2,850,000 SBA Telecommunications, Inc., 7.534%** due 12/15/2011 2,372,625
-------------
12,784,250
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds (Cost--$427,192,360)--134.0% 450,430,659
==========================================================================================================================
Shares
Held Common Stocks
==========================================================================================================================
Airlines--0.2% 81,243 ABX Air, Inc. (b) 637,758
==========================================================================================================================
Cable-- 223,675 Telewest Global, Inc. (b) 3,274,602
International--1.0%
==========================================================================================================================
Paper--0.4% 203,785 Western Forest Products Inc. (b) 1,285,385
==========================================================================================================================
Telecommunications-- 16,244 MCI, Inc. 306,362
0.1%
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Common Stocks (Cost--$5,039,325)--1.7% 5,504,107
==========================================================================================================================
Preferred Stocks
==========================================================================================================================
Automotive--1.0% 128,000 General Motors Corporation (Convertible) 3,424,000
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Stocks (Cost--$3,199,472)--1.0% 3,424,000
==========================================================================================================================
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in U.S. dollars)
Shares
Industry+ Held Warrants (h) Value
==========================================================================================================================
Cable--U.S.--0.0% 32,981 Loral Space & Communications Ltd. $ 264
==========================================================================================================================
Health Care--0.0% 32,042 HealthSouth Corporation 72,094
==========================================================================================================================
Packaging--0.0% 4,000 Pliant Corporation 40
==========================================================================================================================
Paper--0.0% 700 JSG Funding PLC 7,000
==========================================================================================================================
Wireless--0.1% 825 American Tower Escrow Corporation 188,100
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Warrants (Cost--$112,171)--0.1% 267,498
==========================================================================================================================
Beneficial
Interest Other Interests (f)
==========================================================================================================================
$3,780,240 US Airways Group, Inc.--Certificate of Beneficial Interest 1,134,072
--------------------------------------------------------------------------------------------------------------------------
Total Investments in Other Interests (Cost--$1,020,665)--0.3% 1,134,072
==========================================================================================================================
Total Investments (Cost--$436,563,993*)--137.1% 460,760,336
Liabilities in Excess of Other Assets--(37.1%) (124,677,317)
-------------
Net Assets--100.0% $ 336,083,019
=============
+ 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.
* The cost and unrealized appreciation/depreciation of investments as of
November 30, 2004, as computed for federal income tax purposes, were as
follows:
--------------------------------------------------------------------------
Aggregate cost ......................................... $436,016,861
============
Gross unrealized appreciation .......................... $ 34,501,465
Gross unrealized depreciation .......................... (9,757,990)
------------
Net unrealized appreciation ............................ $ 24,743,475
============
** Represents a zero coupon or step bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
(a) Floating rate corporate debt in which the Fund invests generally pays
interest at rates that are periodically redetermined by reference to a
base lending rate plus a premium. The base lending rates are generally (i)
the lending rate offered by one or more major European banks, such as
LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by one
or more major U.S. banks or (iii) the certificate of deposit rate.
Corporate loans represent 2.3% of the Fund's net assets.
(b) Non-income producing security.
(c) Non-income producing security; issuer filed for bankruptcy or is in
default of interest payments.
(d) Floating rate note.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(f) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities.
(g) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(h) 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.
Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2 (a)(3) of the
Investment Company Act of 1940) were as follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $(82,499) $1,918
--------------------------------------------------------------------------
Swaps outstanding as of November 30, 2004 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Receive a variable rate return based on
1-month USD LIBOR and pay a fixed
rate equal to 1.56% interest
Broker, UBS Warburg
Expires June 2005 $30,000,000 $241,700
--------------------------------------------------------------------------
See Notes to Financial Statements.
12 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Statement of Assets, Liabilities and Capital
As of November 30, 2004
==============================================================================================================================
Assets
------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$436,563,993) ............................................... $ 460,760,336
Unrealized appreciation on swaps ................................... 241,700
Receivables:
Interest ........................................................ $ 9,515,895
Dividends ....................................................... 6,498 9,522,393
-------------
Prepaid expenses and other assets .................................. 68,530
-------------
Total assets ....................................................... 470,592,959
-------------
==============================================================================================================================
Liabilities
------------------------------------------------------------------------------------------------------------------------------
Loans .............................................................. 125,900,000
Payables:
Securities purchased ............................................ 6,382,689
Custodian bank .................................................. 1,716,168
Dividends to shareholders ....................................... 236,617
Interest on swaps ............................................... 193,160
Interest on loans ............................................... 50,818
Investment adviser .............................................. 15,195
Other affiliates ................................................ 2,850 8,597,497
-------------
Accrued expenses ................................................... 12,443
-------------
Total liabilities .................................................. 134,509,940
-------------
==============================================================================================================================
Net Assets
------------------------------------------------------------------------------------------------------------------------------
Net Assets ......................................................... $ 336,083,019
=============
==============================================================================================================================
Capital
------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.10 par value, 200,000,000 shares authorized ........ $ 3,727,953
Paid-in capital in excess of par ................................... 540,467,695
Undistributed investment income--net ............................... $ 5,153,230
Accumulated realized capital losses--net ........................... (237,703,902)
Unrealized appreciation--net ....................................... 24,438,043
-------------
Total accumulated losses--net ...................................... (208,112,629)
-------------
Total--Equivalent to $9.02 per share based on 37,279,531 shares
of capital stock outstanding (market price--$8.61) ................ $ 336,083,019
=============
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Six Months Ended November 30, 2004
==============================================================================================================================
Investment Income
------------------------------------------------------------------------------------------------------------------------------
Interest (including $1,918 from affiliates) ........................ $ 18,028,365
Dividends .......................................................... 817,408
Other .............................................................. 144,589
-------------
Total income ....................................................... 18,990,362
-------------
==============================================================================================================================
Expenses
------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................... $ 1,303,278
Loan interest expense .............................................. 1,025,178
Borrowing costs .................................................... 81,333
Accounting services ................................................ 58,263
Professional fees .................................................. 40,253
Transfer agent fees ................................................ 30,164
Printing and shareholder reports ................................... 24,081
Custodian fees ..................................................... 14,637
Listing fees ....................................................... 14,264
Pricing services ................................................... 11,864
Directors' fees and expenses ....................................... 9,313
Other .............................................................. 13,559
-------------
Total expenses ..................................................... 2,626,187
-------------
Investment income--net ............................................. 16,364,175
-------------
==============================================================================================================================
Realized & Unrealized Gain (Loss)--Net
------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ................................................ (702,789)
Swaps--net ...................................................... 94,904
Foreign currency transactions--net .............................. 5,946 (601,939)
-------------
Change in unrealized appreciation on:
Investments--net ................................................ 22,310,224
Swaps--net ...................................................... (18,440) 22,291,784
-------------------------------
Total realized and unrealized gain--net ............................ 21,689,845
-------------
Net Increase in Net Assets Resulting from Operations ............... $ 38,054,020
=============
See Notes to Financial Statements.
14 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
November 30, May 31,
Increase (Decrease) in Net Assets: 2004 2004
==============================================================================================================================
Operations
------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................. $ 16,364,175 $ 32,517,140
Realized gain (loss)--net .......................................... (601,939) 10,925,924
Change in unrealized appreciation--net ............................. 22,291,784 10,759,183
-------------------------------
Net increase in net assets resulting from operations ............... 38,054,020 54,202,247
-------------------------------
==============================================================================================================================
Dividends to Shareholders
------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from investment income--net .............. (16,085,445) (33,172,274)
-------------------------------
==============================================================================================================================
Capital Stock Transactions
------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment
of dividends ...................................................... 531,254 2,726,368
Recovery of previously expensed Common Stock offering costs ........ -- 7,080
-------------------------------
Net increase in net assets resulting from capital stock transactions 531,254 2,733,448
-------------------------------
==============================================================================================================================
Net Assets
------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ....................................... 22,499,829 23,763,421
Beginning of period ................................................ 313,583,190 289,819,769
-------------------------------
End of period* ..................................................... $ 336,083,019 $ 313,583,190
===============================
* Undistributed investment income--net .......................... $ 5,153,230 $ 4,874,500
===============================
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 15
[LOGO] Merrill Lynch Investment Managers
Statement of Cash Flows
For the Six Months Ended November 30, 2004
=================================================================================================
Cash Used for Operating Activities
-------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations .... $ 38,054,020
Adjustments to reconcile net increase in net assets
resulting from operations to net cash used for operating
activities:
Increase in receivables .............................. (342,133)
Decrease in prepaid expenses and other assets ........ 243,613
Increase in other liabilities ........................ 1,562,581
Realized and unrealized gain--net .................... (21,689,845)
Amortization of discount ............................. (1,375,905)
Proceeds from sales and paydowns of long-term investments 135,011,864
Purchases of long-term investments ...................... (152,585,507)
Proceeds from sales of short-term investments--net ...... 82,499
Termination of swap contracts ........................... 94,904
-------------
Net cash used for operating activities .................. (943,909)
-------------
=================================================================================================
Cash Provided by Financing Activities
-------------------------------------------------------------------------------------------------
Cash receipts from borrowings ........................... 101,500,000
Cash payments on borrowings ............................. (85,200,000)
Dividends paid to shareholders .......................... (15,574,196)
-------------
Net cash provided by financing activities ............... 725,804
-------------
=================================================================================================
Cash
-------------------------------------------------------------------------------------------------
Net decrease in cash .................................... (218,105)
Cash at beginning of period ............................. 218,105
-------------
Cash at end of period ................................... $ --
=============
=================================================================================================
Cash Flow Information
-------------------------------------------------------------------------------------------------
Cash paid for interest .................................. $ 1,005,954
=============
=================================================================================================
Non-Cash Financing Activities
-------------------------------------------------------------------------------------------------
Reinvestment of dividends paid to shareholders .......... $ 531,254
=============
See Notes to Financial Statements.
16 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Financial Highlights
The following per share data and ratios have been
derived from information provided in the financial For the Six
statements. Months Ended For the Year Ended May 31,
November 30, --------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2004 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period ......................... $ 8.43 $ 7.86 $ 7.68 $ 9.11 $ 10.65
-------------------------------------------------------------------------
Investment income--net** ........ .44 .88 .92 1.15 1.31
Realized and unrealized gain
(loss)--net .................... .58 .58 .17 (1.47) (1.48)
-------------------------------------------------------------------------
Total from investment operations 1.02 1.46 1.09 (.32) (.17)
-------------------------------------------------------------------------
Less dividends from investment
income--net .................... (.43) (.89) (.91) (1.11) (1.37)
-------------------------------------------------------------------------
Recovery of previously expensed
offering costs (capital charge)
resulting from issuance of
Common Stock ................... -- --+ -- -- --
-------------------------------------------------------------------------
Net asset value, end of period .. $ 9.02 $ 8.43 $ 7.86 $ 7.68 $ 9.11
=========================================================================
Market price per share, end
of period ...................... $ 8.61 $ 7.97 $ 8.36 $ 8.22 $ 9.38
=========================================================================
==================================================================================================================================
Total Investment Return***
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per
share .......................... 12.51%@ 19.33% 16.46% (3.13%) (1.44%)
=========================================================================
Based on market price per
share .......................... 13.59%@ 6.07% 15.73% .59% 6.21%
=========================================================================
==================================================================================================================================
Ratios to Average Net Assets
----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding interest
expense ........................ .99%* 1.01% 1.04% 1.10% 1.00%
=========================================================================
Expenses ........................ 1.62%* 1.51% 1.59% 2.14% 3.47%
=========================================================================
Investment income--net .......... 10.09%* 10.48% 13.35% 14.37% 13.26%
=========================================================================
==================================================================================================================================
Leverage
----------------------------------------------------------------------------------------------------------------------------------
Amount of borrowings outstanding,
end of period (in thousands) ... $125,900 $109,600 $ 98,800 $ 84,900 $109,700
=========================================================================
Average amount of borrowings
outstanding during the period
(in thousands) ................. $109,688 $112,297 $ 75,558 $ 98,924 $132,070
=========================================================================
Average amount of borrowings
outstanding per share during
the period** ................... $ 2.95 $ 3.03 $ 2.07 $ 2.75 $ 3.73
=========================================================================
==================================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) ................. $336,083 $313,583 $289,820 $279,372 $325,000
=========================================================================
Portfolio turnover .............. 30.78% 82.54% 76.61% 65.44% 46.99%
=========================================================================
* Annualized.
** 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 effect of sales
charges.
+ Amount is less than $.01 per share.
@ Aggregate total investment return.
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 17
[LOGO] Merrill Lynch Investment Managers
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 U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. These unaudited financial statements reflect all adjustments,
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim period. The Fund determines and makes available
for publication the net asset value of its Common Stock on a daily basis. The
Fund's Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol CYE. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments -- Debt securities are traded primarily in the
over-the-counter markets and are valued at the last available bid price in the
over-the-counter market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general direction
of the Board of Directors. Such valuations and procedures will be reviewed
periodically by the Board of Directors of the Fund. 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 sales price in the case of exchange-traded options. In the
case of options traded in the over-the-counter ("OTC") market, valuation is the
last asked price (options written) or the last bid price (options purchased).
Swap agreements are valued by quoted fair valuations received daily by the Fund
from the counterparty. Short-term investments with a remaining maturity of 60
days or less are valued at amortized cost which approximates market value, under
which method the investment is valued at cost and any premium or discount is
amortized on a straight line basis to maturity. Repurchase agreements are valued
at cost plus accrued interest. Investments in open-end investment companies are
valued at their net asset value each business day. Securities and other assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Board of Directors
of the Fund.
Equity securities that are held by the Fund, which are traded on stock exchanges
or the Nasdaq National Market, are valued at the last sale price or official
close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Directors of the Fund. Long
positions traded in the OTC market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price obtained from one or more dealers or
pricing services approved by the Board of Directors of the Fund. Short positions
traded in the OTC market are valued at the last available asked price. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund's net asset value.
If events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their fair 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 Fund's Board
of Directors.
(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 movements 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.
18 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Notes to Financial Statements (continued)
o Options -- The Fund may write and purchase call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
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 Swaps -- The Fund may enter into swap agreements, which are
over-the-counter contracts in which the Fund and a counterparty agree to
make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by a
predetermined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(d) 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.
(e) 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.
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(g) 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
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
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.
(h) Custodian bank -- The Fund recorded an amount payable to the custodian bank
reflecting an overnight overdraft, which resulted from an unprojected payment of
net investment income dividends.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the 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. 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.
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.
In addition, MLPF&S received $1,641 in commissions on the execution of portfolio
security transactions for the Fund for the six months ended November 30, 2004.
For the six months ended November 30, 2004, the Fund reimbursed FAM $3,606 for
certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, MLAM U.K., and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended November 30, 2004 were $150,337,509 and $133,379,427, respectively.
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 six months ended November 30, 2004 and
for the year ended May 31, 2004 increased by 60,292 and 325,778, respectively,
as a result of dividend reinvestment.
5. Short-Term Borrowings:
On May 26, 2004, the Fund entered into a $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 U.S. 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. The Fund also pays additional borrowing costs which include a
commitment fee for this facility at the annual rate of .10% and a program fee of
.24% on the borrowings outstanding.
For the six months ended November 30, 2004, the average amount borrowed was
approximately $109,688,000 and the daily weighted average interest rate was
1.86%.
20 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Notes to Financial Statements (concluded)
6. Capital Loss Carryforward:
On May 31, 2004, the Fund had a net capital loss carryforward of $236,944,109,
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, $119,513,437 expires in 2011 and
$1,938,881 expires in 2012. These amounts will be available to offset like
amounts of any future taxable gains.
7. Subsequent Event:
The Fund paid an ordinary income dividend in the amount of $.074000 per share on
December 21, 2004 to shareholders of record on December 10, 2004.
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 21
[LOGO] Merrill Lynch Investment Managers
Portfolio Information
Percent of
As of November 30, 2004 Total Assets
====================================================================================================================================
Ten Largest Holdings
------------------------------------------------------------------------------------------------------------------------------------
Sierra Pacific Resources* Sierra Pacific Resources is the holding company for two utilities, Nevada
Power Company and Sierra Pacific Power Company. Both utilities primarily
serve the state of Nevada. 1.7%
------------------------------------------------------------------------------------------------------------------------------------
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 to wholesale customers, though the company has a direct
distribution business to end users. 1.6
------------------------------------------------------------------------------------------------------------------------------------
Calpine Corporation* Calpine owns, develops and operates power-generation facilities, as well
as sells electricity in the United States. The company also provides
thermal energy for industrial customers. 1.6
------------------------------------------------------------------------------------------------------------------------------------
Building Materials Corporation of America* Building Materials is a manufacturer of residential roofing products, with
Timberline as its major brand. 1.5
------------------------------------------------------------------------------------------------------------------------------------
Liberty Media Corporation* These bonds are an obligation of Liberty Media, but upon conversion are
exchangeable into shares of media giant Time Warner common stock. 1.3
------------------------------------------------------------------------------------------------------------------------------------
Qwest Communications International* 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. 1.3
------------------------------------------------------------------------------------------------------------------------------------
Charter Communications* Controlled by Microsoft co-founder Paul Allen, Charter is a provider of
cable television services throughout the United States. 1.3
------------------------------------------------------------------------------------------------------------------------------------
Edison International Inc.* This utility holding company operates, through subsidiaries, electric
power generation facilities worldwide. The company also is involved in
energy and infrastructure projects. Our bonds are at the company's Mission
Energy and Edison Mission subsidiaries. 1.2
------------------------------------------------------------------------------------------------------------------------------------
Pliant Corporation* Pliant is a top U.S. manufacturer of flexible packaging and value-added
films for food, personal care, medical and industrial applications. 1.2
------------------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc.* Centerpoint is a regulated gas and electric transmission and distribution
company providing energy services to customers in the Midwest and South,
as well as Texas. 1.1
------------------------------------------------------------------------------------------------------------------------------------
* Includes combined holdings and/or affiliates, where applicable.
Portfolio Profile
Quality Ratings by Percent of
Standard & Poor's Total Investments
--------------------------------------------------------------------------------
BBB ...................................................................... 5%
BB ....................................................................... 17
B ........................................................................ 54
CCC ...................................................................... 20
NR (Not Rated) ........................................................... 2
Other* ................................................................... 2
--------------------------------------------------------------------------------
* Includes portfolio holdings in common stocks, preferred stocks, warrants
and other interests.
--------------------------------------------------------------------------------
Average Portfolio Maturity .............................. 6.86 Years
--------------------------------------------------------------------------------
Percent of
Five Largest Industries* Total Investments
--------------------------------------------------------------------------------
Utility ............................................................... 8.5%
Chemicals ............................................................. 8.3
Cable--U.S ............................................................ 6.4
Gaming ................................................................ 5.5
Paper ................................................................. 5.3
--------------------------------------------------------------------------------
* 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.
--------------------------------------------------------------------------------
Percent of
Five Largest Foreign Countries* Total Investments
--------------------------------------------------------------------------------
Canada ................................................................ 5.2%
United Kingdom ........................................................ 1.7
Netherlands ........................................................... 1.3
Luxembourg ............................................................ 0.9
Ireland ............................................................... 0.9
--------------------------------------------------------------------------------
* All holdings are denominated in U.S. dollars.
22 CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004
Officers and Directors
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Joe Grills, Director
Herbert I. London, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Stephen B. Swensrud, Director
Elizabeth M. Phillips, Vice President
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and 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
--------------------------------------------------------------------------------
Andre F. Perold resigned as a Director of the Fund effective October 22, 2004.
Effective January 1, 2005, Terry K. Glenn will retire as President and Director
of Corporate High Yield Fund III, Inc. The Fund's Board of Directors wishes Mr.
Glenn well in his retirement.
Effective January 1, 2005, Robert C. Doll, Jr. will become President and
Director of the Fund.
--------------------------------------------------------------------------------
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2004 23
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Corporate High Yield Fund III, Inc.
Box 9011
Princeton, NJ 08543-9011
#COYIII -- 11/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
President of
Corporate High Yield Fund III, Inc.
Date: January 13, 2005
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/ Robert C. Doll, Jr.
---------------------------
Robert C. Doll, Jr.,
President of
Corporate High Yield Fund III, Inc.
Date: January 13, 2005
By: /s/ Donald C. Burke
---------------------------
Donald C. Burke,
Chief Financial Officer of
Corporate High Yield Fund III, Inc.
Date: January 13, 2005