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: BlackRock 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., Chief Executive
Officer, BlackRock 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: 05/31/07
Date of reporting period: 06/01/06 - 11/30/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Corporate High Yield BLACKROCK
Fund III, Inc.
SEMI-ANNUAL REPORT | NOVEMBER 30, 2006
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Corporate High Yield Fund III, Inc.
The Benefits and Risks of Leveraging
BlackRock 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.
2 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
A Letter to Shareholders
Dear Shareholder
As 2006 nears a conclusion, we are able to say it has been an interesting year
for investors. After a volatile start and far-reaching mid-year correction, the
financial markets regained some positive momentum through late summer and into
fall. For the six-month and 12-month periods ended November 30, 2006, the major
market indexes posted positive returns:
Total Returns as of November 30, 2006 6-month 12-month
========================================================================================================
U.S. equities (Standard & Poor's 500 Index) +11.33% +14.23%
--------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) + 9.72 +17.43
--------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +11.19 +28.20
--------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 5.93 + 5.94
--------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 4.53 + 6.12
--------------------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) + 6.28 +11.53
--------------------------------------------------------------------------------------------------------
After raising the target short-term interest rate 17 times between June 2004 and
June 2006, the Federal Reserve Board (the Fed) finally opted to pause on August
8. This left the federal funds rate at 5.25%, where it remained through the
September, October and December Federal Open Market Committee meetings. In
interrupting its two-year interest rate-hiking campaign, the Fed acknowledged
that economic growth is slowing, led by softness in the housing market. However,
the central bankers continue to take a cautionary position on inflation, despite
a decline in energy prices in the fall. At the time of this writing, the price
of crude oil was roughly $62 per barrel after reaching nearly $78 per barrel in
the summer.
Notwithstanding the mid-year correction, equity markets generally found support
in solid corporate earnings reports in the first three quarters of the year.
Overall corporate health, including strong company balance sheets, helped to
sustain robust dividend-distribution, share-buyback and merger-and-acquisition
activity. Many international equity markets fared equally well or better, thanks
in part to higher economic growth rates and low inflation.
In the U.S. bond market, prices declined (and yields correspondingly rose) for
much of the year as investors focused on decent economic activity and inflation
concerns. Bond prices began to improve (yields fell) in the summer as the
economy showed signs of weakening and the Fed paused. Notably, the Treasury
curve inverted periodically, a phenomenon typically associated with periods of
economic weakness. At the end of November, the one-month Treasury bill offered
the highest yield on the curve at 5.22%, while the 30-year Treasury bond had a
yield of 4.56%.
Amid the uncertainty inherent in the financial markets, we encourage you to
review your goals periodically with your financial professional and to make
portfolio changes, as needed. For additional insight and timely "food for
thought" for investors, we also invite you to visit Shareholder magazine at
www.blackrock.com/shareholdermagazine. We are pleased to make our
investor-friendly magazine available to you online. We thank you for trusting
BlackRock with your investment assets, and we look forward to continuing to
serve your investment needs.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 3
A Discussion With Your Fund's Portfolio Managers
The Fund performed in line with its benchmark for the six-month period,
benefiting primarily from the strong returns of its holdings in convertible
securities.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended November 30, 2006, the Common Stock of BlackRock
Corporate High Yield Fund III, Inc. (formerly Corporate High Yield Fund III,
Inc.) had net annualized yields of 9.08% and 9.79%, based on a period-end per
share net asset value of $8.61 and a per share market price of $7.99,
respectively, and $.392 per share income dividends. For the same period, the
total investment return on the Fund's Common Stock was +6.29%, based on a change
in per share net asset value from $8.46 to $8.61, and assuming reinvestment of
all distributions. The high yield bond market, as measured by the Credit Suisse
High Yield Index, returned +6.28% for the six-month period, while the Fund's
comparable Lipper category of High Current Yield Funds (Leveraged) had an
average return of +6.61%. (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.
The Federal Reserve Board (the Fed) raised the target federal funds rate in two
increments of .25% during the six-month period, bringing the target rate from
4.75% to 5.25%. However, the Fed held the rate steady at its meetings on August
8, September 20 and October 25, 2006. The third quarter of 2006 was the first
without an increase in the federal funds target rate since the first quarter of
2004.
In the statement following its October 25 meeting, the Federal Open Market
Committee (FOMC) wrote: "Economic growth has slowed over the course of the year,
partly reflecting a cooling of the housing market. Going forward, the economy
seems likely to expand at a moderate pace." In a cautionary tone, however, the
FOMC indicated that "the Committee judges that some inflation risks remain. The
extent and timing of any additional firming that may be needed to address these
risks will depend on the evolution of the outlook for both inflation and
economic growth, as implied by incoming information."
As measured by the Credit Suisse High Yield Index, the yield spreads of high
yield bonds versus 10-year U.S. Treasury securities increased from 329 basis
points (3.29%) on May 31, 2006, to 350 basis points at the end of the period on
November 30, 2006.
What factors most influenced Fund performance?
The continued strength of the high yield market helped propel Fund results over
the past six months. Our holdings in convertible securities benefited
performance relative to the benchmark, reflecting both favorable corporate
earnings announcements and a stronger equity market. Conversely, the portfolio's
relatively conservative positioning hindered performance somewhat, as
lower-quality, longer-duration securities outperformed the broad market during
the semi-annual period.
What changes were made to the portfolio during the period?
We continued to shift assets from CCC-rated securities into more defensive,
higher-rated issues. We have focused on B-rated issues, with only a modest
weighting in riskier CCC-rated securities. From a sector perspective, our
emphasis shifted from overweight positions versus the Credit Suisse High Yield
Index in health care and media -- cable to overweights in media -- non-cable,
gaming and paper. We maintained the portfolio's underweight positions in the
utilities and cable sectors.
4 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
During the period, declining interest rates resulted in lower borrowing costs
for the Fund. The decreasing cost of leverage had a positive effect on the
Fund's earnings during the period. While leveraging will enhance the Fund's
total return in a strong market, the converse also is true. (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?
The Fund had an average credit rating of B at the end of the period, consistent
with the rating of the Credit Suisse High Yield Index and unchanged from the
beginning of the period. At November 30, 2006, the portfolio's largest
overweights relative to the benchmark were in the media -- non-cable, gaming and
paper sectors. The Fund's primary underweights were in the automotive,
supermarkets and entertainment industries.
Our holdings in floating rate securities, including bank loans, totaled 1.6% of
non-cash investments at period-end.
Jeffrey Gary
Portfolio Manager
Scott Amero
Portfolio Manager
December 21, 2006
--------------------------------------------------------------------------------
Effective October 2, 2006, Portfolio Managers Jeffrey Gary and Scott Amero
assumed responsibility for the day-to-day management of the Fund's portfolio.
Mr. Gary is a Managing Director and portfolio manager with BlackRock, Inc.,
where he is head of the high yield team and a member of the firm's Investment
Strategy Group. Prior to joining BlackRock in 2003, Mr. Gary most recently had
been a Managing Director and portfolio manager with AIG (American General)
Investment Group. Mr. Amero is a Managing Director of BlackRock, co-head of the
fixed income portfolio management team and a member of the Management Committee
and the Investment Strategy Group. He is a senior strategist and portfolio
manager with responsibility for overseeing all fixed income sector strategy and
the overall management of client portfolios. Mr. Amero joined BlackRock in 1990.
--------------------------------------------------------------------------------
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 5
Portfolio Information
As of November 30, 2006
--------------------------------------------------------------------------------
Percent of
Ten Largest Holdings Total Assets
--------------------------------------------------------------------------------
Building Materials Corp. of America* .................................. 1.5%
The AES Corp.* ........................................................ 1.5
L-3 Communications Corp.* ............................................. 1.2
SunGard Data Systems, Inc.* ........................................... 1.1
Rogers Wireless Communications, Inc.* ................................. 1.0
Century Cable Holdings LLC
Discretionary Term Loan ............................................. 1.0
Freescale Semiconductors* ............................................. 1.0
Millennium America, Inc. .............................................. 0.9
AutoNation, Inc. ...................................................... 0.9
Ventas Realty, LP ..................................................... 0.9
--------------------------------------------------------------------------------
* Includes combined holdings.
--------------------------------------------------------------------------------
Percent of
Five Largest Industries Total Investments
--------------------------------------------------------------------------------
Utility ............................................................... 7.2%
Health Care ........................................................... 6.5
Gaming ................................................................ 6.2
Diversified Media ..................................................... 6.1
Paper ................................................................. 5.8
--------------------------------------------------------------------------------
For Fund compliance purposes, the Fund's industry classifications refer to
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 industry sub-classifications for reporting
ease.
--------------------------------------------------------------------------------
Percent of
Five Largest Foreign Countries* Total Investments
--------------------------------------------------------------------------------
Canada ................................................................ 6.7%
Netherlands ........................................................... 1.1
Bermuda ............................................................... 1.0
Ireland ............................................................... 1.0
Brazil ................................................................ 0.9
--------------------------------------------------------------------------------
* All holdings are denominated in U.S. dollars.
--------------------------------------------------------------------------------
Quality Ratings by Percent of
S&P/Moody's Total Investments
--------------------------------------------------------------------------------
BBB/Baa ............................................................... 1.8%
BB/Ba ................................................................. 26.0
B/B ................................................................... 57.3
CCC/Caa ............................................................... 8.8
NR (Not Rated) ........................................................ 1.8
Other* ................................................................ 4.3
--------------------------------------------------------------------------------
* Includes portfolio holdings in common stocks, preferred stocks, warrants
and short-term investments.
6 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Schedule of Investments (in U.S. dollars)
Face
Amount Corporate Bonds Value
===================================================================================
Aerospace & Defense--4.7%
Alliant Techsystems, Inc.:
$ 1,947,000 2.75% due 9/15/2011 (b)(i) $ 1,971,338
575,000 6.75% due 4/01/2016 569,250
640,000 Argo-Tech Corp., 9.25% due 6/01/2011 664,000
560,000 Bombardier, Inc., 8% due 11/15/2014 (i) 562,800
1,425,000 DRS Technologies, Inc., 6.875% due 11/01/2013 1,435,687
975,000 Esterline Technologies Corp., 7.75%
due 6/15/2013 999,375
L-3 Communications Corp.:
1,425,000 7.625% due 6/15/2012 1,476,656
1,625,000 5.875% due 1/15/2015 1,576,250
1,375,000 6.375% due 10/15/2015 1,364,688
1,380,000 3% due 8/01/2035 (b)(i) 1,433,475
1,310,000 Standard Aero Holdings, Inc., 8.25%
due 9/01/2014 1,310,000
1,950,000 Vought Aircraft Industries, Inc., 8%
due 7/15/2011 1,872,000
-------------
15,235,519
===================================================================================
Airlines--0.6%
Continental Airlines, Inc.:
1,150,194 Series 1997-4-B, 6.90% due 7/02/2018 1,146,988
77,084 Series 1998-1-C, 6.541% due 9/15/2009 77,180
629,917 Series 2001-1 Class C, 7.033%
due 12/15/2012 627,555
-------------
1,851,723
===================================================================================
Automotive--2.6%
AutoNation, Inc.:
2,875,000 7.374% due 4/15/2013 (d) 2,875,000
1,525,000 7% due 4/15/2014 1,525,000
600,000 General Motors Acceptance Corp., 7.25%
due 3/02/2011 624,679
The Goodyear Tire & Rubber Co.:
70,000 7.857% due 8/15/2011 68,775
665,000 8.625% due 12/01/2011 (i) 674,975
1,600,000 Lear Corp., 8.75% due 12/01/2016 (i) 1,576,000
910,000 United Auto Group, Inc., 7.75%
due 12/15/2016 (i) 910,000
-------------
8,254,429
===================================================================================
Broadcasting--4.6%
1,850,000 Allbritton Communications Co., 7.75%
due 12/15/2012 1,873,125
1,125,000 Barrington Broadcasting Group LLC,10.50%
due 8/15/2014 (i) 1,119,375
2,000,000 CMP Susquehanna Corp., 9.875%
due 5/15/2014 (i) 1,965,000
400,000 Nexstar Finance, Inc., 7% due 1/15/2014 372,000
2,975,000 Paxson Communications Corp., 8.624%
due 1/15/2012 (d)(i) 3,004,750
2,475,000 Salem Communications Corp., 7.75%
due 12/15/2010 2,496,656
1,575,000 Sinclair Broadcast Group, Inc., 8% due 3/15/2012 1,622,250
1,230,000 Sirius Satellite Radio, Inc., 9.625% due 8/01/2013 1,214,625
1,225,000 Young Broadcasting, Inc.,10% due 3/01/2011 1,157,625
-------------
14,825,406
===================================================================================
Cable--U.S.--7.3%
750,000 Adelphia Communications Corp., 6%
due 2/15/2006 (b)(e)(k) 4,650
1,800,000 CCH I LLC,11% due 10/01/2015 1,764,000
2,275,000 CSC Holdings, Inc. Series B, 7.625%
due 4/01/2011 2,317,656
Cablevision Systems Corp. Series B:
75,000 9.87% due 4/01/2009 (d) 78,563
475,000 8% due 4/15/2012 466,688
2,225,000 Charter Communications Holdings II LLC,10.25%
due 9/15/2010 2,325,125
1,975,000 Echostar DBS Corp., 7.125% due 2/01/2016 1,960,187
Intelsat Subsidiary Holding Co. Ltd.:
1,550,000 10.484% due 1/15/2012 (d) 1,569,375
2,150,000 8.625% due 1/15/2015 2,233,312
596,000 Loral Spacecom Corp.,14% due 11/15/2015 (g) 694,340
2,425,000 Mediacom LLC, 9.50% due 1/15/2013 2,491,687
PanAmSat Corp.:
2,193,000 9% due 8/15/2014 2,302,650
1,125,000 9% due 6/15/2016 (i) 1,182,656
2,000,000 Quebecor Media, Inc., 7.75% due 3/15/2016 2,025,000
1,900,000 Rainbow National Services LLC,10.375%
due 9/01/2014 (i) 2,109,000
-------------
23,524,889
===================================================================================
Chemicals--6.0%
1,544,000 BCP Crystal Holdings Corp., 9.625%
due 6/15/2014 1,694,540
975,000 Innophos, Inc., 8.875% due 8/15/2014 977,437
785,000 Lyondell Chemical Co., 8.25% due 9/15/2016 816,400
4,320,000 Millennium America, Inc., 9.25% due 6/15/2008 4,471,200
Momentive Performance Materials, Inc. (i):
2,000,000 10.125% due 12/01/2014 2,012,500
800,000 11.50% due 12/01/2016 790,000
260,000 Mosaic Global Holdings, Inc., 7.625%
due 12/01/2016 (i) 265,850
Nalco Co.:
1,200,000 7.75% due 11/15/2011 1,224,000
1,200,000 8.875% due 11/15/2013 1,269,000
724,000 Nalco Finance Holdings, Inc., 10.065%
due 2/01/2014 (a) 571,960
2,275,000 Nova Chemicals Corp., 8.502%
due 11/15/2013 (d) 2,280,688
2,300,000 Omnova Solutions, Inc.,11.25% due 6/01/2010 2,461,000
290,000 Reichhold Industries, Inc., 9% due 8/15/2014 (i) 284,200
-------------
19,118,775
===================================================================================
Consumer--Durables--0.9%
1,350,000 Sealy Mattress Co., 8.25% due 6/15/2014 1,402,313
1,400,000 Simmons Bedding Co., 7.875% due 1/15/2014 1,393,000
-------------
2,795,313
===================================================================================
Consumer--Non-Durables--6.3%
3,375,000 American Greetings Corp., 7.375%
due 6/01/2016 3,450,937
2,425,000 Chattem, Inc., 7% due 3/01/2014 2,364,375
3,025,000 Church & Dwight Co., Inc., 6% due 12/15/2012 2,919,125
470,000 DI Finance Series B, 9.50% due 2/15/2013 493,500
3,575,000 Hines Nurseries, Inc.,10.25% due 10/01/2011 2,877,875
Levi Strauss & Co.:
1,600,000 10.122% due 4/01/2012 (d) 1,648,000
2,000,000 8.875% due 4/01/2016 2,067,500
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 7
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
===================================================================================
Consumer--Non-Durables (concluded)
$ 2,000,000 Quiksilver, Inc., 6.875% due 4/15/2015 $ 1,952,500
2,200,000 Samsonite Corp., 8.875% due 6/01/2011 2,392,500
-------------
20,166,312
===================================================================================
Diversified Media--8.7%
1,045,000 Affinion Group, Inc.,11.50% due 10/15/2015 1,102,475
1,000,000 American Media Operations, Inc. Series B,10.25%
due 5/01/2009 972,500
350,000 CBD Media Holdings LLC, 9.25% due 7/15/2012 355,250
2,600,000 CBD Media, Inc., 8.625% due 6/01/2011 2,639,000
1,600,000 Cadmus Communications Corp., 8.375%
due 6/15/2014 1,560,000
1,367,000 Dex Media West LLC, 9.875% due 8/15/2013 1,490,030
1,699,458 Houghton Mifflin Co.,12.127%
due 5/15/2011 (d)(i) 1,720,701
2,010,000 Idearc Inc., 8% due 11/15/2016 (i) 2,042,662
2,013,000 Liberty Media Corp., 0.75% due 3/30/2023 (b) 2,390,438
280,000 Network Communications, Inc.,10.75%
due 12/01/2013 283,150
3,000,000 Nielsen Finance LLC,10% due 8/01/2014 (i) 3,172,500
2,745,000 Primedia, Inc., 8% due 5/15/2013 2,566,575
3,175,000 Quebecor World Capital Corp., 8.75%
due 3/15/2016 (i) 3,079,750
RH Donnelley Corp.:
1,400,000 Series A-2, 6.875% due 1/15/2013 1,340,500
1,300,000 Series A-3, 8.875% due 1/15/2016 1,365,000
1,800,000 Universal City Florida Holding Co. I,10.121%
due 5/01/2010 (d) 1,849,500
-------------
27,930,031
===================================================================================
Energy--Exploration & Production--3.6%
1,550,000 Chaparral Energy, Inc., 8.50% due 12/01/2015 1,550,000
3,000,000 Compton Petroleum Finance Corp., 7.625%
due 12/01/2013 2,850,000
2,000,000 Encore Acquisition Co., 6.25% due 4/15/2014 1,870,000
2,800,000 Exco Resources, Inc., 7.25% due 1/15/2011 2,772,000
1,610,000 Pogo Producing Co., 7.875% due 5/01/2013 (i) 1,650,250
1,030,000 Stone Energy Corp., 8.124% due 7/15/2010 (d)(i) 1,022,275
-------------
11,714,525
===================================================================================
Energy--Other--2.2%
1,100,000 Copano Energy LLC, 8.125% due 3/01/2016 1,133,000
945,000 Ferrellgas Partners LP, 8.75% due 6/15/2012 970,987
265,000 MarkWest Energy Partners LP, 8.50%
due 7/15/2016 (i) 267,650
2,000,000 Ocean RIG ASA, 9.37% due 4/04/2011 1,990,000
2,690,000 SemGroup LP, 8.75% due 11/15/2015 (i) 2,716,900
-------------
7,078,537
===================================================================================
Financial--0.6%
570,000 NCO Group, Inc.,10.244% due 11/15/2013 (d)(i) 564,300
1,000,000 Saxon Capital, Inc.,12% due 5/01/2014 (i) 1,368,139
-------------
1,932,439
===================================================================================
Food & Drug--0.4%
1,140,000 Angiotech Pharmaceuticals, Inc., 9.103%
due 12/01/2013 (i) 1,140,000
===================================================================================
Food & Tobacco--4.1%
800,000 AmeriQual Group LLC, 9.50% due 4/01/2012 (i) 832,000
Constellation Brands, Inc.:
2,400,000 8.125% due 1/15/2012 2,502,000
1,225,000 7.25% due 9/01/2016 1,254,094
3,000,000 Cott Beverages USA, Inc., 8% due 12/15/2011 3,060,000
3,024,000 Del Monte Corp., 8.625% due 12/15/2012 3,190,320
2,000,000 National Beef Packing Co. LLC,10.50%
due 8/01/2011 2,090,000
345,000 Swift & Co.,12.50% due 1/01/2010 353,625
-------------
13,282,039
===================================================================================
Gaming--8.8%
3,125,000 Boyd Gaming Corp., 8.75% due 4/15/2012 3,273,437
1,350,000 Caesars Entertainment, Inc., 7.875%
due 3/15/2010 1,387,125
Galaxy Entertainment Finance Co. Ltd. (i):
1,050,000 10.354% due 12/15/2010 (d) 1,123,500
550,000 9.875% due 12/15/2012 587,125
595,000 Greektown Holdings,10.75% due 12/01/2013 (i) 623,262
1,725,000 Inn of the Mountain Gods Resort & Casino,12%
due 11/15/2010 1,837,125
Isle of Capri Casinos, Inc.:
1,200,000 9% due 3/15/2012 1,255,500
400,000 7% due 3/01/2014 391,500
1,290,000 Little Traverse Bay Bands of Odawa Indians,
10.25% due 2/15/2014 (i) 1,296,450
MGM Mirage:
1,550,000 8.50% due 9/15/2010 1,654,625
475,000 6.75% due 4/01/2013 467,875
975,000 Mirage Resorts, Inc., 6.75% due 2/01/2008 982,313
100,000 Park Place Entertainment Corporation, 8.125%
due 5/15/2011 103,375
2,025,000 Penn National Gaming, Inc., 6.875%
due 12/01/2011 2,065,500
2,575,000 Poster Financial Group, Inc., 8.75%
due 12/01/2011 2,678,000
1,150,000 Resorts International Hotel and Casino, Inc.,
11.50% due 3/15/2009 1,173,000
975,000 San Pasqual Casino, 8% due 9/15/2013 (i) 999,375
Station Casinos, Inc.:
1,225,000 6.50% due 2/01/2014 1,146,906
1,625,000 7.75% due 8/15/2016 1,671,719
1,400,000 6.625% due 3/15/2018 1,274,000
600,000 Turning Stone Resort Casino Enterprise, 9.125%
due 9/15/2014 (i) 613,500
1,800,000 Wynn Las Vegas LLC, 6.625% due 12/01/2014 1,773,000
-------------
28,378,212
===================================================================================
Health Care--8.0%
300,000 Accellent, Inc.,10.50% due 12/01/2013 304,500
1,200,000 Athena Neurosciences Finance LLC, 7.25%
due 2/21/2008 1,224,000
2,000,000 Elan Finance Plc, 9.374% due 11/15/2011 (d) 1,990,000
3,000,000 HealthSouth Corp.,11.354% due 6/15/2014 (d)(i) 3,142,500
Mylan Laboratories, Inc.:
2,175,000 5.75% due 8/15/2010 2,155,969
1,625,000 6.375% due 8/15/2015 1,600,625
1,725,000 Omnicare, Inc., 6.75% due 12/15/2013 1,690,500
1,400,000 Select Medical Corp., 7.625% due 2/01/2015 1,169,000
1,340,000 Tenet Healthcare Corp., 9.875% due 7/01/2014 1,343,350
825,000 Triad Hospitals, Inc., 7% due 5/15/2012 833,250
3,000,000 US Oncology, Inc., 9% due 8/15/2012 3,142,500
1,000,000 VWR International, Inc., 8% due 4/15/2014 1,020,000
2,000,000 Vanguard Health Holding Co. II, LLC, 9%
due 10/01/2014 2,000,000
4,000,000 Ventas Realty, LP, 6.75% due 6/01/2010 4,100,000
-------------
25,716,194
8 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
===================================================================================
Housing--4.9%
Building Materials Corp. of America:
$ 1,050,000 8% due 10/15/2007 $ 1,056,562
5,850,000 8% due 12/01/2008 5,806,125
3,025,000 Forest City Enterprises, Inc., 7.625%
due 6/01/2015 3,085,500
Goodman Global Holding Co., Inc.:
699,000 8.36% due 6/15/2012 (d) 712,980
1,350,000 7.875% due 12/15/2012 1,302,750
295,000 Nortek, Inc., 8.50% due 9/01/2014 284,675
1,200,000 Ply Gem Industries, Inc., 9% due 2/15/2012 987,000
1,600,000 Standard-Pacific Corp., 9.25% due 4/15/2012 1,624,000
1,000,000 Texas Industries, Inc., 7.25% due 7/15/2013 1,010,000
-------------
15,869,592
===================================================================================
Information Technology--5.8%
620,000 Compagnie Generale de Geophysique SA, 7.50%
due 5/15/2015 621,550
1,777,000 Cypress Semiconductor Corp., 1.25%
due 6/15/2008 (b) 2,254,569
Freescale Semiconductor, Inc. (i):
3,425,000 9.125% due 12/15/2014 (g) 3,425,000
490,000 9.244% due 12/15/2014 (d) 488,162
655,000 10.125% due 12/15/2016 662,369
1,290,000 MagnaChip Semiconductor SA, 8.61%
due 12/15/2011 (d) 1,148,100
SunGard Data Systems, Inc.:
2,180,000 9.125% due 8/15/2013 2,286,275
1,895,000 9.973% due 8/15/2013 (d) 1,968,431
975,000 10.25% due 8/15/2015 1,033,500
375,000 Telcordia Technologies, Inc.,10%
due 3/15/2013 (i) 322,500
1,325,000 UGS Capital Corp. II,10.348%
due 6/01/2011 (d)(g)(i) 1,397,875
1,400,000 UGS Corp.,10% due 6/01/2012 1,526,000
1,550,000 Viasystems, Inc.,10.50% due 1/15/2011 1,550,000
-------------
18,684,331
===================================================================================
Leisure--1.4%
1,525,000 FelCor Lodging LP, 8.50% due 6/01/2011 1,624,125
2,000,000 Host Marriott LP, 6.75% due 6/01/2016 2,007,500
Travelport, Inc. (i):
370,000 9.875% due 9/01/2014 365,375
280,000 9.994% due 9/01/2014 (d) 271,600
255,000 11.875% due 9/01/2016 250,538
-------------
4,519,138
===================================================================================
Manufacturing--2.3%
1,280,000 AGY Holding Corp.,11% due 11/15/2014 (i) 1,280,000
2,175,000 CPI Holdco, Inc.,11.298% due 2/01/2015 (d) 2,234,812
1,630,000 NXP B.V., 9.50% due 10/15/2015 (i) 1,672,788
2,165,000 Trimas Corp., 9.875% due 6/15/2012 2,078,400
-------------
7,266,000
===================================================================================
Metal--Other--2.0%
1,975,000 Foundation PA Coal Co., 7.25% due 8/01/2014 1,979,937
2,350,000 Indalex Holding Corp.,11.50% due 2/01/2014 (i) 2,449,875
1,975,000 Novelis, Inc., 8.25% due 2/15/2015 (i) 1,896,000
-------------
6,325,812
===================================================================================
Oil, Gas & Consumable Fuels--0.5%
510,000 Berry Petroleum Co., 8.25% due 11/01/2016 510,000
1,090,000 Sabine Pass LNG LP, 7.50% due 11/30/2016 (i) 1,091,363
-------------
1,601,363
===================================================================================
Packaging--3.2%
Berry Plastics Holding Corp. (i):
685,000 8.875% due 9/15/2014 690,994
1,915,000 9.235% due 9/15/2014 (d) 1,931,756
2,200,000 Graham Packing Co., Inc., 9.875%
due 10/15/2014 2,178,000
Owens-Brockway:
2,637,000 8.875% due 2/15/2009 2,702,925
1,000,000 8.25% due 5/15/2013 1,030,000
1,355,000 Packaging Dynamics Finance Corp.,10%
due 5/01/2016 (i) 1,361,775
340,000 Smurfit-Stone Container Enterprises, Inc., 9.75%
due 2/01/2011 351,050
-------------
10,246,500
===================================================================================
Paper--8.1%
Abitibi-Consolidated, Inc.:
2,000,000 8.86% due 6/15/2011 (d) 1,900,000
720,000 6% due 6/20/2013 572,400
1,000,000 Ainsworth Lumber Co. Ltd., 9.117%
due 10/01/2010 (d) 845,000
1,975,000 Boise Cascade LLC, 8.249% due 10/15/2012 (d) 1,979,937
355,000 Bowater Canada Finance, 7.95% due 11/15/2011 340,800
2,825,000 Bowater, Inc., 8.36% due 3/15/2010 (d) 2,853,250
3,200,000 Domtar, Inc., 7.125% due 8/15/2015 3,064,000
Graphic Packaging International Corp.:
1,050,000 8.50% due 8/15/2011 1,081,500
1,420,000 9.50% due 8/15/2013 1,462,600
NewPage Corp.:
1,450,000 11.621% due 5/01/2012 (d) 1,569,625
1,000,000 12% due 5/01/2013 1,055,000
3,400,000 Norske Skog Canada Ltd. Series D, 8.625%
due 6/15/2011 3,434,000
2,000,000 Rock-Tenn Co., 8.20% due 8/15/2011 2,095,000
2,600,000 Smurfit Kappa Funding Plc, 9.625%
due 10/01/2012 2,749,500
Verso Paper Holdings LLC (i):
950,000 9.125% due 8/01/2014 988,000
115,000 11.375% due 8/01/2016 119,600
-------------
26,110,212
===================================================================================
Retail--2.9%
2,625,000 Jean Coutu Group, Inc., 8.50% due 8/01/2014 2,625,000
Michaels Stores, Inc. (i):
1,700,000 10% due 11/01/2014 1,736,125
2,110,000 11.375% due 11/01/2016 2,162,750
Neiman Marcus Group, Inc.:
1,375,000 9% due 10/15/2015 1,490,156
1,050,000 10.375% due 10/15/2015 1,161,563
-------------
9,175,594
===================================================================================
Service--7.1%
2,000,000 Ashtead Capital, Inc., 9% due 8/15/2016 (i) 2,140,000
Avis Budget Car Rental LLC (i):
600,000 7.625% due 5/15/2014 579,750
2,800,000 7.874% due 5/15/2014 (d) 2,695,000
3,000,000 Corrections Corp. of America, 7.50%
due 5/01/2011 3,082,500
1,750,000 Dycom Industries, Inc., 8.125% due 10/15/2015 1,811,250
1,150,000 MSW Energy Holdings LLC, 8.50% due 9/01/2010 1,196,000
375,000 MSW Energy Holdings II LLC, 7.375%
due 9/01/2010 382,500
1,480,000 Mac-Gray Corp., 7.625% due 8/15/2015 1,502,200
3,000,000 Service Corp. International, 7% due 6/15/2017 2,985,000
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 9
Schedule of Investments (continued) (in U.S. dollars)
Face
Amount Corporate Bonds Value
===================================================================================
Service (concluded)
$ 3,400,000 United Rentals North America, Inc., 7.75%
due 11/15/2013 $ 3,400,000
3,000,000 Waste Services, Inc., 9.50% due 4/15/2014 3,120,000
-------------
22,894,200
===================================================================================
Steel--1.1%
1,950,000 Chaparral Steel Co.,10% due 7/15/2013 2,169,375
1,200,000 UCAR Finance Inc.,10.25% due 2/15/2012 1,266,000
-------------
3,435,375
===================================================================================
Telecommunications--5.6%
ADC Telecommunications, Inc. (b):
1,247,000 1% due 6/15/2008 1,169,063
750,000 5.729% due 6/15/2013 (d) 708,750
2,025,000 Inmarsat Finance Plc, 7.625% due 6/30/2012 2,093,344
2,900,000 LCI International, Inc., 7.25% due 6/15/2007 2,903,625
2,400,000 Nordic Telephone Co. Holdings ApS, 8.875%
due 5/01/2016 (i) 2,538,000
1,915,000 Nortel Networks Ltd., 9.624%
due 7/15/2011 (d)(i) 1,986,813
740,000 ProtoStar I Ltd.,12.50% due 10/15/2012 (b)(i) 762,200
350,000 Qwest Communications International, Inc., 7.50%
due 2/15/2014 360,500
Qwest Corp.:
1,550,000 8.61% due 6/15/2013 (d) 1,679,812
525,000 7.625% due 6/15/2015 560,438
3,000,000 Windstream Corp., 8.125% due 8/01/2013 (i) 3,247,500
-------------
18,010,045
===================================================================================
Transportation--1.3%
370,000 Britannia Bulk Plc,11% due 12/01/2011 (i) 348,410
1,400,000 OMI Corp., 7.625% due 12/01/2013 1,429,750
2,325,000 Teekay Shipping Corp., 8.875% due 7/15/2011 2,502,281
-------------
4,280,441
===================================================================================
Utility--10.1%
The AES Corp.:
4,458,000 9.375% due 9/15/2010 4,848,075
2,100,000 8.75% due 5/15/2013 (i) 2,247,000
1,327,000 CenterPoint Energy, Inc. Series B, 3.75%
due 5/15/2023 (b) 1,909,221
540,000 Conexant Systems, Inc., 9.124%
due 11/15/2010 (d)(i) 546,075
285,000 Dynegy Holdings, Inc., 8.375% due 5/01/2016 296,400
2,606,000 ESI Tractebel Acquisition Corp. Series B, 7.99%
due 12/30/2011 2,694,711
1,875,000 Edison Mission Energy, 7.50% due 6/15/2013 1,945,312
1,775,000 El Paso Performance-Linked Trust, 7.75%
due 7/15/2011 (i) 1,837,125
2,600,000 Mirant North America LLC, 7.375%
due 12/31/2013 2,632,500
NRG Energy, Inc.:
1,625,000 7.25% due 2/01/2014 1,625,000
1,475,000 7.375% due 2/01/2016 1,475,000
390,000 Nevada Power Co., 9% due 8/15/2013 423,285
3,800,000 Reliant Energy, Inc., 9.50% due 7/15/2013 4,042,250
1,650,000 Sierra Pacific Power Co. Series A, 8%
due 6/01/2008 1,703,544
1,200,000 Sierra Pacific Resources, 8.625% due 3/15/2014 1,295,801
925,000 Southern Natural Gas Co., 8.875% due 3/15/2010 972,289
2,083,803 Tenaska Alabama Partners LP, 7%
due 6/30/2021 (i) 2,069,122
-------------
32,562,710
===================================================================================
Wireless Communications--5.3%
1,650,000 Centennial Cellular Operating Co. LLC,10.125%
due 6/15/2013 1,773,750
1,350,000 Cricket Communications, Inc., 9.375%
due 11/01/2014 (i) 1,380,375
1,200,000 Dobson Communications Corp., 9.624%
due 10/15/2012 (d) 1,222,500
2,400,000 IWO Holdings, Inc., 9.124% due 1/15/2012 (d) 2,448,000
Rogers Wireless Communications, Inc.:
950,000 8.485% due 12/15/2010 (d) 969,000
250,000 8% due 12/15/2012 265,000
3,400,000 6.375% due 3/01/2014 3,412,750
2,600,000 Rural Cellular Corp., 8.25% due 3/15/2012 2,697,500
West Corp. (i):
330,000 9.50% due 10/15/2014 327,113
2,450,000 11% due 10/15/2016 2,434,688
-------------
16,930,676
-----------------------------------------------------------------------------------
Total Corporate Bonds
(Cost--$413,962,143)--131.0% 420,856,332
===================================================================================
Floating Rate Loan Interests (l)
===================================================================================
Cable--U.S.--1.5%
4,850,000 Century Cable Holdings LLC Discretionary Term
Loan,10.25% due 12/31/2009 4,725,719
===================================================================================
Chemicals--0.7%
2,830,000 Wellman, Inc. Second Lien Term Loan, 12.121%
due 2/10/2010 2,405,500
-----------------------------------------------------------------------------------
Total Floating Rate Loan Interests
(Cost--$7,420,646)--2.2% 7,131,219
===================================================================================
Foreign Government Obligations
===================================================================================
3,000,000 Brazilian Government International Bond, 11%
due 8/17/2040 3,990,000
-----------------------------------------------------------------------------------
Total Foreign Government Obligations
(Cost--$3,796,493)--1.2% 3,990,000
-----------------------------------------------------------------------------------
Shares
Held Common Stocks
===================================================================================
Cable--U.S.--0.8%
82,449 Loral Space & Communications Ltd. (c) 2,533,658
===================================================================================
Manufacturing--0.4%
70,784 Medis Technologies Ltd. (c) 1,429,837
===================================================================================
Paper--0.1%
203,785 Western Forest Products, Inc. (c) 294,423
-----------------------------------------------------------------------------------
Total Common Stocks
(Cost--$6,285,068)--1.3% 4,257,918
===================================================================================
10 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Schedule of Investments (concluded) (in U.S. dollars)
===================================================================================
Preferred Securities
-----------------------------------------------------------------------------------
Face
Amount Capital Trusts Value
===================================================================================
Health Care--1.2%
$ 3,750,000 Fresenius Medical Care Capital Trust II, 7.875%
due 2/01/2008 $ 3,843,750
-----------------------------------------------------------------------------------
Total Capital Trusts
(Cost--$3,712,419)--1.2% 3,843,750
-----------------------------------------------------------------------------------
Shares
Held Preferred Stocks
===================================================================================
Cable--U.S.--0.4%
6,047 Loral Spacecom Corp. Series A, 12% (g) 1,227,541
-----------------------------------------------------------------------------------
Total Preferred Stocks
(Cost--$1,194,090)--0.4% 1,227,541
===================================================================================
Total Preferred Securities
(Cost--$4,906,509)--1.6% 5,071,291
===================================================================================
Warrants (h)
===================================================================================
Health Care--0.0%
32,042 HealthSouth Corp. (expires 1/16/2014) 25,634
===================================================================================
Paper--0.0%
700 MDP Acquisitions Plc (expires 10/01/2013) 14,000
===================================================================================
Wireless Communications--0.2%
825 American Tower Corp. (expires 8/01/2008) 440,608
-----------------------------------------------------------------------------------
Total Warrants (Cost--$53,675)--0.2% 480,242
===================================================================================
Beneficial
Interest Short-Term Securities
===================================================================================
$13,443,317 BlackRock Liquidity Series, LLC Cash Sweep
Series I, 5.26% (f)(j) 13,443,317
-----------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$13,443,317)--4.2% 13,443,317
===================================================================================
Total Investments (Cost--$449,867,851*)--141.7% 455,230,319
Liabilities in Excess of Other Assets--(41.7%) (133,906,936)
-------------
Net Assets--100.0% $ 321,323,383
=============
* The cost and unrealized appreciation (depreciation) of investments as of
November 30, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost .............................. $ 449,592,097
=============
Gross unrealized appreciation ............... $ 13,221,263
Gross unrealized depreciation ............... (7,583,041)
-------------
Net unrealized appreciation ................. $ 5,638,222
=============
(a) Represents a step bond; the interest rate shown reflects the effective
yield at the time of purchase.
(b) Convertible security.
(c) Non-income producing security.
(d) Floating rate security.
(e) Non-income producing security; issuer filed for bankruptcy or is in
default of interest payments.
(f) Represents the current yield as of November 30, 2006.
(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.
(i) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(j) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
BlackRock Liquidity Series LLC,
Cash Sweep Series I $13,286,199 $149,276
--------------------------------------------------------------------------
(k) As a result of bankruptcy proceedings, the company did not repay the
principal amount of the security upon maturity.
(l) Floating rate loan interests in which the Fund invests generally pay
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 U.S. banks or (iii) the certificate of deposit rate.
o For Fund compliance purposes, the Fund's industry classifications refer to
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 industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
o Swaps outstanding as of November 30, 2006 were as follows:
------------------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
------------------------------------------------------------------------------------
Sold credit default protection on General Motors
Acceptance Corp. and receive 3.50%
Broker, JPMorgan Chase
Expires March 2007 $800,000 $ 7,916
Sold credit default protection on General Motors
Acceptance Corp. and receive 4.50%
Broker, Morgan Stanley Capital Services, Inc.
Expires March 2007 $800,000 10,343
Sold credit default protection on General Motors
Corp. and receive 4.40%
Broker, Morgan Stanley Capital Services, Inc.
Expires June 2007 $400,000 7,132
Sold credit default protection on General Motors
Corp. and receive 8.00%
Broker, Morgan Stanley Capital Services, Inc.
Expires June 2007 $400,000 15,040
------------------------------------------------------------------------------------
Total $ 40,431
============
See Notes to Financial Statements.
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 11
Statement of Assets, Liabilities and Capital
As of November 30, 2006
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$436,424,534) .................................................... $ 441,787,002
Investments in affiliated securities, at value
(identified cost--$13,443,317) ..................................................... 13,443,317
Cash ................................................................................ 100,000
Unrealized appreciation on swaps .................................................... 40,431
Receivables:
Interest ......................................................................... $ 9,566,557
Securities sold .................................................................. 7,701,599
Swaps ............................................................................ 22,720 17,290,876
-------------
Prepaid expenses and other assets ................................................... 17,143
-------------
Total assets ........................................................................ 472,678,769
-------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Loans ............................................................................... 136,700,000
Payables:
Securities purchased ............................................................. 14,048,408
Investment adviser ............................................................... 225,550
Dividends to shareholders ........................................................ 177,433
Interest on loans ................................................................ 126,301
Swaps ............................................................................ 22,617
Other affiliates ................................................................. 2,533 14,602,842
-------------
Accrued expenses .................................................................... 52,544
-------------
Total liabilities ................................................................... 151,355,386
-------------
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets .......................................................................... $ 321,323,383
=============
===================================================================================================================================
Capital
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.10 par value, 200,000,000 shares authorized ......................... $ 3,731,650
Paid-in capital in excess of par .................................................... 540,794,598
Undistributed investment income--net ................................................ $ 3,458,340
Accumulated realized capital losses--net ............................................ (232,064,104)
Unrealized appreciation--net ........................................................ 5,402,899
-------------
Total accumulated losses--net ....................................................... (223,202,865)
-------------
Total--Equivalent to $8.61 per share based on 37,316,497 shares
of capital stock outstanding (market price--$7.99) ................................. $ 321,323,383
=============
See Notes to Financial Statements.
12 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Statement of Operations
For the Six Months Ended November 30, 2006
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest (including $149,276 from affiliates) ....................................... $ 18,394,338
Dividends ........................................................................... 149,452
Other ............................................................................... 206,952
-------------
Total income ........................................................................ 18,750,742
-------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Loan interest expense ............................................................... $ 3,765,566
Investment advisory fees ............................................................ 1,351,075
Borrowing costs ..................................................................... 84,754
Accounting services ................................................................. 59,273
Professional fees ................................................................... 38,396
Transfer agent fees ................................................................. 27,495
Printing and shareholder reports .................................................... 23,426
Pricing services .................................................................... 15,777
Custodian fees ...................................................................... 12,687
Listing fees ........................................................................ 11,542
Directors' fees and expenses ........................................................ 9,749
Other ............................................................................... 17,767
-------------
Total expenses ...................................................................... 5,417,507
-------------
Investment income--net .............................................................. 13,333,235
-------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ................................................................. (1,466,996)
Swaps--net ....................................................................... 175,277 (1,291,719)
-------------
Change in unrealized appreciation/depreciation on:
Investments--net ................................................................. 6,093,681
Swaps--net ....................................................................... 27,716 6,121,397
-------------------------------
Total realized and unrealized gain--net ............................................. 4,829,678
-------------
Net Increase in Net Assets Resulting from Operations ................................ $ 18,162,913
=============
See Notes to Financial Statements.
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 13
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
November 30, May 31,
Increase (Decrease) in Net Assets: 2006 2006
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................................. $ 13,333,235 $ 26,913,122
Realized loss--net .................................................................. (1,291,719) (526,078)
Change in unrealized appreciation/depreciation--net ................................. 6,121,397 1,393,065
-------------------------------
Net increase in net assets resulting from operations ................................ 18,162,913 27,780,109
-------------------------------
===================================================================================================================================
Dividends to Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from investment income--net ............................... (12,538,343) (27,760,574)
-------------------------------
===================================================================================================================================
Capital Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment of dividends .... -- 53,598
-------------------------------
Net increase in net assets resulting from capital stock transactions ................ -- 53,598
-------------------------------
===================================================================================================================================
Net Assets
-----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ........................................................ 5,624,570 73,133
Beginning of period ................................................................. 315,698,813 315,625,680
-------------------------------
End of period* ...................................................................... $ 321,323,383 $ 315,698,813
===============================
* Undistributed investment income--net ........................................... $ 3,458,340 $ 2,663,448
===============================
See Notes to Financial Statements.
14 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Statement of Cash Flows
For the Six Months Ended November 30, 2006
===================================================================================================================================
Cash Provided by Operating Activities
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ............................................ $ 18,162,913
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Decrease in receivables and swap premiums paid ............................................... 83,937
Increase in other assets ..................................................................... (7,500)
Decrease in other liabilities and swap premiums received ..................................... (747)
Realized and unrealized gain--net ............................................................ (4,829,678)
Amortization of premium and discount ......................................................... (179,087)
Proceeds from sales and paydowns of long-term securities ........................................ 139,007,546
Other investment related transactions ........................................................... 11,313
Purchases of long-term securities ............................................................... (123,534,706)
Net purchases of short-term investments ......................................................... (13,286,199)
-------------
Cash provided by operating activities ........................................................... 15,427,792
-------------
===================================================================================================================================
Cash Used for Financing Activities
-----------------------------------------------------------------------------------------------------------------------------------
Cash receipts from borrowings ................................................................... 57,100,000
Cash payments on borrowings ..................................................................... (61,400,000)
Dividends paid to shareholders .................................................................. (12,512,207)
-------------
Cash used for financing activities .............................................................. (16,812,207)
-------------
===================================================================================================================================
Cash
-----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash ............................................................................ (1,384,415)
Cash at beginning of period ..................................................................... 1,484,415
-------------
Cash at end of period ........................................................................... $ 100,000
=============
===================================================================================================================================
Cash Flow Information
-----------------------------------------------------------------------------------------------------------------------------------
Cash paid for interest .......................................................................... $ 3,778,316
=============
See Notes to Financial Statements.
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 15
Financial Highlights
For the Six For the Year Ended
Months Ended May 31,
The following per share data and ratios have been derived November 30, ----------------------------------------------------------
from information provided in the financial statements. 2006 2006 2005 2004 2003 2002
===================================================================================================================================
Per Share Operating Performance
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......... $ 8.46 $ 8.46 $ 8.43 $ 7.86 $ 7.68 $ 9.11
----------------------------------------------------------------------
Investment income--net* ...................... .36 .72 .85 .88 .92 1.15
Realized and unrealized gain (loss)--net ..... .13 .02 .07 .58 .17 (1.47)
----------------------------------------------------------------------
Total from investment operations ............. .49 .74 .92 1.46 1.09 (.32)
----------------------------------------------------------------------
Less dividends from investment income--net ... (.34) (.74) (.89) (.89) (.91) (1.11)
----------------------------------------------------------------------
Recovery of previously expensed offering costs
resulting from issuance of Common Stock ..... -- -- -- --+ -- --
----------------------------------------------------------------------
Net asset value, end of period ............... $ 8.61 $ 8.46 $ 8.46 $ 8.43 $ 7.86 $ 7.68
======================================================================
Market price per share, end of period ........ $ 7.99 $ 7.36 $ 8.38 $ 7.97 $ 8.36 $ 8.22
======================================================================
==================================================================================================================================
Total Investment Return**
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........... 6.29%@@ 9.78% 11.24% 19.33% 16.46% (3.13%)
======================================================================
Based on market price per share .............. 13.37%@@ (3.59%) 16.55% 6.07% 15.73% .59%
======================================================================
==================================================================================================================================
Ratios to Average Net Assets
----------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding interest expense ......... 1.05%@ 1.00% .99% 1.01% 1.04% 1.10%
======================================================================
Expenses ..................................... 3.43%@ 2.49% 1.81% 1.51% 1.59% 2.14%
======================================================================
Investment income--net ....................... 8.45%@ 8.45% 9.71% 10.48% 13.35% 14.37%
======================================================================
==================================================================================================================================
Leverage
----------------------------------------------------------------------------------------------------------------------------------
Amount of borrowings outstanding, end of
period (in thousands) ....................... $136,700 $141,000 $107,800 $109,600 $ 98,800 $ 84,900
======================================================================
Average amount of borrowings outstanding
during the period (in thousands) ............ $134,273 $109,144 $112,501 $112,297 $ 75,558 $ 98,924
======================================================================
Average amount of borrowings outstanding per
share during the period* .................... $ 3.60 $ 2.93 $ 3.02 $ 3.03 $ 2.07 $ 2.75
======================================================================
==================================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ..... $321,323 $315,699 $315,626 $313,583 $289,820 $279,372
======================================================================
Portfolio turnover ........................... 25.98% 56.00% 54.64% 82.54% 76.61% 65.44%
======================================================================
* 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.
+ Amount is less than $.01 per share.
@ Annualized.
@@ Aggregate total investment return.
See Notes to Financial Statements.
16 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Corporate High Yield Fund III, Inc. was renamed BlackRock
Corporate High Yield Fund III, Inc. (the "Fund"). 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. All such adjustments are of a normal,
recurring nature. 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
shares are 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 ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Floating rate loan interests are valued at the mean between the last available
bid and asked prices from one or more brokers or dealers as 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 sale price in the case of exchange-traded
options. Options traded in the OTC market are valued at the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued based upon quoted fair valuations received daily by the Fund from a
pricing service or 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. Valuation
of other short-term investment vehicles is generally based on the net asset
value of the underlying investment vehicle or amortized cost. 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 held by the Fund that are traded on stock exchanges or the
NASDAQ Global 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 asked 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 markets, NASDAQ Capital Market 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 markets are valued at the last available asked price. Portfolio securities
that are traded both in the OTC markets 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 will generally be
determined as of 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 BlackRock
Advisors, Inc. (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc., 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
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 17
Notes to Financial Statements (continued)
value of the contract or if the counterparty does not perform under the
contract.
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 financial futures contracts.
Financial 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 OTC 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. These periodic payments
received or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or losses are
also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
(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 to U.S. dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments. The
Fund invests in foreign securities, which may involve a number of risk factors
and special considerations not present with investments in securities of U.S.
corporations.
(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
18 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Notes to Financial Statements (continued)
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.
(h) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity, including mutual funds, before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006. The impact on the Fund's
financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implications of
FAS 157. At this time its impact on the Fund's financial statements has not been
determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM"), and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc., has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On August 15, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement with the Manager. BlackRock Advisors, Inc. was recently reorganized
into a limited liability company and renamed BlackRock Advisors, LLC. The new
Investment Advisory Agreement between the Fund and the Manager became effective
on September 29, 2006. Prior to September 29, 2006, FAM was the Manager. The
general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect, wholly
owned subsidiary of Merrill Lynch, which is the limited partner.
The Manager is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services, the Fund
pays a monthly fee at an annual rate of .60% of the Fund's average daily net
assets plus the proceeds of any outstanding principal borrowed. In addition, the
Manager has entered into sub-advisory agreement with BlackRock Financial
Management, Inc., an affiliate of the Manager, under which the Manager pays the
Sub-Adviser for services it provides a fee that is a percentage of the
management fee paid by the Fund to the Manager. Prior to September 29, 2006, FAM
had a Sub-Advisory Agreement with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an affiliate of FAM.
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"), an affiliate of FAM and the Manager, or
its affiliates. Pursuant to that order, the Fund has retained BlackRock
Investment Management, LLC ("BIM"), an affiliate of the Manager, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. Prior to September 29, 2006, BIM was organized as Merrill
Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, and MLIM, LLC
was the securities lending agent. BIM 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 the Manager or in registered money market funds
advised by the Manager or its affiliates.
In addition, MLPF&S received $625 in commissions on the execution of portfolio
security transactions for the Fund for the six months ended November 30, 2006.
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 19
Notes to Financial Statements (concluded)
For the six months ended November 30, 2006, the Fund reimbursed FAM and the
Manager $2,160 and $1,080, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or directors of the Fund were
officers and/or directors of FAM, MLIM, PSI, MLAM U.K., Merrill Lynch, and/or
MLIM, LLC.
Commencing September 29, 2006, certain officers and/or directors of the Fund are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the six months ended November 30, 2006 were $133,002,725 and
$146,695,395, 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, 2006
remained constant. Shares issued during the year ended May 31, 2006 increased by
6,358 as a result of dividend reinvestment.
5. Short-Term Borrowings:
On May 22, 2006, the Fund renewed its revolving credit and security agreement
funded by a commercial paper asset securitization program with Citicorp North
America, Inc. ("Citicorp") as agent, certain secondary backstop lenders, and
certain asset securitization conduits as lenders (the "Lenders"). The agreement
was renewed for one year and has a maximum limit of $160,000,000. Under the
Citicorp program, the conduits will fund advances to the Fund through the
issuance of highly rated commercial paper. As security for its obligations to
the Lenders under the revolving securitization facility, the Fund has granted a
security interest in substantially all of its assets to and in favor of the
Lenders. The interest rate on the Fund's borrowings is based on the interest
rate carried by the commercial paper plus a program fee. The Fund pays
additional borrowing costs including a backstop commitment fee.
For the six months ended November 30, 2006, the average amount borrowed was
approximately $134,273,000 and the daily weighted average interest rate was
5.52%.
6. Capital Loss Carryforward:
On May 31, 2006, the Fund had a net capital loss carryforward of $229,577,118,
of which $21,006,735 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.
This amount 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 $.056000 per share on
December 19, 2006 to shareholders of record on December 12, 2006.
20 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Disclosure of Investment Advisory Agreement
BlackRock Investment Advisory Agreement -- Matters Considered by the Board
The following disclosure appeared in the May 31, 2006 Annual Report of the Fund
and is the discussion referred to in "New BlackRock Sub-Advisory Agreement --
Matters Considered by the Board" below.
In connection with the Transaction between Merrill Lynch and BlackRock, the
Fund's Board of Directors considered a new investment advisory agreement (the
"New Investment Advisory Agreement") between the Fund and BlackRock Advisors,
Inc. or its successor ("BlackRock Advisors"). If the New Investment Advisory
Agreement is approved by the Fund's shareholders, it will become effective upon
the closing of the Transaction, which is expected in the third quarter of 2006.
The Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. The Board, including the
independent directors, approved the New Investment Advisory Agreement at a
meeting held on May 9, 2006.
To assist the Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal counsel,
also requested and received additional information from Merrill Lynch and
BlackRock in connection with their consideration of the New Investment Advisory
Agreement. The additional information was provided in advance of the May 9, 2006
meeting. In addition, the independent directors consulted with their counsel and
Fund counsel on numerous occasions, discussing, among other things, the legal
standards and certain other considerations relevant to the directors'
deliberations.
At the Board meetings, members of the Board discussed with Merrill Lynch
management and certain BlackRock representatives the Transaction, its strategic
rationale and BlackRock's general plans and intentions regarding the Fund. At
these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Investment Adviser and certain affiliates
being transferred to BlackRock in connection with the Transaction. The
independent directors of the Board also conferred separately and with their
counsel about the Transaction and other matters related to the Transaction on a
number of occasions, including in connection with the April and May 2006
meetings. After the presentations and after reviewing the written materials
provided, the independent directors met in executive sessions with their counsel
to consider the New Investment Advisory Agreement.
In connection with the Board's review of the New Investment Advisory Agreement,
Merrill Lynch and/or BlackRock advised the directors about a variety of matters.
The advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and its shareholders by BlackRock
Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Fund should benefit from having access to BlackRock's state of
the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any applicable expense
waivers and reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek the approval of the Board
before making any changes;
o that under the Transaction Agreement, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Investment Adviser (or its affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund
shareholders;
The directors considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund shareholders from being part of a combined
fund family with BlackRock-
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 21
Disclosure of Investment Advisory Agreement (continued)
sponsored funds, including possible economies of scale and access to
investment opportunities;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the New Investment Advisory Agreement,
including the fact that the schedule of the Fund's total advisory fees
will not increase by virtue of the New Investment Advisory Agreement, but
will remain the same;
o that within the past year the Board performed a full annual review of the
investment advisory agreement currently in effect for the Fund (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund; and that the advisory and/or
management fees paid by the Fund, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the Investment Adviser of providing those services, economies of scale,
the fees and other expenses paid by similar funds (including information
provided by Lipper, Inc. ["Lipper"]), and such other matters as the
directors have considered relevant in the exercise of their reasonable
judgment (the Board had most recently performed a full annual review of
the Current Investment Advisory Agreement in November 2005); and
o that Merrill Lynch agreed to pay all expenses of the Fund in connection
with the Board's consideration of the New Investment Advisory Agreement
and related agreements and all costs of shareholder approval of the New
Investment Advisory Agreement and as a result the Fund would bear no costs
in obtaining shareholder approval of the New Investment Advisory
Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, the Board assessed the
nature, scope and quality of the services to be provided to the Fund by the
personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing services
and assistance in meeting legal and regulatory requirements. In its review of
the New Investment Advisory Agreement, the Board also considered a range of
information in connection with its oversight of the services to be provided by
BlackRock Advisors and its affiliates. Among the matters considered were: (a)
fees (in addition to management fees) to be paid to BlackRock Advisors and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to the Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Current
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the agreement. These materials included (a) information
compiled by Lipper on the fees and expenses and the investment performance of
the Fund as compared to a comparable group of funds as classified by Lipper; (b)
information comparing the Fund's market price with its net asset value per
share; (c) a discussion by the Fund's portfolio management team on investment
strategies used by the Fund during its most recent fiscal year; (d) information
on the profitability to the Investment Adviser of the Current Investment
Advisory Agreement and other payments received by the Investment Adviser and its
affiliates from the Fund; and (e) information provided by the Investment Adviser
concerning services related to the valuation and pricing of Fund portfolio
holdings, the Fund's portfolio turnover statistics, and direct and indirect
benefits to the Investment Adviser and its affiliates from their relationship
with the Fund.
In their deliberations, the directors considered information received in
connection with their most recent continuation of the Current Investment
Advisory Agreement, in addition to information provided by BlackRock and
BlackRock Advisors in connection with their evaluation of the terms and
conditions of the New Investment Advisory Agreement. The directors did not
identify any particular information that was all-important or controlling. The
directors, including a majority of the independent directors, concluded that the
terms of the New Investment Advisory Agreement are appropriate, that the fees to
be paid are reasonable in light
22 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
of the services to be provided to the Fund, and that the New Investment Advisory
Agreement should be approved and recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided -- The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of the
Fund, as well as the nature, quality and extent of services expected to be
provided by BlackRock Advisors. The Board focused primarily on the Investment
Adviser's advisory services and the Fund's investment performance, but also
considered certain areas in which both the Investment Adviser and the Fund
receive services as part of the Merrill Lynch complex. The Board compared the
Fund's performance -- both including and excluding the effects of the Fund's
fees and expenses -- to the performance of a comparable group of funds, and the
performance of a relevant index or combination of indexes. While the Board
reviews performance data at least quarterly, consistent with the Investment
Adviser's investment goals, the Board attaches more importance to performance
over relatively long periods of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, the directors
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund; the ability of BlackRock Advisors to perform its duties
after the Transaction; and any anticipated changes to the current investment and
other practices of the Fund. The directors considered BlackRock's advice as to
proposed changes in portfolio management personnel of the Fund after the closing
of the Transaction.
The directors were given information with respect to the potential benefits to
the Fund and its shareholders from having access to BlackRock's state of the art
technology and risk management analytic tools, including the investment tools
provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Fund will continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The directors were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Fund
under the New Investment Advisory Agreement were expected to be as good or
better than that provided under the Current Investment Advisory Agreement. It
was noted, however, that it is expected that there will be changes in personnel
following the Transaction and the combination of the operations of the
Investment Adviser and its affiliates with those of BlackRock. The directors
noted that if current portfolio managers or other personnel cease to be
available, the Board would consider all available options, which could include
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, the directors concluded that, overall, they were satisfied at the
present time with assurances from BlackRock and BlackRock Advisors as to the
expected nature, extent and quality of the services to be provided to the Fund
under the New Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement,
the directors had received, among other things, a report from Lipper comparing
the Fund's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. The Board reviewed the Fund's contractual management fee
rate and actual management fee rate as a percentage of total assets at common
asset levels -- the actual rate includes advisory fees and the effects of any
fee waivers -- compared to the other funds in its Lipper category. They also
compared the Fund's total expenses to those of other comparable funds. The
information showed that the Fund had fees and expenses within the range of fees
and expenses of comparable funds. The Board considered the services to be
provided by and the fees to be charged by BlackRock Advisors to other funds with
similar investment mandates and noted that the fees charged by BlackRock
Advisors in those cases, including fee waivers and expense reimbursements, were
generally comparable to those being charged to the Fund. The Board also noted
that, as a general matter, according to the information provided by BlackRock,
fees charged to institutional clients were lower than the fees
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 23
Disclosure of Investment Advisory Agreement (concluded)
charged to the Fund, but BlackRock Advisors provided less extensive services to
such clients. The Board concluded that the Fund's management fee and fee rate
and overall expense ratio are reasonable compared to those of other comparable
funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, the directors considered, among
other things, whether advisory fees or other expenses would change as a result
of the Transaction. Based on their review of the materials provided and the fact
that the New Investment Advisory Agreement is substantially similar to the
Current Investment Advisory Agreement in all material respects, including the
rate of compensation, the directors determined that the Transaction should not
increase the total fees payable, including any fee waivers and expense
reimbursements, for advisory and administrative services. The directors noted
that it was not possible to predict how the Transaction would affect BlackRock
Advisors' profitability from its relationship with the Fund.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with the
Fund. The directors noted that they expect to receive profitability information
from BlackRock Advisors on at least an annual basis and thus be in a position to
evaluate whether any adjustments in Fund fees and/or fee breakpoints would be
appropriate.
Fees and Economies of Scale -- The Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in order
to enable the Fund to participate in these economies of scale. The Board
considered economies of scale to the extent applicable to the Fund's closed-end
structure and determined that the Fund currently appropriately benefits from any
economies of scale and no changes were currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the New Investment Advisory Agreement is
substantially similar to the Current Investment Advisory Agreement in all
material respects, including the rate of compensation, the directors determined
that as a result of the Transaction, the Fund's total advisory fees would be no
higher than the fees under its Current Investment Advisory Agreement. The
directors noted that in conjunction with their most recent deliberations
concerning the Current Investment Advisory Agreement, the directors had
determined that the total fees for advisory and administrative services for the
Fund were reasonable in light of the services provided. It was noted that in
conjunction with the recent review of the Current Investment Advisory Agreement,
the directors had received, among other things, a report from Lipper comparing
the Fund's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. The directors concluded that, because the rates for
advisory fees for the Fund would be no higher than its current fee rates, the
proposed management fee structure, including any fee waivers, was reasonable and
that no additional changes were currently necessary.
Fall-Out Benefits -- In evaluating the fall-out benefits to be received by
BlackRock Advisors under the New Investment Advisory Agreement, the directors
considered whether the Transaction would have an impact on the fall-out benefits
received by the Investment Adviser by virtue of the Current Investment Advisory
Agreement. Based on their review of the materials provided, including materials
received in connection with their most recent approval or continuance of the
Current Investment Advisory Agreement, and their discussions with management of
the Investment Adviser and BlackRock, the directors determined that those
benefits could include increased ability for BlackRock to distribute shares of
its funds and other investment products. The directors noted that any such
benefits were difficult to quantify with certainty at this time, and indicated
that they would continue to evaluate them going forward.
Investment Performance -- The directors considered investment performance for
the Fund. The directors compared the Fund's performance -- both including and
excluding the effects of the Fund's fees and expenses -- to the performance of a
comparable group of funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper showed
Fund performance at various levels within the range of performance of comparable
funds over different time periods. While the Board reviews performance data at
least quarterly, consistent with the Investment Adviser's investment goals, the
Board attaches more importance over relatively long periods of time, typically
three to five years. The directors believed the Fund's performance was
satisfactory. Also, the directors took into account the investment performance
of funds currently advised by BlackRock Advisors. The Board considered
24 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
comparative information from Lipper which showed that the performance of the
funds advised by BlackRock Advisors was within the range of performance of
comparable funds over different time periods. The Board also noted that,
following the close of the Transaction, BlackRock Advisors intended to implement
steps to seek to improve the investment performance of the Fund. It was noted
that these steps include changes in the portfolio management personnel. The
Board noted BlackRock's considerable investment management experience and
capabilities, but were unable to predict what effect, if any, consummation of
the Transaction would have on the future performance of the Fund.
Conclusion -- After the independent directors of the Fund deliberated in
executive session, the entire Board, including the independent directors,
approved the New Investment Advisory Agreement, concluding that the advisory fee
rate was reasonable in relation to the services provided and that the New
Investment Advisory Agreement was in the best interests of the shareholders. In
approving the New Investment Advisory Agreement, the Board noted that it
anticipated reviewing the continuance of the agreement in advance of the
expiration of the initial two-year period.
Contingent BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At the telephonic and in-person meetings held during April and May 2006 at which
the Board of Directors discussed and approved the New Investment Advisory
Agreement, the Board, including the independent directors, also discussed and
approved a contingent sub-advisory agreement (the "Contingent Sub-Advisory
Agreement") between the Investment Adviser and BlackRock Advisors (the
"BlackRock Sub-Adviser"). The Contingent Sub-Advisory Agreement is intended to
ensure that the Fund operates with efficient portfolio management services until
the closing of the Transaction, in the event that the Board deems it necessary
and in the best interests of the Fund and its shareholders that the BlackRock
Sub-Adviser assist in managing the operations of the Fund during the interim
period until the closing of the Transaction. If shareholders approve the
Contingent Sub-Advisory Agreement, it will take effect only upon recommendation
from the Investment Adviser and upon subsequent approval of the Board in the
period up to the closing of the Transaction. The effectiveness of the Contingent
Sub-Advisory Agreement, therefore, would be contingent on further Board approval
after shareholders approve it. Pursuant to the Contingent Sub-Advisory
Agreement, the BlackRock Sub-Adviser would receive a monthly fee from the
Investment Adviser equal to 50% of the advisory fee received by the Investment
Adviser. The Investment Adviser would pay the BlackRock Sub-Adviser out of its
own resources. There would be no increase in Fund expenses as a result of the
Contingent Sub-Advisory Agreement.
In making its approval, the Board considered the Contingent Sub-Advisory
Agreement in conjunction with the New Investment Advisory Agreement and reviewed
the same information and factors discussed above, and came to the same
conclusions. The Board also considered in conjunction with the Contingent
Sub-Advisory Agreement the necessity of ensuring that the Fund operates with
effective management services until the closing of the Transaction. In reviewing
the sub-advisory fee rate provided in the Contingent Sub-Advisory Agreement, the
Board took note of the fact that both the Investment Adviser and the BlackRock
Sub-Adviser would have significant responsibilities under their respective
advisory agreements. The Investment Adviser would remain responsible for
oversight of the Fund's operations and administration and the BlackRock
Sub-Adviser would provide advisory services to the Fund under the Contingent
Sub-Advisory Agreement. The Board also took into account the expected short
duration of the term of any Contingent Sub-Advisory Agreement and the fact that
total advisory fees paid by the Fund would not increase as a result of the
Contingent Sub-Advisory Agreement. Under all of the circumstances, the Board
concluded that it was a reasonable allocation of fees for the BlackRock
Sub-Adviser to receive 50% of the advisory fee paid by the Fund to the
Investment Adviser.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the Contingent Sub-Advisory
Agreement, concluding that the advisory fee was reasonable in relation to the
services provided and that the Contingent Sub-Advisory Agreement was in the best
interests of shareholders.
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 25
Disclosure of Sub-Advisory Agreement
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At an in-person meeting held on August 22-23, 2006, the Board of Directors,
including the independent directors, discussed and approved the sub-advisory
agreement between BlackRock Advisors and its affiliate, BlackRock Financial
Management, Inc. (the "Sub-Adviser") (the "BlackRock Sub-Advisory Agreement").
The BlackRock Sub-Advisory Agreement became effective on September 29, 2006, at
the same time the New Investment Advisory Agreement with BlackRock Advisors
(which had been approved by the Fund's shareholders) became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 59% of the advisory fee received by
BlackRock Advisors from the Fund. BlackRock Advisors pays the Sub-Adviser out of
its own resources, and there is no increase in the Fund expenses as a result of
the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the New Investment Advisory Agreement in May 2006. The Board relied on the
same information and considered the same factors as those discussed above in
connection with the approval of the New Investment Advisory Agreement, and came
to the same conclusions. In reviewing the sub-advisory fee rate provided for in
the BlackRock Sub-Advisory Agreement, the Board noted the fact that both
BlackRock Advisors and the Sub-Adviser have significant responsibilities under
their respective advisory agreements. Under the New Investment Advisory
Agreement, BlackRock Advisors remains responsible for the overall management of
the Fund and for oversight of the Fund's operations and administration. Under
the BlackRock Sub-Advisory Agreement, the Sub-Adviser provides advisory services
to the Fund and is responsible for the day-to-day management of the Fund's
portfolio. The Board also took into account the fact that there is no increase
in total advisory fees paid by the Fund as a result of the BlackRock
Sub-Advisory Agreement. Based on its considerations, the Board concluded that it
was a reasonable allocation of fees for the Sub-Adviser to receive 59% of the
advisory fee paid by the Fund to BlackRock Advisors.
After the independent directors deliberated in executive session, the entire
Board of the Fund, including the independent directors, approved the BlackRock
Sub-Advisory Agreement, concluding that the sub-advisory fee was reasonable in
relation to the services provided and that the BlackRock Sub-Advisory Agreement
was in the best interests of the Fund's shareholders.
26 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
Proxy Results
During the six-month period ended November 30, 2006, BlackRock Corporate High
Yield Fund III, Inc.'s shareholders voted on the following proposals, which were
approved at an annual shareholders' meeting on August 15, 2006. A description of
the proposals and number of shares voted were as follows:
-----------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-----------------------------------------------------------------------------------------------
To elect the Fund's Board of Directors: Robert C. Doll, Jr 25,071,781 1,042,350
James H. Bodurtha 25,071,992 1,042,139
Kenneth A. Froot 25,074,438 1,039,693
Joe Grills 25,072,141 1,041,990
Herbert I. London 25,075,919 1,038,212
Roberta Cooper Ramo 25,070,036 1,044,095
Robert S. Salomon, Jr 25,072,945 1,041,186
-----------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
-----------------------------------------------------------------------------------------------
To approve a new investment advisory agreement
with BlackRock Advisors, Inc. 17,769,707 616,448 596,902
-----------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement
with BlackRock Advisors, Inc. 17,729,988 623,131 629,939
-----------------------------------------------------------------------------------------------
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 27
Officers and Directors
Robert C. Doll, Jr., President and Director
James H. Bodurtha, Director
Kenneth A. Froot, Director
Joe Grills, Director
Herbert I. London, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
NYSE Symbol
CYE
28 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
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.
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 29
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
30 BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
BLACKROCK CORPORATE HIGH YIELD FUND III, INC. NOVEMBER 30, 2006 31
BlackRock 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 BlackRock 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 1-800-441-7762; (2) at
www.blackrock.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.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Corporate High Yield Fund III, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#COYIII-11/06
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 - Portfolio Managers of Closed-End Management Investment Companies - as
of December 31, 2006
(a)(1) The Fund is managed by a team of investment professionals
comprised of Scott Amero, Managing Director at BlackRock, Jeff Gary,
CPA,Managing Director at BlackRock, Joshua S. Baumgarten, Director at
BlackRock and James E. Keenan, CFA, Director at BlackRock. Each is a
member of BlackRock's fixed income portfolio management group. Mr.
Amero is responsible for setting the Fund's overall credit strategy.
Messrs. Gary, Baumgarten and Keenan are the Fund's co-portfolio
managers and are responsible for the day-to-day management of the
Fund's portfolio and the selection of its investments. Mr. Amero has
been a member of the Fund's management team since 2006 and Messrs.
Gary, Baumgarten and Keenan have been the Fund's portfolio managers
since 2006.
Jeff Gary is the head of BlackRock's high yield team within the Fixed
Income Portfolio Management Group. Prior to joining BlackRock in 2003,
Mr. Gary was a Managing Director and portfolio manager with AIG
(American General) Investment Group.
Scott Amero is co-head of BlackRock's fixed income portfolio management
group. He is a member of the Management Committee and the Investment
Strategy Group. Mr. Amero is a senior strategist and portfolio manager
with responsibility for overseeing all fixed income sector strategy and
the overall management of client portfolios. He is also the head of
global credit research. He is director of Anthracite Capital, Inc.,
BlackRock's publicly-traded real estate investment trust. Mr. Amero has
been with BlackRock since 1990.
Joshua S. Baumgarten is a high yield portfolio manager and trader
within BlackRock's Fixed Income Portfolio Management Group. His primary
responsibilities are managing client portfolios, executing trades and
ensuring consistency across high yield portfolios. Mr. Baumgarten has
been with BlackRock since 2000.
James Keenan is a high yield portfolio manager and trader within
BlackRock's Fixed Income Portfolio Management Group. His primary
responsibilities are managing client portfolios, executing trades and
ensuring consistency across high yield portfolios. Mr. Keenan has been
with BlackRock since 2004. Prior to joining BlackRock, he was a senior
high yield trader at Columbia Management Group.
(a)(2) As of December 31, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
Registered Other Pooled Registered Other Pooled
(i) Name of Investment Investment Other Investment Investment Other
Portfolio Manager Companies Vehicles Accounts Companies Vehicles Accounts
--------------- ---------------
Scott
Amero 40 31 281 0 4 24
$31,941,976,617 $ 7,800,000,000 $94,100,000,000 $ 0 $ 1,600,000,000 $ 7,800,000,000
Joshua Baumgarten 19 2 16 0 1 4
$ 7,941,976,617 $ 593,200,000 $ 2,700,000,000 $ 0 $ 348,000,000 $ 607,000,000
Jeff
Gary 15 6 23 0 4 5
$ 6,141,976,617 $ 6,300,000,000 $ 3,500,000,000 $ 0 $ 1,700,000,000 $ 768,000,000
James Keenan 9 1 18 0 1 3
$ 3,941,976,617 $ 348,000,000 $ 2,700,000,000 $ 0 $ 348,000,000 $ 398,000,000
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address the
allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have performance
or higher fees paid to BlackRock, or in which portfolio managers have a
personal interest in the receipt of such fees), which may be the same
as or different from those made to the Fund. In addition, BlackRock,
its affiliates and any officer, director, stockholder or employee may
or may not have an interest in the securities whose purchase and sale
BlackRock recommends to the Fund. BlackRock, or any of its affiliates,
or any officer, director, stockholder, employee or any member of their
families may take different actions than those recommended to the Fund
by BlackRock with respect to the same securities. Moreover, BlackRock
may refrain from rendering any advice or services concerning securities
of companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors and
employees of any of them has any substantial economic interest or
possesses material non-public information. Each portfolio manager also
may manage accounts whose investment strategies may at times be opposed
to the strategy utilized for the Fund. In this connection, it should be
noted that certain portfolio managers currently manage certain accounts
that are subject to performance fees. In addition, certain portfolio
managers assist in managing certain hedge funds and may be entitled to
receive a portion of any incentive fees earned on such funds and a
portion of such incentive fees may be voluntarily or involuntarily
deferred. Additional portfolio managers may in the future manage other
such accounts or funds and may be entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated in a
manner consistent with its fiduciary duties. BlackRock attempts to
allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve reasonable
efficiency in client transactions and provide BlackRock with sufficient
flexibility to allocate investments in a manner that is consistent with
the particular investment discipline and client base.
(a)(3) As of December 31, 2006:
Portfolio Manager Compensation
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from year
to year based on a number of factors. The principal components of
compensation include a base salary, a discretionary bonus,
participation in various benefits programs and one or more of the
incentive compensation programs established by BlackRock such as its
Long-Term Retention and Incentive Plan and Restricted Stock Program.
Base compensation
Generally, portfolio managers receive base compensation based on their
seniority and/or their position with the firm.
Discretionary compensation
In addition to base compensation, portfolio managers may receive
discretionary compensation, which can be a substantial portion of total
compensation. Discretionary compensation can include a discretionary
cash bonus as well as one or more of the following:
Long-Term Retention and Incentive Plan (LTIP)
The LTIP is a long-term incentive plan that seeks to reward certain key
employees. The plan provides for the grant of awards that are expressed
as an amount of cash that, if properly vested and subject to the
attainment of certain performance goals, will be settled in cash and/or
in BlackRock, Inc. common stock.
Deferred Compensation Program
A portion of the compensation paid to each portfolio manager may be
voluntarily deferred by the portfolio manager into an account that
tracks the performance of certain of the firm's investment products.
Each portfolio manager is permitted to allocate his deferred amounts
among various options, including to certain of the firm's hedge funds
and other unregistered products. In addition, prior to 2005, a portion
of the annual compensation of certain senior managers was mandatorily
deferred in a similar manner for a number of years. Beginning in 2005,
a portion of the annual compensation of certain senior managers was
paid in the form of BlackRock, Inc. restricted stock units which vest
ratably over a number of years.
Options and Restricted Stock Awards
While incentive stock options are not currently being awarded to
BlackRock employees, BlackRock, Inc. previously granted stock options
to key employees, including certain portfolio managers who may still
hold unexercised or unvested options. BlackRock, Inc. also has a
restricted stock award program designed to reward certain key employees
as an incentive to contribute to the long-term success of BlackRock.
These awards vest over a period of years.
Incentive Savings Plans
BlackRock, Inc. has created a variety of incentive savings plans in
which BlackRock employees are eligible to participate, including an
Employee Stock Purchase Plan (ESPP) and a 401(k) plan. The 401(k) plan
may involve a company match of the 50% employee's pre-tax contribution
of up to 6% of the employee's salary, limited to $4,000 per year.
BlackRock also offers a Company Retirement Contribution equal to 3% to
5% of eligible compensation, depending on BlackRock, Inc.'s overall net
operating income. The company match is made in cash. The firm's 401(k)
plan offers a range of investment options, including registered
investment companies managed by the firm. Each portfolio manager is
eligible to participate in these plans.
Annual incentive compensation for each portfolio manager is a function
of several components: the performance of BlackRock, Inc., the
performance of the portfolio manager's group within BlackRock, the
investment performance, including risk-adjusted returns and income
generation, of the firm's assets under management or supervision by
that portfolio manager relative to predetermined benchmarks, and the
individual's teamwork and contribution to the overall performance of
these portfolios and BlackRock. Unlike many other firms, portfolio
managers at BlackRock compete against benchmarks rather than each
other. In most cases, including for the portfolio managers of the
Registrant, these benchmarks are the same as the benchmark or
benchmarks against which the investment performance, including
risk-adjusted returns and income generation, of the Registrant or other
accounts are measured. These benchmarks include customized benchmarks,
Lipper peer groups and a subset of other closed-end taxable debt funds.
A group of BlackRock, Inc.'s officers determines which benchmarks
against which to compare the performance of funds and other accounts
managed by each portfolio manager. With respect to the Registrant, such
benchmarks include Customized Index and standard list.
The group of BlackRock, Inc.'s officers then makes a subjective
determination with respect to the portfolio manager's compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks. This
determination may take into consideration the fact that a benchmark may
not perfectly correlate to the way the Registrant or other accounts are
managed, even if it is the benchmark that is most appropriate for the
Registrant or other account. For example, a benchmark's return may be
based on the total return of the securities comprising the benchmark,
but the Registrant or other account may be managed to maximize income
and not total return. Senior portfolio managers who perform additional
management functions within BlackRock may receive additional
compensation for serving in these other capacities.
(a)(4) Beneficial Ownership of Securities. As of December 31, 2006, neither of
Messrs. Amero, Gary, Baumgarten and Keenan beneficially owns any stock
issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(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.
11(b) - As of September 29, 2006, with the conclusion of the combination of
Merrill Lynch's asset management business with BlackRock, the registrant was
migrated to BlackRock's trading and compliance monitoring systems, and various
personnel changes occurred. In conjunction with these business improvements,
there were no changes in the registrants internal control over financial
reporting (as defined in Rule 30a-3(d) under 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 affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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.
BlackRock Corporate High Yield Fund III, Inc.
By: /s/ Robert C. Doll, Jr.
------------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Corporate High Yield Fund III, Inc.
Date: January 29, 2007
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.,
Chief Executive Officer of
BlackRock Corporate High Yield Fund III, Inc.
Date: January 29, 2007
By: /s/ Donald C. Burke
------------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Corporate High Yield Fund III, Inc.
Date: January 29, 2007