UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-10521
Name of Fund: Corporate High Yield Fund V, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Corporate High
Yield Fund V, 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: 08/31/03
Date of reporting period: 09/01/02 - 08/31/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Corporate High Yield
Fund V, Inc.
Annual Report
August 31, 2003
[LOGO] Merrill Lynch Investment Managers
Corporate High Yield Fund V, Inc.
The Benefits and Risks of Leveraging
Corporate High Yield Fund V, 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 yield 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.
Stockholder Proposals
The Fund will hold its next Annual Meeting of Stockholders in April 2004.
Proposals of stockholders intended to be presented at the Meeting must be
received by the Fund by January 15, 2004 for inclusion in the Fund's Proxy
Statement and form of Proxy for that Meeting. The Fund's By-laws generally
require advance notice be given to the Fund in the event a stockholder desires
to transact any business from the floor at an Annual Meeting of Stockholders.
Notice of any such business must be in writing and received at the Fund's
principal executive office not later than the close of business on February 13,
2004. Written proposals and notices should be sent to the Secretary of the Fund,
800 Scudders Mill Road, Plainsboro, New Jersey 08536.
Electronic Delivery
The Fund is now offering electronic delivery of communications to its
shareholders. In order to receive this service, you must register your account
and provide us with e-mail information. To sign up for this service, simply
access this website http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
2 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
A Letter From the President
Dear Shareholder
Now more than half behind us, 2003 has been a meaningful year in many respects.
After one of the most significant equity market downturns in many investors'
memories, this year finally brought hopeful signs for a sustainable economic
recovery. With that bit of good news, fixed income investments, which had become
the asset class of choice during the long equity market decline, were left to
perform on a new playing field.
The Federal Reserve Board continued its accommodative monetary policy into June
2003, when it brought the Federal Funds rate down to 1%, its lowest level since
1958. With this move, long-term interest rates continued to be volatile, as
investors began to anticipate the impact of future Federal Reserve Board moves
and economic revitalization. As of August 31, 2003, the 10-year Treasury bond
was yielding 4.47%. This compared to a yield of 3.69% six months earlier and
4.14% one year ago.
Against this backdrop, our portfolio managers continued to work diligently to
deliver on our commitment to provide superior performance within reasonable
expectations for risk and return. With that said, remember also that the advice
and guidance of a skilled financial advisor often can mean the difference
between fruitful and fruitless investing. A financial professional can help you
choose those investments that will best serve you as you plan for your financial
future.
Finally, I am proud to premiere a new look to our shareholder communications.
Our portfolio manager commentaries have been trimmed and organized in such a way
that you can get the information you need at a glance, in plain language.
Today's markets are confusing enough. We want to help you put it all in
perspective. The report's new size also allows us certain mailing efficiencies.
Any cost savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Managers
A strong rally in the high yield market endured for the majority of the
Fund's fiscal year, and performance benefited significantly.
How did the Fund perform in light of the existing market conditions?
For the year ended August 31, 2003, the Common Stock of Corporate High Yield
Fund V, Inc. had a net annualized yield of 11.29%, based on a year-end per share
net asset value of $14.90 and $1.682 per share income dividends. Over the same
period, the total investment return of the Fund's Common Stock was +34.62%,
based on a change in per share net asset value from $12.54 to $14.90, and
assuming reinvestment of $1.684 per share ordinary income dividends.
For the six-month period ended August 31, 2003, the total investment return for
the Fund's Common Stock was +19.89%, based on a change in net asset value from
$13.18 to $14.90 and assuming reinvestment of $.846 per share income dividends.
The Fund's return exceeded that of the high yield market, as measured by the
Credit Suisse First Boston (CSFB) High Yield Index, which returned +23.10% for
the 12-month period and +12.89% for the six-month period ended August 31, 2003.
The Fund also outperformed its Lipper category of High Current Yield Funds
(Leveraged), which had average returns of +32.03% and +19.12% for the 12-month
and six-month periods ended August 31, 2003, respectively.
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
the Financial Statements included in this report. As a closed-end fund, the
Fund's shares may trade in the secondary market at a premium or a discount to
the Fund's net asset value. As a result, total investment returns based on
changes in the 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 Fund benefited from the high yield market rally that began in mid October
2002 following several years of anemic results. The main drivers of the upturn
were investors' improved outlook on the economy, modestly favorable corporate
earnings reports, a shrinking number of defaults by high yield corporate
borrowers and falling interest rates. Certain technical factors also provided
solid support to the high yield market, including strong cash inflows from
institutional investors increasing their allocations to the high yield sector
and from retail investors who were searching for yield in the low interest rate
environment.
Leverage and security selection also had a meaningful positive impact on the
Fund's relative performance over the past 12 months. Additionally, the strongest
performers in the high yield market during the period were bonds that had been
out of favor prior to the rally, particularly issues of utilities/independent
power producers and wireless communications companies, areas in which the Fund
was overweighted. The prices of these securities rose as investors' views on
these sectors became more positive. The utility sector, in particular, was
drastically undervalued in the aftermath of Enron's financial misdealings and
because of fears that a faltering economy would place financial pressure on the
more highly leveraged players in the sector.
What changes were made to the portfolio during the period?
We did not change our investment strategy appreciably in response to the run-up
in the high yield market. We believe that long-term results in the market come
from attention to both value and quality. We continue to invest in a core of
solid credits and maintain a diverse portfolio, while identifying downtrodden
names that, in our opinion, represent significant value. We attempt to take
advantage of market volatility and to add to, or establish positions in,
securities of companies that we believe have favorable long-term fundamentals.
4 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
For the six-month period ended August 31, 2003, the Fund was on average about
22.4% leveraged, slightly below our mid-20% comfort range. Thus, the Fund
borrowed the equivalent of 22.4% of total assets invested, earning incremental
yield on the investments we made with the borrowed funds. By the end of the
period, we had returned leverage to the mid-20% range, at 25.9% of total assets.
For the year ended August 31, 2003, the average amount borrowed was
approximately $93,361,000 and the daily weighted average borrowing rate was
1.61%. While leverage can primarily hinder total return in a weak market, the
converse also is true. (For a more complete explanation of the benefits and
risks of leveraging, see page 1 of this report to shareholders.)
How would you characterize the portfolio's position at the close of the period?
The low valuations found in the market over the past year have largely
evaporated, leaving more limited potential for strong market moves for high
yield as a whole and for individual sectors. While the market yield on August
31, 2003 -- 9.36% as measured by the CSFB High Yield Index -- remained
attractive relative to other investment alternatives, valuations of high yield
securities are approaching historical averages. At the close of the period,
yield spreads relative to U.S. Treasury issues were 593 basis points (5.93%)
versus 929 basis points at August 31, 2002. Near-term risks for the high yield
market include a deceleration of the economy and the possibility of higher
interest rates. Offsetting these risks is potential improvement in corporate
earnings, which ultimately should benefit high yield securities.
While we question a dramatic upside to the high yield market, we continue to
believe the utility and independent power producer sector represents good
relative value. As of August 31, 2003, the Fund's largest industry allocations
were in utilities, at 10.1% of total assets, and chemicals, at 6.5%. In our
opinion, the utility sector has exhibited favorable fundamentals, and the
independent power producer segment of this sector offers attractive valuations.
Within the chemical sector, we have found what we believe to be good relative
value in the specialty chemical business, which has been hurt by high energy
prices but avoids dramatically volatile end markets.
The Fund maintains an underweight versus the benchmark in information
technology, given our perception of high valuations, unstable earnings and
potentially limited recovery value if earnings decline in the sector. We have
limited exposure to the retail, food and drug, and finance sectors based on what
we believe is inadequate and uncertain asset protection in these areas of the
market. Like the CSFB High Yield Index, the Fund had an average credit rating of
B at the close of the period.
B. Daniel Evans
Vice President and Portfolio Manager
Elizabeth M. Phillips
Vice President and Portfolio Manager
September 10, 2003
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 5
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace & B+ B1 $ 1,625,000 Esterline Technologies, 7.75% due 6/15/2013 (a) $ 1,677,812
Defense--1.6% Hexcel Corporation:
B B3 500,000 9.875% due 10/01/2008 (a) 547,500
CCC+ Caa2 675,000 9.75% due 1/15/2009 698,625
B B3 600,000 K & F Industries, 9.625% due 12/15/2010 651,000
BB- Ba3 2,000,000 L-3 Communications Corporation, 6.125% due 7/15/2013 1,890,000
B- B3 625,000 TD Funding Corporation, 8.375% due 7/15/2011 (a) 653,125
B B2 1,800,000 Titan Corporation, 8% due 5/15/2011 (a) 1,854,000
-----------
7,972,062
- -----------------------------------------------------------------------------------------------------------------------------------
Airlines--1.6% BB+ B1 6,000,000 American Airlines, 7.80% due 10/01/2006 4,155,580
Continental Airlines Inc.:
BB B2 1,646,719 7.033% due 6/15/2011 1,206,040
BBB- Ba2 237,734 6.90% due 1/02/2017 176,902
NR* Ca 6,615,420 USAir Inc., 10.375% due 3/01/2013 (b) 2,050,780
-----------
7,589,302
- -----------------------------------------------------------------------------------------------------------------------------------
Automotive--2.6% BB+ Ba2 2,675,000 AutoNation Inc., 9% due 8/01/2008 2,949,187
CCC+ B3 1,550,000 Delco Remy International Inc., 10.625% due 8/01/2006 1,379,500
B B2 2,350,000 Dura Operating Corporation, 9% due 5/01/2009 2,162,000
General Motors Corp.:
BBB Baa1 525,000 7.125% due 7/15/2013 531,014
BBB Baa1 950,000 8.25% due 7/15/2023 947,012
B Caa1 1,280,000 Metaldyne Corporation, 11% due 6/15/2012 1,113,600
CCC+ B2 925,000 Tenneco Automotive Inc., 10.25% due 7/15/2013 (a) 957,375
B B3 2,550,000 United Auto Group, Inc., 9.625% due 3/15/2012 2,731,688
-----------
12,771,376
- -----------------------------------------------------------------------------------------------------------------------------------
Broadcasting--2.8% B- B2 3,100,000 Emmis Communications Corporation, 8.125% due 3/15/2009 3,200,750
B B2 2,875,000 Lin Television Corporation, 6.50% due 5/15/2013 (a) 2,788,750
B- B3 2,250,000 Nextmedia Operating Inc., 10.75% due 7/01/2011 2,491,875
Salem Communications Holding Corporation:
B- B3 4,025,000 7.75% due 12/15/2010 3,994,813
B- B3 750,000 9% due 7/01/2011 793,125
B B2 500,000 Sinclair Broadcasting Group, 8% due 3/15/2012 521,250
-----------
13,790,563
- -----------------------------------------------------------------------------------------------------------------------------------
Cable-- C Caa2 7,875,000 Comcast UK Cable Partners Ltd., 11.20% due 11/15/2007 7,815,938
International--2.5% D Ca 9,850,000 TeleWest Communications PLC, 11% due 10/01/2007 (b) 4,137,000
-----------
11,952,938
- -----------------------------------------------------------------------------------------------------------------------------------
Cable--U.S.--6.9% CSC Holdings Inc.:
BB- B1 5,000,000 7.625% due 4/01/2011 5,000,000
BB- B1 3,000,000 7.875% due 2/15/2018 2,880,000
Charter Communications Holdings:
CCC- Ca 4,775,000 8.625% due 4/01/2009 3,652,875
CCC- Ca 3,225,000 10.75% due 10/01/2009 2,580,000
CCC- Ca 225,000 Charter Communications Holdings LLC, 10% due 4/01/2009 175,500
B NR* 1,000,000 Coaxial Communications, Phoenix, 10% due 8/15/2006 1,041,250
B- Caa1 6,950,000 Insight Communications, 12.395%** due 2/15/2011 5,264,625
B+ B2 1,750,000 Insight Midwest, 9.75% due 10/01/2009 1,793,750
NR* Caa1 6,475,000 Loral Cyberstar Inc., 10% due 7/15/2006 (b) 3,787,875
B+ B2 4,850,000 Mediacom Broadband LLC, 11% due 7/15/2013 5,286,500
B- Ba3 2,325,000 Panamsat Corporation, 8.50% due 2/01/2012 2,400,563
-----------
33,862,938
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6 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Schedule of Investments (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--8.8% BB- B2 $ 1,650,000 Geon Company, 6.875% due 12/15/2005 $ 1,507,687
B- NR* 3,500,000 HMP Equity Holdings Corporation, 14.96%** due 5/15/2008 (d) 1,697,500
B- Caa1 4,750,000 Huntsman ICI Chemicals, 10.125% due 7/01/2009 4,488,750
B- Caa2 7,000,000 Huntsman ICI Holdings, 22.472%** due 12/31/2009 2,695,000
B B3 900,000 Huntsman International LLC, 9.875% due 3/01/2009 (a) 927,000
IMC Global Inc.:
B+ B1 3,325,000 11.25% due 6/01/2011 3,441,375
B+ B1 1,250,000 10.875% due 8/01/2013 (a) 1,281,250
BB- B2 2,000,000 ISP ChemCo., 10.25% due 7/01/2011 2,205,000
B+ B2 5,750,000 ISP Holdings, Inc., 10.625% due 12/15/2009 5,994,375
BB Ba3 2,850,000 Millennium America Inc., 7% due 11/15/2006 2,793,000
BB B2 1,875,000 Omnova Solutions Inc., 11.25% due 6/01/2010 1,959,375
BB- B2 3,750,000 Polyone Corporation, 10.625% due 5/15/2010 3,168,750
B- Caa1 2,625,000 Resolution Performance, 13.50% due 11/15/2010 2,270,625
BB- Ba3 1,725,000 Rhodia SA, 8.875% due 6/01/2011 (a) 1,733,625
B- B3 3,025,000 Rockwood Specialties Corporation, 10.625% due 5/15/2011 (a) 3,153,563
B- Caa1 4,400,000 Terra Capital Inc., 11.50% due 6/01/2010 3,740,000
-----------
43,056,875
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Products-- BB+ Ba3 5,500,000 American Greetings, 11.75% due 7/15/2008 6,215,000
4.9% B- B2 5,300,000 Chattem, Inc., 8.875% due 4/01/2008 5,088,000
CCC+ Caa2 7,000,000 Samsonite Corporation, 10.75% due 6/15/2008 7,227,500
B B2 3,500,000 Simmons Company, 10.25% due 3/15/2009 3,736,250
B- B3 1,450,000 Tempur-Pedic, 10.25% due 8/15/2010 (a) 1,479,000
-----------
23,745,750
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Media-- B- B3 3,200,000 CBD Media/CBD Finance, 8.625% due 6/01/2011 (a) 3,360,000
7.6% B B2 845,000 Dex Media East LLC, 9.875% due 11/15/2009 956,962
B B3 2,325,000 Dex Media West LLC, 9.875% due 8/15/2013 (a) 2,592,375
Houghton Mifflin Company (a):
B B2 3,075,000 8.25% due 2/01/2011 3,267,187
B B3 850,000 9.875% due 2/01/2013 926,500
B B2 1,350,000 PEI Holdings Inc., 11% due 3/15/2010 (a) 1,483,313
B B3 8,250,000 Primedia, Inc., 8.875% due 5/15/2011 8,641,875
R.H. Donnelley Financial Corporation I:
B+ B1 400,000 8.875% due 12/15/2010 438,000
NR* B2 1,125,000 10.875% due 12/15/2012 (a) 1,310,625
B B2 1,600,000 Six Flags Inc., 9.50% due 2/01/2009 1,504,000
Vivendi Universal SA (a):
B+ B1 4,150,000 6.25% due 7/15/2008 4,150,000
B+ B1 4,100,000 9.25% due 4/15/2010 4,581,750
B+ NR* 4,550,000 Yell Finance BV, 11.54%** due 8/01/2006 3,913,000
-----------
37,125,587
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--Exploration CCC+ Caa1 1,400,000 Continental Resources, 10.25% due 8/01/2008 1,375,500
& Production--3.4% B+ B2 1,150,000 Houston Exploration Company, 7% due 6/15/2013 (a) 1,127,000
B B2 2,000,000 Nuevo Energy Company, 9.375% due 10/01/2010 2,130,000
Plains E&P Company:
B B 1,350,000 8.75% due 7/01/2012 1,397,250
NR* B 2,800,000 8.75% due 7/01/2012 (a) 2,898,000
BB- Ba3 1,875,000 Vintage Petroleum, 8.25% due 5/01/2012 1,968,750
B+ Ba3 5,250,000 Westport Resources Corporation, 8.25% due 11/01/2011 5,617,500
-----------
16,514,000
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CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--Other-- BB Ba3 $ 3,225,000 Citgo Petroleum Corporation, 11.375% due 2/01/2011 (a) $ 3,595,875
5.1% B B2 2,550,000 Dresser Inc., 9.375% due 4/15/2011 2,601,000
B B2 3,475,000 Ferrellgas Partners LP, 8.75% due 6/15/2012 3,683,500
B- B3 2,300,000 Giant Industries, Inc., 9% due 9/01/2007 2,162,000
B+ B2 1,380,000 Hanover Equipment Trust, 8.75% due 9/01/2011 1,373,100
CCC B3 3,000,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 2,655,000
BB Ba3 1,456,875 Port Arthur Finance Corporation, 12.50% due 1/15/2009 1,697,259
BB- Ba3 925,000 Premcor Refining Group, 7.50% due 6/15/2015 (a) 892,625
B B3 3,750,000 Star Gas Partners, 10.25% due 2/15/2013 3,918,750
CCC+ Caa1 3,300,000 Trico Marine Services, 8.875% due 5/15/2012 2,409,000
-----------
24,988,109
- -----------------------------------------------------------------------------------------------------------------------------------
Food/Tobacco-- B B3 1,200,000 American Seafood Group LLC, 10.125% due 4/15/2010 1,338,000
6.8% Commonwealth Brands, Inc. (a):
B- NR* 3,225,000 9.75% due 4/15/2008 3,466,875
B- B3 2,350,000 10.625% due 9/01/2008 2,420,500
B+ Ba3 4,750,000 Constellation Brands Inc., 8.125% due 1/15/2012 4,945,937
B+ B2 5,500,000 Cott Beverages Inc., 8% due 12/15/2011 5,747,500
B B2 2,075,000 Del Monte Corporation, 8.625% due 12/15/2012 (a) 2,160,594
CCC+ B2 2,075,000 Doane Pet Care Company, 10.75% due 3/01/2010 2,220,250
BB- B2 2,300,000 Dole Foods Company, 8.875% due 3/15/2011 (a) 2,415,000
B B2 1,100,000 Merisant Company, 9.50% due 7/15/2013 (a) 1,155,000
NR* Caa3 2,675,000 New World Pasta Company, 9.25% due 2/15/2009 708,875
NR* Ba2 4,075,000 Smithfield Foods Inc., 8% due 10/15/2009 4,278,750
BB+ Ba1 2,000,000 Yum! Brands Inc., 7.70% due 7/01/2012 2,135,000
-----------
32,992,281
- -----------------------------------------------------------------------------------------------------------------------------------
Gaming--7.7% B+ B1 5,750,000 Boyd Gaming Corporation, 8.75% due 4/15/2012 6,166,875
B B2 3,000,000 Isle of Capri Casinos, 9% due 3/15/2012 3,240,000
BB+ Ba2 3,500,000 MGM Grand Inc., 9.75% due 6/01/2007 3,902,500
Park Place Entertainment:
BB+ Ba2 1,500,000 8.875% due 9/15/2008 1,650,000
BB+ Ba2 3,750,000 7.875% due 3/15/2010 4,003,125
B B2 4,125,000 Resorts International Hotel/Casino, 11.50% due 3/15/2009 3,939,375
B+ B2 3,625,000 Sun International Hotels, 8.875% due 8/15/2011 3,905,938
B- B3 3,225,000 Trump Holdings & Funding, 11.625% due 3/15/2010 (a) 2,854,125
B- B3 4,525,000 Venetian Casino/LV Sands, 11% due 6/15/2010 5,147,188
CCC+ B3 2,500,000 Wynn Las Vegas LLC, 12% due 11/01/2010 2,837,500
-----------
37,646,626
- -----------------------------------------------------------------------------------------------------------------------------------
Health Care--5.7% B B3 2,550,000 Alaris Medical Inc., 7.25% due 7/01/2011 2,505,375
B+ B3 650,000 Alpharma Inc., 8.625% due 5/01/2011 (a) 656,500
Fisher Scientific International:
B+ B2 3,525,000 8.125% due 5/01/2012 3,648,375
B+ B2 1,500,000 8.125% due 5/01/2012 (a) 1,552,500
B+ B2 275,000 8% due 9/01/2013 (a) 282,562
BB- Ba2 6,000,000 Fresenius Medical Capital Trust II, 7.875% due 2/01/2008 6,255,000
B NR* 3,525,000 ICN Pharmaceuticals Inc., 6.50% due 7/15/2008 (Convertible) 3,445,688
B- B3 2,675,000 Insight Health Services, 9.875% due 11/01/2011 2,782,000
BBB Ba1 836,000 Manor Care Inc., 8% due 3/01/2008 902,880
BB+ Ba2 1,250,000 OmniCare Inc., 6.125% due 6/01/2013 1,193,750
Tenet Healthcare Corporation:
BB Ba3 925,000 5.375% due 11/15/2006 901,875
BB Ba3 4,000,000 6.375% due 12/01/2011 3,720,000
-----------
27,846,505
- -----------------------------------------------------------------------------------------------------------------------------------
8 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Schedule of Investments (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Housing--3.8% Building Materials Corporation:
B B2 $ 700,000 7.75% due 7/15/2005 $ 698,250
B B2 6,500,000 8.625% due 12/15/2006 6,451,250
BB Ba1 2,900,000 D.R. Horton, Inc., 7.50% due 12/01/2007 3,045,000
BB- Ba3 2,625,000 Forest City Enterprises Inc., 7.625% due 6/01/2015 2,703,750
BB- Ba1 2,500,000 Louisiana Pacific Corporation, 8.875% due 8/15/2010 2,868,750
BB- B1 2,450,000 Texas Industries Inc., 10.25% due 6/15/2011 (a) 2,658,250
-----------
18,425,250
- -----------------------------------------------------------------------------------------------------------------------------------
Information CCC+ Caa1 3,500,000 On Semiconductor Corporation, 13% due 5/15/2008 3,675,000
Technology--1.0% CCC+ Caa2 1,500,000 SCG Holdings Corporation, 12% due 8/01/2009 1,350,000
-----------
5,025,000
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure--4.5% B B1 2,000,000 Felcor Lodging LP, 8.50% due 6/01/2011 2,045,000
B+ Ba3 525,000 HMH Properties, Inc., 8.45% due 12/01/2008 536,156
BBB- Ba1 3,725,000 Hilton Hotels Corporation, 8.25% due 2/15/2011 4,041,625
B+ Ba3 3,575,000 Host Marriott LP, 9.50% due 1/15/2007 3,789,500
BB+ Ba1 3,300,000 ITT Corporation, 7.375% due 11/15/2015 3,267,000
Intrawest Corporation:
B+ B1 1,625,000 9.75% due 8/15/2008 1,690,000
B+ B1 2,150,000 10.50% due 2/01/2010 2,311,250
B B2 4,250,000 Vail Resorts Inc., 8.75% due 5/15/2009 4,356,250
-----------
22,036,781
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing--6.4% BB- Ba3 2,675,000 Case New Holland Inc., 9.25% due 8/01/2011 (a) 2,818,781
B- B3 4,150,000 Eagle-Picher, Inc., 9.75% due 9/01/2013 (a) 4,253,750
CCC- Caa1 3,625,000 International Wire Group, Inc., 11.75% due 6/01/2005 1,848,750
B B2 4,675,000 JohnsonDiversey Inc., 9.625% due 5/15/2012 4,943,813
B+ B2 4,750,000 Joy Global Inc., 8.75% due 3/15/2012 5,130,000
B- B3 1,275,000 Rexnord Corporation, 10.125% due 12/15/2012 1,370,625
BB+ Ba3 3,225,000 SPX Corporation, 7.50% due 1/01/2013 3,354,000
Tyco International Group SA:
BBB- Ba2 2,225,000 6.375% due 2/15/2006 2,300,094
BBB- Ba2 4,375,000 6.375% due 10/15/2011 4,380,469
BBB- Ba2 825,000 2.75% due 1/15/2018 (Convertible) (a) 897,188
-----------
31,297,470
- -----------------------------------------------------------------------------------------------------------------------------------
Metal--Other--0.5% NR* NR* 1,500,000 Kaiser Aluminum & Chemical Corp., 10.875% due 10/15/2006 (b) 1,170,000
BB Ba3 1,000,000 Luscar Coal Ltd., 9.75% due 10/15/2011 1,130,000
-----------
2,300,000
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Sector B+ B2 2,952,000 Morgan Stanley (TRACERS), 9.355% due 12/15/2012 (a)(c) 3,008,501
Holdings--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Packaging--5.3% B+ B2 2,925,000 Anchor Glass Container, 11% due 2/15/2013 3,210,187
Crown Euro Holdings SA (a):
B+ B1 1,625,000 9.50% due 3/01/2011 1,730,625
B B2 875,000 10.875% due 3/01/2013 966,875
CCC+ Caa2 4,250,000 Graham Packaging Company, 10.75% due 1/15/2009 4,356,250
B- Caa1 2,350,000 Huntsman Packaging Corporation, 13% due 6/01/2010 2,044,500
BB B1 2,975,000 Owens-Brockway Glass Container, 8.875% due 2/15/2009 3,123,750
B+ B3 2,875,000 Owens-Illinois Inc., 7.15% due 5/15/2005 2,903,750
B- Caa1 3,425,000 Pliant Corporation, 13% due 6/01/2010 2,979,750
B- B3 3,325,000 Tekni-Plex Inc., 12.75% due 6/15/2010 3,208,625
U.S. Can Corporation:
CCC+ B3 625,000 10.875% due 7/15/2010 (a) 620,313
CCC+ Caa1 1,145,000 12.375% due 10/01/2010 887,375
-----------
26,032,000
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Paper--6.8% Ainsworth Lumber Company:
B- B3 $ 325,000 12.50% due 7/15/2007 (e) $ 364,000
B- B3 3,500,000 13.875% due 7/15/2007 3,937,500
B+ B2 3,325,000 Caraustar Industries Inc., 9.875% due 4/01/2011 3,192,000
Doman Industries Limited (b):
D Ca 1,125,000 8.75% due 3/15/2004 202,500
D Ca 900,000 9.25% due 11/15/2007 162,000
Georgia Pacific Corporation (a):
BB+ Ba2 2,275,000 7.375% due 7/15/2008 2,263,625
BB+ Ba2 3,225,000 9.375% due 2/01/2013 3,458,812
Graphic Packaging International (a):
B- B2 1,350,000 8.50% due 8/15/2011 1,410,750
B- B3 1,600,000 9.50% due 8/15/2013 1,680,000
B B2 4,875,000 Jefferson Smurfit Corporation, 8.25% due 10/01/2012 5,045,625
MDP Acquisitions PLC:
B B2 2,775,000 9.625% due 10/01/2012 2,997,000
B B3 89,755 15.50% due 10/01/2013 104,116
B B3 1,142,625 15.50% due 10/01/2013 (a) 1,325,445
BB+ Ba2 1,850,000 Norampac Inc., 6.75% due 6/01/2013 (a) 1,826,875
BB Ba2 4,000,000 Norske Skog of Canada, 8.625% due 6/15/2011 4,070,000
BB Ba1 900,000 Tembec Industries, Inc., 8.625% due 6/30/2009 886,500
-----------
32,926,748
- -----------------------------------------------------------------------------------------------------------------------------------
Services--4.6% Allied Waste North America:
BB- Ba3 900,000 7.625% due 1/01/2006 929,250
B+ B2 3,350,000 10% due 8/01/2009 3,626,375
BB- Ba3 1,525,000 7.875% due 4/15/2013 1,555,500
B B2 4,825,000 Coinmach Corporation, 9% due 2/01/2010 5,018,000
B B1 4,450,000 Corrections Corporation of America, 7.50% due 5/01/2011 4,516,750
Williams Scotsman, Inc.:
B B3 6,000,000 9.875% due 6/01/2007 5,880,000
B+ B2 625,000 10% due 8/15/2008 (a) 662,500
-----------
22,188,375
- -----------------------------------------------------------------------------------------------------------------------------------
Steel--2.1% B+ B2 1,550,000 AK Steel Corporation, 7.875% due 2/15/2009 1,224,500
B+ B2 3,200,000 Gerdau Ameristeel Corporation, 10.375% due 7/15/2011 (a) 3,272,000
NR* B1 750,000 Oregon Steel Mills Inc., 10% due 7/15/2009 596,250
B B3 5,000,000 UCAR Finance Inc., 10.25% due 2/15/2012 5,181,250
-----------
10,274,000
- -----------------------------------------------------------------------------------------------------------------------------------
Telecommunications-- B- B2 2,550,000 Alaska Communication System Holdings, 9.875% due 8/15/2011 (a) 2,562,750
4.5% BB+ B1 650,000 Eircom Funding, 8.25% due 8/15/2013 (a) 682,500
B- Caa1 5,200,000 Fairpoint Communications, 12.50% due 5/01/2010 5,512,000
Qwest Capital Funding:
CCC+ Caa2 1,825,000 5.875% due 8/03/2004 1,779,375
CCC+ Caa2 3,475,000 7.25% due 2/15/2011 2,936,375
CCC+ NR* 1,975,000 Qwest Services Corporation, 13.50% due 12/15/2010 (a) 2,261,375
CCC+ B3 3,265,000 Time Warner Telecom Inc., 10.125% due 2/01/2011 3,101,750
CCC+ B3 1,500,000 Time Warner Telecom LLC, 9.75% due 7/15/2008 1,410,000
CCC+ Caa2 2,175,000 US West Capital Funding, 6.25% due 7/15/2005 2,055,375
-----------
22,301,500
- -----------------------------------------------------------------------------------------------------------------------------------
10 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Schedule of Investments (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation--2.7% B+ B1 $ 2,325,000 General Maritime Corporation, 10% due 3/15/2013 (a) $ 2,537,156
NR* B2 3,150,000 Laidlaw International Inc., 10.75% due 6/15/2011 (a) 3,307,500
BB Ba3 525,000 Stena AB, 9.625% due 12/01/2012 570,281
BB- Ba2 6,000,000 Teekay Shipping Corporation, 8.875% due 7/15/2011 6,517,500
-----------
12,932,437
- -----------------------------------------------------------------------------------------------------------------------------------
Utility--13.7% The AES Corporation:
B- B3 2,624,000 9.375% due 9/15/2010 2,519,040
B+ B2 3,475,000 8.75% due 5/15/2013 (a) 3,535,812
B+ B2 4,650,000 9% due 5/15/2015 (a) 4,719,750
D C 1,450,000 AES Drax Energy Ltd., 11.50% due 8/30/2010 (b) 10,875
BB+ Ba1 1,250,000 Avista Corporation, 9.75% due 6/01/2008 1,426,562
B+ B3 722,000 CMS Energy Corporation, 6.75% due 1/15/2004 729,220
CCC+ B1 8,525,000 Calpine Canada Energy Finance, 8.50% due 5/01/2008 6,479,000
Calpine Corporation:
CCC+ B1 2,350,000 8.25% due 8/15/2005 2,115,000
CCC+ B1 145,000 4% due 12/26/2006 (Convertible) (a) 131,225
B Caa1 3,300,000 Coastal Corporation, 7.75% due 6/15/2010 2,871,000
BBB- Baa3 2,250,000 Consumers Energy Company, 7.375% due 9/15/2023 2,282,119
BB Ba1 2,159,000 ESI Tractebel Acquisition Corp., 7.99% due 12/30/2011 2,132,012
B- B3 1,350,000 Edison International Inc., 6.875% due 9/15/2004 1,370,250
B B3 3,750,000 Illinois Power Corporation, 11.50% due 12/15/2010 (a) 4,237,500
BB Ba1 2,550,000 MSW Energy Holdings, 8.50% due 9/01/2010 (a) 2,601,000
B- Caa2 10,050,000 Mission Energy Holdings, 13.50% due 7/15/2008 5,628,000
Nevada Power Company:
NR* Ba2 2,950,000 10.875% due 10/15/2009 3,248,688
BB Ba2 1,400,000 9% due 8/15/2013 (a) 1,459,500
Northwest Pipeline Corporation:
B+ B1 925,000 0.625% due 12/01/2007 920,375
B+ B1 500,000 8.125% due 3/01/2010 520,000
BB Ba2 2,800,000 Sierra Pacific Power Company, 8% due 6/01/2008 2,863,000
B+ B1 1,550,000 Southern Natural Gas, 8.875% due 3/15/2010 1,635,250
BBB- Ba1 2,175,000 Western Resources Inc., 7.875% due 5/01/2007 2,373,469
Williams Companies Inc.:
B+ B3 2,275,000 9.25% due 3/15/2004 2,314,813
B+ B3 3,200,000 6.50% due 8/01/2006 3,128,000
B+ B3 5,250,000 8.125% due 3/15/2012 5,302,500
-----------
66,553,960
- -----------------------------------------------------------------------------------------------------------------------------------
Wireless--6.2% CCC Caa1 5,325,000 American Tower Corporation, 9.375% due 2/01/2009 5,391,562
CCC B3 1,350,000 American Tower Escrow, 14.89%** due 8/01/2008 891,000
CCC Caa1 1,425,000 Centennial Cell/Communications, 10.125% due 6/15/2013 (a) 1,474,875
CCC B3 4,750,000 Crown Castle International Corporation, 9.375% due 8/01/2011 4,951,875
CCC+ B3 2,900,000 Mobifon Holdings BV, 12.50% due 7/31/2010 (a) 3,074,000
NR* NR* 3,422,680 NII Holdings Inc., 19.13%** due 11/01/2009 (a) 3,320,000
Nextel Communications, Inc.:
B+ B2 1,050,000 9.50% due 2/01/2011 1,149,750
B+ B2 1,425,000 7.375% due 8/01/2015 1,428,563
CCC+ B3 1,550,000 Spectrasite Inc., 8.25% due 5/15/2010 (a) 1,612,000
BBB Baa2 3,650,000 Tritel PCS Inc., 10.375% due 1/15/2011 4,389,125
CCC Caa2 2,425,000 Western Wireless Corporation, 9.25% due 7/15/2013 (a) 2,425,000
-----------
30,107,750
-------------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds
(Cost--$612,278,127)--130.7% 637,264,684
=============================================================================================================
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in U.S. dollars)
Industry+ Shares Held Preferred Stocks Value
- -----------------------------------------------------------------------------------------------------------------------------------
Automotive--1.1% 205,000 General Motors Corp. (Convertible) $ 5,377,150
-------------------------------------------------------------------------------------------------------------
Total Investments in Preferred Stocks (Cost--$5,124,065)--1.1% 5,377,150
=============================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants (f)
- -----------------------------------------------------------------------------------------------------------------------------------
Paper--0.0% 1,100 MDP Acquisitions PLC 11
- -----------------------------------------------------------------------------------------------------------------------------------
Wireless--0.0% 1,350 American Tower Corporation 178,875
-------------------------------------------------------------------------------------------------------------
Total Investments in Warrants (Cost--$87,831)--0.0% 178,886
=============================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Short-Term Securities
- -----------------------------------------------------------------------------------------------------------------------------------
$297,938 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (g) 297,938
-------------------------------------------------------------------------------------------------------------
Total Investments in Short-Term Securities
(Cost--$297,938)--0.1% 297,938
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$617,787,961)--131.9% 643,118,658
Unrealized Appreciation on Swaps***--0.1% 455,461
Liabilities in Excess of Other Assets--(32.0%) (156,029,078)
------------
Net Assets--100.0% $487,545,041
============
+ For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
industry classifications are unaudited.
++ Ratings of issues shown are unaudited.
* Not Rated.
** Represents a zero coupon or step bond; the interest rate shown reflects
the effective yield at the time of purchase by the Fund.
*** Swaps entered into as of August 31, 2003 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Receive a price return equal to
1-month USD LIBOR and pay
a fixed rate equal to 1.56%
Broker, UBS Warburg
Expires June 2005 (50,000,000) $455,461
--------------------------------------------------------------------------
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Non-income producing security.
(c) Tradeable Custodial Receipts (TRACERS).
(d) Restricted securities as to resale. The value of the Fund's investment in
restricted securities was approximately $1,698,000, representing 0.3% of
net assets.
--------------------------------------------------------------------------
Acquisition
Issue Dates Cost Value
--------------------------------------------------------------------------
HMP Equity Holdings
Corporation, 14.96% 4/30/2003-
due 5/15/2008 5/07/2003 $1,775,646 $1,697,500
--------------------------------------------------------------------------
Total $1,775,646 $1,697,500
========================
(e) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(f) Warrants entitle the Fund to purchase a predetermined number of shares of
common stock and are non-income producing. The purchase price and number
of shares are subject to adjustment under certain conditions until the
expiration date.
(g) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $297,938 $4,151
--------------------------------------------------------------------------
See Notes to Financial Statements.
12 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Statement of Assets, Liabilities and Capital
As of August 31, 2003
- -----------------------------------------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost--$617,787,961) ............. $643,118,658
Unrealized appreciation on swaps .................................. 455,461
Receivables:
Interest ....................................................... $ 14,058,132
Securities sold ................................................ 2,602,181 16,660,313
------------
Prepaid expenses and other assets ................................. 97,762
------------
Total assets ...................................................... 660,332,194
------------
- -----------------------------------------------------------------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Loans ............................................................. 170,700,000
Payables:
Custodian bank ................................................. 845,692
Dividends to shareholders ...................................... 620,204
Investment adviser ............................................. 299,775
Reorganization costs ........................................... 145,429
Interest on swaps .............................................. 81,111
Interest on loans .............................................. 60,267
Other affiliates ............................................... 4,501 2,056,979
------------
Accrued expenses and other liabilities ............................ 30,174
------------
Total liabilities ................................................. 172,787,153
------------
- -----------------------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Net assets ........................................................ $487,545,041
============
- -----------------------------------------------------------------------------------------------------------------------
Capital
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, $.10 par value, 200,000,000 shares authorized ....... $ 3,272,978
Paid-in capital in excess of par .................................. 463,198,592
Undistributed investment income--net .............................. $ 4,422,619
Accumulated realized capital losses on investments--net ........... (9,135,306)
Unrealized appreciation on investments--net ....................... 25,786,158
------------
Total accumulated earnings--net ................................... 21,073,471
------------
Total--Equivalent to $14.90 per share based on 32,729,784 shares of
capital stock outstanding (market price--$14.47) ................ $487,545,041
============
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 13
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended August 31, 2003
- -----------------------------------------------------------------------------------------------------------------------
Investment Income
- -----------------------------------------------------------------------------------------------------------------------
Interest .......................................................... $ 43,310,090
Other ............................................................. 511,528
------------
Total income ...................................................... 43,821,618
------------
- -----------------------------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------------------------
Investment advisory fees .......................................... $ 2,480,085
Loan interest expense ............................................. 1,498,379
Borrowing costs ................................................... 239,192
Reorganization costs .............................................. 169,410
Accounting services ............................................... 117,043
Professional fees ................................................. 95,271
Transfer agent fees ............................................... 46,602
Printing and shareholder reports .................................. 35,354
Directors' fees and expenses ...................................... 33,272
Listing fees ...................................................... 32,697
Custodian fees .................................................... 28,704
Pricing services .................................................. 22,880
Other ............................................................. 38,283
------------
Total expenses .................................................... 4,837,172
------------
Investment income--net ............................................ 38,984,446
------------
- -----------------------------------------------------------------------------------------------------------------------
Realized & Unrealized Gain on Investments--Net
- -----------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ................................. 4,098,708
Change in unrealized appreciation/depreciation on investments--net 43,442,753
------------
Total realized and unrealized gain on investments--net ............ 47,541,461
------------
Net Increase in Net Assets Resulting from Operations .............. $ 86,525,907
============
See Notes to Financial Statements.
14 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Statements of Changes in Net Assets
For the Period
For the Year November 30,
Ended 2001+ to
August 31, August 31,
Increase (Decrease) in Net Assets: 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Operations
- -----------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................ $ 38,984,446 $ 19,726,177
Realized gain (loss) on investments--net .......................... 4,098,708 (4,312,760)
Change in unrealized appreciation/depreciation on investments--net 43,442,753 (30,963,611)
-----------------------------
Net increase (decrease) in net assets resulting from operations ... 86,525,907 (15,550,194)
-----------------------------
- -----------------------------------------------------------------------------------------------------------------------
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from investment income--net ............. (37,430,569) (16,975,942)
-----------------------------
- -----------------------------------------------------------------------------------------------------------------------
Capital Stock Transactions
- -----------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of Common Stock ............................ -- 261,073,125
Proceeds from issuance of Common Stock resulting from reorganization 199,876,616 --
Value of shares issued to Common Stock shareholders in reinvestment
of dividends ...................................................... 6,037,480 4,201,898
Offering costs resulting from the issuance of Common Stock ........ 114,993 (428,276)
-----------------------------
Net increase in net assets derived from capital stock transactions 206,029,089 264,846,747
-----------------------------
- -----------------------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Total increase in net assets ...................................... 255,124,427 232,320,611
Beginning of period ............................................... 232,420,614 100,003
-----------------------------
End of period* .................................................... $487,545,041 $232,420,614
=============================
* Undistributed investment income--net ......................... $ 4,422,619 $ 2,750,235
=============================
+ Commencement of operations.
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 15
[LOGO] Merrill Lynch Investment Managers
Statement of Cash Flows
For the Year Ended August 31, 2003
- ---------------------------------------------------------------------------------------------------------------------------
Cash Provided by Operating Activities
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations .................................. $ 86,525,907
Adjustments to reconcile net increase in net assets resulting from operations to
net cash provided by operating activities:
Decrease in receivables ............................................................ (432,127)
Increase in other assets ........................................................... (64,206)
Increase in other liabilities ...................................................... 398,556
Realized and unrealized gain on investments--net ................................... (47,541,461)
Amortization of discount ........................................................... (5,358,206)
-------------
Net cash provided by operating activities ............................................. 33,528,463
-------------
- ---------------------------------------------------------------------------------------------------------------------------
Cash Used for Investing Activities
- ---------------------------------------------------------------------------------------------------------------------------
Proceeds from sales and paydowns of long-term investments ............................. 335,791,247
Purchases of long-term investments .................................................... (394,783,030)
Purchases of short-term investments--net .............................................. (294,907)
-------------
Net cash used for investing activities ................................................ (59,286,690)
-------------
- ---------------------------------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities
- ---------------------------------------------------------------------------------------------------------------------------
Cash receipts from borrowings ......................................................... 255,900,000
Cash payments on borrowings ........................................................... (197,300,000)
Dividends paid to shareholders ........................................................ (33,017,797)
-------------
Net cash provided by financing activities ............................................. 25,582,203
-------------
- ---------------------------------------------------------------------------------------------------------------------------
Cash
- ---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash .................................................................. (176,024)
Cash at beginning of year ............................................................. 176,024
-------------
Cash at end of year ................................................................... $ --
=============
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flow Information
- ---------------------------------------------------------------------------------------------------------------------------
Cash paid for interest ................................................................ $ 1,495,512
=============
- ---------------------------------------------------------------------------------------------------------------------------
Non-Cash Financing Activities
- ---------------------------------------------------------------------------------------------------------------------------
Reinvestment of dividends paid to shareholders ........................................ $ 6,037,480
=============
Capital shares issued to acquire Corporate High Yield Fund IV, Inc. ................... $ 199,876,616
=============
Included in the merger were borrowings assumed from Corporate High Yield Fund IV, Inc. $ 53,700,000
=============
See Notes to Financial Statements.
16 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Financial Highlights
For the Period
The following per share data and ratios have been derived For the Year November 30,
from information provided in the financial statements. Ended 2001+ to
August 31, August 31,
Increase (Decrease) in Net Asset Value: 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................................... $ 12.54 $ 14.33
----------------------------
Investment income--net ............................................... 1.68 1.08
Realized and unrealized gain (loss) on investments--net .............. 2.37 (1.92)
----------------------------
Total from investment operations ........................................ 4.05 (.84)
----------------------------
Less dividends from investment income--net .............................. (1.69) (.93)
----------------------------
Capital charge resulting from the issuance of Common Stock .............. --@@ (.02)
----------------------------
Net asset value, end of period .......................................... $ 14.90 $ 12.54
============================
Market price per share, end of period ................................... $ 14.47 $ 12.50
============================
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ...................................... 34.62% (6.31%)@
============================
Based on market price per share ......................................... 31.16% (6.61%)@
============================
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and excluding interest expense .................. 1.05% .63%*
============================
Expenses, net of waiver ................................................. 1.52% .89%*
============================
Expenses ................................................................ 1.52% 1.12%*
============================
Investment income--net .................................................. 12.22% 10.31%*
============================
- ------------------------------------------------------------------------------------------------------------------------------
Leverage
- ------------------------------------------------------------------------------------------------------------------------------
Amount of borrowings outstanding, end of period (in thousands) .......... $ 170,700 $ 58,400
============================
Average amount of borrowings outstanding during the period (in thousands) $ 93,361 $ 30,993
============================
Average amount of borrowings outstanding per share during the period .... $ 4.25 $ 1.71
============================
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................................ $ 487,545 $ 232,421
============================
Portfolio turnover ...................................................... 83.95% 49.51%
============================
* Annualized.
** 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. For the period November 30, 2001 to August 31, 2002, the Fund's
Investment Adviser waived a portion of its management fee. Without such
waiver, the Fund's performance would have been lower.
+ Commencement of operations.
@ Aggregate total investment return.
@@ Amount is less than $.01 per share.
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 17
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements
1. Significant Accounting Policies:
Corporate High Yield Fund V, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund's financial statements are prepared in
conformity with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates. The
Fund determines and makes available for publication the net asset value of its
Common Stock on a weekly basis. The Fund's Common Stock is listed on the New
York Stock Exchange ("NYSE") under the symbol HYV. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- Securities that are held by the Fund that are
traded on stock exchanges or the Nasdaq National Market are valued at the last
sale price or official close price on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price for long positions, and
at the last available ask price for short positions. In cases where 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 in securities traded in the
over-the-counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are valued
at the last available bid price or yield equivalent obtained from one or more
dealers or pricing services approved by the Board of the Fund. Short positions
in securities traded in the OTC market are valued at the last available ask
price. Portfolio securities that are traded both in the OTC market and on a
stock exchange are valued according to the broadest and most representative
market. When the Fund writes an option, the amount of the premium received is
recorded on the books of the Fund as an asset and an equivalent liability. The
amount of the liability is subsequently valued to reflect the current market
value of the option written, based on the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last ask price. Options purchased by the Fund are valued at their last sale
price in the case of exchange-traded options or, in the case of options traded
in the OTC market, the last bid price. The value of swaps, including interest
rate swaps, caps and floors, will be determined by obtaining dealer quotations.
Other investments, including futures contracts and related options, are stated
at market value. Obligations with remaining maturities of 60 days or less are
valued at amortized cost unless the Investment Adviser believes that this method
no longer produces fair valuations. Repurchase agreements will be valued at cost
plus accrued interest. The Fund employs certain pricing services to provide
securities prices for the Fund. Securities and 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 Directors of the Fund, including
valuations furnished by the pricing services retained by the Fund, which may use
a matrix system for valuations. The procedures of a pricing service and its
valuations are reviewed by the officers of the Fund under the general
supervision of the Directors. Such valuations and procedures will be reviewed
periodically by the Directors.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the NYSE. The values of such securities
used in computing the net asset value of the Fund's shares are determined as of
such times. Foreign currency exchange rates also are generally determined prior
to the close of business on the NYSE. Occasionally, events affecting the values
of such securities and such exchange rates may occur between the times at which
they are determined and the close of business on the NYSE that may not be
reflected in the computation of the Fund's net asset value. If events (for
example, a company announcement, market volatility or a natural disaster) occur
during such periods that are expected to materially affect the value of such
securities, those securities may be valued at their fair value as determined in
good faith by the Board of Directors or by the Investment Adviser using a
pricing service and/or procedures approved by the 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 movement and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Options -- The Fund 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.
18 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Notes to Financial Statements (continued)
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the
basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to
the extent of the premiums received or paid (or gain or loss to the extent
the cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed.
o Swaps -- The Fund may enter into swap agreements, which are
over-the-counter contracts in which the Fund and a counterparty agree to
make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by a
pre-determined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Offering expenses -- Direct expenses relating to the public offering of the
Fund's Common Stock were charged to capital at the time of issuance of the
shares.
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(g) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any 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.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
(h) Custodian bank -- The Fund recorded an amount payable to the custodian bank
resulting from a timing difference of security settlements and dividend
payments.
(i) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $88,902 have been
reclassified between paid-in capital in excess of par and undistributed net
investment income and $29,605 has been reclassified between accumulated net
realized capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operation of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .60% of the Fund's average weekly net assets plus the proceeds
of any outstanding principal borrowed. FAM has entered into a Sub-Advisory
Agreement with Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an
affiliate of FAM, pursuant to which MLAM U.K. provides investment advisory
services to FAM with respect to the Fund. There is no increase in the aggregate
fees paid by the Fund for these services.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a subsidiary of ML & Co.
received $10,031 in commissions on the execution of portfolio security
transactions for the Fund for the year ended August 31, 2003.
For the year ended August 31, 2003, the Fund reimbursed FAM $7,459 for certain
accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, MLAM U.K., and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 2003 were $387,762,682 and $334,721,760, respectively.
Net realized gains for the year ended August 31, 2003 and net unrealized gains
as of August 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ................ $ 4,098,708 $25,330,697
Swaps ................................ -- 455,461
--------------------------------
Total ................................ $ 4,098,708 $25,786,158
================================
As of August 31, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $24,870,325, of which $42,758,422 related to appreciated
securities and $17,888,097 related to depreciated securities. The aggregate cost
of investments at August 31, 2003 for Federal income tax purposes was
$618,248,333.
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 year ended August 31, 2003 increased by
13,724,304 as a result of the reorganization and by 463,835 as a result of
dividend reinvestment and during the period November 30, 2001 to August 31, 2002
increased by 18,225,000 from shares sold and by 309,664 as a result of dividend
reinvestment.
20 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Notes to Financial Statements (concluded)
5. Short-Term Borrowings:
On May 28, 2003, the Fund renewed its $255,000,000 revolving credit and security
agreement with Citibank, N.A. and other lenders (the "Lenders"). Under the
revolving credit and security agreement, the Fund may borrow money through (i) a
line of credit from certain Lenders at the Eurodollar rate plus .75% or the
highest of the Federal Funds rate plus .50%, a base rate as determined by
Citibank, N.A. and/or the latest three-week moving average of secondary market
morning offering rates in the United States for three-month certificates of
deposit of major United States money market banks plus .50%, or (ii) the
issuance of commercial paper notes by certain Lenders at rates of interest based
upon the weighted average of the per annum rates paid or payable by such Lenders
in respect of those commercial paper notes. As security for its obligations to
the Lenders under the revolving credit and security agreement, the Fund has
granted a security interest in substantially all of its assets to and in favor
of the Lenders.
For the year ended August 31, 2003, the average amount borrowed was
approximately $93,361,000 and the daily weighted average borrowing rate was
1.61%.
6. Distributions to Shareholders:
The Fund paid an ordinary income dividend in the amount of $.137575 per share on
September 30, 2003 to shareholders of record on September 16, 2003.
The tax character of distributions paid during the fiscal years ended August 31,
2003 and August 31, 2002 was as follows:
- --------------------------------------------------------------------------------
11/30/2001+
8/31/2003 to 8/31/2002
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $37,430,569 $16,975,942
------------------------------
Total taxable distributions .............. $37,430,569 $16,975,942
==============================
+ Commencement of operations.
As of August 31, 2003, the components of accumulated earnings on a tax basis
were as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income--net ...................... $ 4,663,512
Undistributed long-term capital gains--net .............. 1,421,697
------------
Total undistributed earnings--net ....................... 6,085,209
Capital loss carryforward ............................... (10,283,926)*
Unrealized gains--net ................................... 25,272,188**
------------
Total accumulated earnings--net ......................... $ 21,073,471
============
* On August 31, 2003, the Fund had a net capital loss carryforward of
$10,283,926, all of which expires in 2010. This amount will be available
to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities and book/tax differences in the
accrual of income on securities in default.
7. Acquisition of Corporate High Yield Fund IV, Inc.:
On May 2, 2003, the Fund acquired all of the net assets of Corporate High Yield
Fund IV, Inc. pursuant to a plan of reorganization. The acquisition was
accomplished by a tax-free exchange of 13,714,828 shares of common stock of
Corporate High Yield Fund IV, Inc. for 13,724,304 shares of common stock of the
Fund. Corporate High Yield Fund IV, Inc. net assets on that date of
$199,876,616, including $13,307,016 of unrealized appreciation and $8,891,649 of
accumulated net realized capital losses, were combined with those of the Fund.
The aggregate net assets immediately after the acquisition amounted to
$476,020,115.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 21
[LOGO] Merrill Lynch Investment Managers
Independent Auditors' Report
To the Shareholders and Board of Directors of
Corporate High Yield Fund V, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of Corporate High Yield Fund V, Inc. as
of August 31, 2003, the related statements of operations and cash flows for the
year then ended, the statements of changes in net assets and the financial
highlights for the year then ended and for the period November 30, 2001
(commencement of operations) to August 31, 2002. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2003, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Corporate High Yield Fund V, Inc. as of August 31, 2003, the results of its
operations and its cash flows for the year then ended, and the changes in its
net assets and its financial highlights for the year then ended and for the
period November 30, 2001 through August 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
October 22, 2003
22 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Automatic Dividend Reinvestment Plan
The following description of the Fund's Automatic Dividend Reinvestment Plan
(the "Plan") is sent to you annually as required by Federal securities laws.
Pursuant to the Fund's Plan, unless a holder of Common Stock otherwise elects,
all dividend and capital gains distributions will be automatically reinvested by
EquiServe (the "Plan Agent"), as agent for shareholders in administering the
Plan, in additional shares of Common Stock of the Fund. Holders of Common Stock
who elect not to participate in the Plan will receive all distributions in cash
paid by check mailed directly to the shareholder of record (or, if the shares
are held in street or other nominee name then to such nominee) by The Bank of
New York, as dividend paying agent. Such participants may elect not to
participate in the Plan and to receive all distributions of dividends and
capital gains in cash by sending written instructions to The Bank of New York,
as dividend paying agent, at the address set forth below. Participation in the
Plan is completely voluntary and may be terminated or resumed at any time
without penalty by written notice if received by the Plan Agent not less than
ten days prior to any dividend record date; otherwise such termination will be
effective with respect to any subsequently declared dividend or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized shares of Common Stock from the Fund ("newly issued shares") or (ii)
by purchase of outstanding shares of Common Stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such conditions being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that the Fund
will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date determined by dividing the
uninvested portion of the dividend by the net asset value per share.
The Plan Agent maintains all shareholders' accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Plan Agent in non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 23
[LOGO] Merrill Lynch Investment Managers
Automatic Dividend Reinvestment Plan (concluded)
In the case of shareholders such as banks, brokers or nominees which hold shares
of others who are the beneficial owners, the Plan Agent will administer the Plan
on the basis of the number of shares certified from time to time by the record
shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends.
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price plus commissions
of the Fund's shares is above the net asset value, participants in the Plan will
receive shares of the Fund at less than they could otherwise purchase them and
will have shares with a cash value greater than the value of any cash
distribution they would have received on their shares. If the market price plus
commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem
shares, the price on resale may be more or less than the net asset value.
The value of shares acquired pursuant to the Plan will generally be excluded
from gross income to the extent that the cash amount reinvested would be
excluded from gross income. If, when the Fund's shares are trading at a premium
over net asset value, the Fund issues shares pursuant to the Plan that have a
greater fair market value than the amount of cash reinvested, it is possible
that all or a portion of such discount (which may not exceed 5% of the fair
market value of the Fund's shares) could be viewed as a taxable distribution. If
the discount is viewed as a taxable distribution, it is also possible that the
taxable character of this discount would be allocable to all the shareholders,
including shareholders who do not participate in the Plan. Thus, shareholders
who do not participate in the Plan might be required to report as ordinary
income a portion of their distributions equal to their allocable share of the
discount.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants in the Plan; however, the Fund reserves the right
to amend the Plan to include a service charge payable by the participants.
All correspondence concerning the Plan should be directed to the Plan Agent at
EquiServe, P.O. Box 43010, Providence, RI 02940-3010, Telephone: 800-426-5523.
24 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Portfolio Information (unaudited)
Percent of
As of August 31, 2003 Long-Term Investments
- ------------------------------------------------------------------------------------------------------------------------------------
Ten Largest Holdings
- ------------------------------------------------------------------------------------------------------------------------------------
Williams Companies Inc.* Williams Companies is involved in a number of energy-related businesses.
Activities include transport and storage of natural gas and other
petroleum products, as well as oil and gas exploration and production.
The company also is a refiner of petroleum products and trades energy
and related commodities. 1.9%
- ------------------------------------------------------------------------------------------------------------------------------------
The AES Corporation* AES is a worldwide power producer with operations in the United States,
Europe, Latin America and Asia. Electricity generation and sales are
primarily to wholesale customers, although the company has a direct
distribution business to end users. 1.7
- ------------------------------------------------------------------------------------------------------------------------------------
Qwest* Qwest provides a broad range of telecommunications services, including
broadband Internet-based data, voice and image communication, local
exchange services, and data and long-distance services to residential
and business customers. The company also provides Web hosting,
high-speed Internet access and private networks. 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Calpine* Calpine owns, develops and operates power-generation facilities in
addition to selling electricity in the United States. The company also
provides thermal energy for industrial customers. 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Vivendi Universal* Vivendi is a diversified media company. The company records and
publishes music, produces and distributes television programming and
movies, publishes interactive games and offers communication services. 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
Primedia, Inc. Primedia, a media company, provides specialized information in the
consumer, business-to-business and education markets. The company's
products include specialty magazines, technical and trade magazines,
information products, supplemental education materials and vocational
networks. Primedia's consumer magazines include Seventeen and New York. 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
International Specialty Products (ISP)* International Specialty Products Inc. manufactures specialty chemicals,
mineral products and filter products, including filter vessels, bags and
systems. The company's chemical products are used in the
pharmaceuticals, hair and skin care, plastics, agricultural, coatings
and adhesives markets while its mineral products are sold to the roofing
industry. 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
HMP Equity Holdings Corporation HMP is a diversified specialty and performance chemical producer. The
company's polyurethane products have applications in coatings, athletic
footwear and insulation, among others. Titanium dioxide is used in
paints and architectural coatings. Other specialty chemicals have
diverse uses in industrial and consumer markets, including personal care
and household products. 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. Comcast provides communications services to residential, business and
wholesale customers. The company offers residential telephony, cable
television and Internet access services. 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
CSC Holdings Inc.* CSC provides telecommunications and entertainment services. The company
has operations in multimedia delivery, subscription cable television
services, championship professional sports teams and national television
program networks. CSC serves cable customers primarily in the New York
metropolitan area. 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
* Includes combined holdings and/or affiliates.
Portfolio Profile
Quality Ratings by Percent of
Standard & Poor's Long-Term Investments
- --------------------------------------------------------------------------------
BBB ...................................................... 4%
BB ....................................................... 21
B ........................................................ 58
CCC ...................................................... 16
NR (Not Rated) ........................................... 1
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Total Assets
- --------------------------------------------------------------------------------
Utilities ................................................ 10.1%
Chemicals ................................................ 6.5
Gaming ................................................... 5.7
Diversified Media ........................................ 5.6
Cable--U.S. .............................................. 5.1
- --------------------------------------------------------------------------------
* For Fund compliance purposes, "Industries" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
industry classifications are unaudited.
Percent of
Top Five Foreign Countries* Long-Term Investments
- --------------------------------------------------------------------------------
Canada ................................................... 4.0%
France ................................................... 2.0
Marshall Islands ......................................... 1.4
Bermuda .................................................. 1.2
Luxembourg ............................................... 1.2
- --------------------------------------------------------------------------------
* All holdings are denominated in U.S. dollars.
Percent of
Foreign Holdings* Long-Term Investments
- --------------------------------------------------------------------------------
Total Foreign Holdings ................................... 13.7%
Emerging Markets Holdings ................................ 0
- --------------------------------------------------------------------------------
* All holdings are denominated in U.S. dollars.
- --------------------------------------------------------------------------------
Average Portfolio Maturity ............................... 6.9 years
- --------------------------------------------------------------------------------
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 25
[LOGO] Merrill Lynch Investment Managers
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
- ------------------------------------------------------------------------------------------------------------------------------------
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 2001 to President and Chairman of Merrill Lynch Invest- 122 Funds None
Glenn* Princeton, NJ and present ment Managers, L.P. ("MLIM")/Fund Asset 163 Portfolios
08543-9011 Director Management, L.P. ("FAM")--Advised Funds since
Age: 62 1999; Chairman (Americas Region) of MLIM from
2000 to 2002; Executive Vice President of FAM
and MLIM (which terms as used herein include
their corporate predecessors) from 1983 to 2002;
President of FAM Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof from 1991 to
2002; Executive Vice President and Director of
Princeton Services, Inc. ("Princeton Services")
from 1993 to 2002; President of Princeton
Administrators, L.P. from 1989 to 2002; Director
of Financial Data Services, Inc. since 1985.
----------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM
or MLIM acts as investment adviser. Mr. Glenn is an "interested person" as described in the Investment Company Act,
of the Fund based on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton Administrators,
L.P. The Director's term is unlimited. Directors serve until their resignation, removal, or death, or until
December 31 of the year in which they turn 72. As Fund President, Mr. Glenn serves at the pleasure of the Board of
Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
Independent Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director 2002 to Director, The China Business Group, Inc. since 40 Funds None
Bodurtha Princeton, NJ present 1996 and Executive Vice President thereof from 59 Portfolios
08543-9095 1996 to 2003; Chairman, Berkshire Holding
Age: 59 Corporation since 1980; Partner, Squire Sanders &
Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Director 2001 to Member of the Committee of Investment of 40 Funds Kimco Realty
Grills Princeton, NJ present Employee Benefit Assets of the Association of 59 Portfolios Corporation
08543-9095 Financial Professionals ("CIEBA") since 1986 and
Age: 68 its Chairman from 1991 to 1992; Member of the
Investment Advisory Committees of the State of
New York Common Retirement Fund since 1989;
Member of the Investment Advisory Committee of
the Howard Hughes Medical Institute from 1997 to
2000; Director, Duke Management Company since
1992 and Vice Chairman thereof since 1998;
Director, LaSalle Street Fund from 1995 to 2001;
Director, Kimco Realty Corporation since 1997;
Member of the Investment Advisory Committee of
the Virginia Retirement System since 1998 and Vice
Chairman thereof since 2002; Director, Montpelier
Foundation since 1998 and Vice Chairman thereof
since 2000; Member of the Investment Committee
of the Woodberry Forest School since 2000; Member
of the Investment Committee of the National Trust
for Historic Preservation since 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director 2002 to John M. Olin Professor of Humanities, New York 40 Funds None
London Princeton, NJ present University since 1993 and Professor thereof 59 Portfolios
08543-9095 since 1980; President of Hudson Institute since
Age: 64 1997 and Trustee thereof since 1980.
- ------------------------------------------------------------------------------------------------------------------------------------
26 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003
Officers and Directors (unaudited) (concluded)
Number of
Portfolios in Other Public
Position(s) Length Fund Complex Directorships
Held of Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
- ------------------------------------------------------------------------------------------------------------------------------------
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Andre F. P.O. Box 9095 Director 2002 to George Gund Professor of Finance and Banking, 40 Funds None
Perold Princeton, NJ present Harvard Business School since 2000 and a member 59 Portfolios
08543-9095 of the faculty since 1979; Director and Chairman
Age: 51 of the Board, UNX, Inc. since 2003; Director,
Sanlam Limited and Sanlam Life since 2001;
Director, Genbel Securities and Gensec Bank since
1999; Director, Stockback.com from 2002 to 2002;
Trustee, Commonfund from 1989 to 2001; Director,
Bulldogresearch.com from 2000 to 2001; Director,
Sanlam Investment Management from 1999 to 2001;
Director, Quantec Limited from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 40 Funds None
Cooper Ramo Princeton, NJ present Sisk, P.A. since 1993; Director of Cooper's, Inc. 59 Portfolios
08543-9095 since 1999 and Chairman of the Board since 2000;
Age: 61 Director of ECMC, Inc. since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director 2001 to Principal of STI Management since 1994; Trustee 40 Funds None
Salomon, Jr. Princeton, NJ present of Commonfund from 1980 to 2001; Regular 59 Portfolios
08543-9095 columnist with Forbes Magazine from 1992 to 2001;
Age: 66 Director of Rye Country Day School since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Director 2001 to Chairman, Fernwood Advisors (investment adviser) 41 Funds None
Swensrud Princeton, NJ present since 1996; Principal of Fernwood Associates 60 Portfolios
08543-9095 (financial consultant) since 1975; Chairman of
Age: 70 RPP Corporation since 1978; Director,
International Mobile Communications, Inc. since
1998.
----------------------------------------------------------------------------------------------------------------------
* The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Officers
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2001 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof since
Burke Princeton, NJ President present 1999; Senior Vice President and Treasurer of Princeton Services since 1999;
08543-9011 and Vice President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 43 Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
B. Daniel P.O. Box 9011 Vice 2002 to Director (Global Fixed Income) of MLIM since 2000; Vice President of MLIM from
Evans Princeton, NJ President present 1995 to 2000.
08543-9011
Age: 59
- ------------------------------------------------------------------------------------------------------------------------------------
Elizabeth M. P.O. Box 9011 Vice 2001 to Director (Global Fixed Income) of MLIM since 2000; Vice President of MLIM from
Phillips Princeton, NJ President present 1994 to 2001.
08543-9011
Age: 53
- ------------------------------------------------------------------------------------------------------------------------------------
David P.O. Box 9011 Secretary 2002 to Vice President of MLIM since 2000; Attorney in private practice from 1995 to
Clayton Princeton, NJ present 2000.
08543-9011
Age: 36
----------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
EquiServe
P.O. Box 43010
Providence, RI 02940-3010
NYSE Symbol
HYV
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2003 27
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Corporate High Yield Fund V, Inc. seeks to provide shareholders with current
income by investing primarily in a diversified portfolio of fixed income
securities that are rated in the lower rating categories of the established
rating services (Ba or lower by Moody's Investors Service, Inc. or BB or lower
by Standard & Poor's Corporation) or are unrated securities of comparable
quality.
This report, including the financial information herein, is transmitted to
shareholders of Corporate High Yield Fund V, Inc. for their information. It is
not a prospectus. The Fund has leveraged its Common Stock to provide Common
Stock shareholders with a potentially higher rate of return. Leverage creates
risk for Common Stock shareholders, including the likelihood of greater
volatility of net asset value and market price of Common Stock shares, and the
risk that fluctuations in short-term interest rates may reduce the Common
Stock's yield. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Corporate High Yield Fund V, Inc.
Box 9011
Princeton, NJ
08543-9011
#COYV -- 8/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request--
The registrant has adopted a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer and principal
accounting officer, or persons performing similar functions. A copy of
the code of ethics is available without charge upon request by calling
toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -
The registrant's board of directors has determined that (i) the
registrant has the following audit committee financial experts serving
on its audit committee and (ii) each audit committee financial expert
is independent: (1) Joe Grills, (2) Andre Perold, (3) Robert S.
Salomon, Jr., and (4) Stephen B. Swensrud.
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by
the principal accountant for the audit of the
registrant's annual financial statements or services
that are normally provided by the accountant in
connection with statutory and regulatory filings or
engagements for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and
related services by the principal accountant
that are reasonably related to the performance
of the audit of the registrant's financial
statements and are not reported under
paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising
the fees disclosed under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of
the services comprising the fees disclosed under this
category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services
provided by the principal accountant, other than
the services reported in paragraphs (a) through
(c) of this Item. Registrants shall describe the
nature of the services comprising the fees
disclosed under this category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of
Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by
the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for each
of the last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees. N/A
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities.
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to the
voting of proxies related to the portfolio securities held in the
account of one or more of its clients, including a Fund. Pursuant to
these Proxy Voting Procedures, the Investment Adviser's primary
objective when voting proxies is to make proxy voting decisions solely
in the best interests of each Fund and its shareholders, and to act in
a manner that the Investment Adviser believes is most likely to enhance
the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that the Investment Adviser considers
the interests of its clients, including the Funds, and not the
interests of the Investment Adviser, when voting proxies and that real
(or perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser's affiliates may serve as a
member of the Committee or participate in its decision making (except
to the extent such person is asked by the Committee to present
information to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser might
be asked to do so). The Committee determines how to vote the proxies of
all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes
are consistent with the best interests of those clients and are free
from unwarranted and inappropriate influences. The Committee
establishes general proxy voting policies for the Investment Adviser
and is responsible for determining how those policies are applied to
specific proxy votes, in light of each issuer's unique structure,
management, strategic options and, in certain circumstances, probable
economic and other anticipated consequences of alternate actions. In so
doing, the Committee may determine to vote a particular proxy in a
manner contrary to its generally stated policies. In addition, the
Committee will be responsible for ensuring that all reporting and
recordkeeping requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The
Investment Adviser believes that certain proxy voting issues require
investment analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee may elect
to adopt a common position for the Investment Adviser on certain proxy
votes that are akin to investment decisions, or determine to permit the
portfolio manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that
the Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in conjunction
with a Fund's portfolio manager, may determine that the Fund's specific
circumstances require that its proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to
securities of foreign issuers only on a best efforts basis and may
elect not to vote at all in certain countries where the Committee
determines that the costs associated with voting generally outweigh the
benefits. The Committee may at any time override these general policies
if it determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons
whose job responsibilities do not include contact with the Client and
whose job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service
or other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies relating
to the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may
elect to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation, but
believes that compensation matters are normally best determined by an
issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not be
supported.
o Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders)
is best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by
shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and opposes
shareholder resolutions "micromanaging" corporate conduct or requesting
release of information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the Committee
is generally supportive of proposals to require corporate disclosure of
matters that seem relevant and material to the economic interests of
shareholders, the Committee is generally not supportive of proposals to
require disclosure of corporate matters for other purposes.
Item 8 -- Reserved
Item 9(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Corporate High Yield Fund V, Inc.
By: /s/ Terry K. Glenn
---------------------------
Terry K. Glenn,
President of
Corporate High Yield Fund V, Inc.
Date: October 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
---------------------------
Terry K. Glenn,
President of
Corporate High Yield Fund V, Inc.
Date: October 24, 2003
By: /s/ Donald C. Burke
---------------------------
Donald C. Burke,
Chief Financial Officer of
Corporate High Yield Fund V, Inc.
Date: October 24, 2003
Attached hereto as a furnished exhibit are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act.