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: 08/31/04
Date of reporting period: 09/01/03 - 08/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Corporate High Yield
Fund V, Inc.
Annual Report
August 31, 2004
[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.
2 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
A Letter From the President
Dear Shareholder
In recent months, the Federal Reserve Board (the Fed) has taken center stage as
it shifts away from its long-accommodative monetary stance. The Fed raised the
Federal Funds rate 75 basis points (.75%) in three separate moves since June,
bringing the target short-term interest rate to 1.75% -- still low by historical
standards. The Fed has been deliberate in telegraphing its intention to take a
"measured" approach to interest rate increases in order to avoid upsetting the
economy or the financial markets, while still leaving room to move more
aggressively if inflation and economic growth accelerate more than anticipated.
The forward curve currently projects further increases in short-term interest
rates before year-end. In addition to the Fed policy change, the financial
markets recently have had to grapple with a tense geopolitical environment,
higher oil prices and the worry and anticipation that accompanies a presidential
election.
The transition to higher rates can cause concern among equity and fixed income
investors alike. For bond investors, rising interest rates means the value of
older issues declines because they bear the former lower interest rates. In
addition, increasing inflation erodes the purchasing power of fixed income
securities. Nevertheless, for the six-month and 12-month periods ended August
31, 2004, fixed income markets provided positive results. For example, the
Lehman Brothers Aggregate Bond Index returned +1.15% and +6.13%; the Credit
Suisse First Boston High Yield Index returned +3.42% and +14.68%; and the
Citigroup Mortgage Index returned +1.79% and +6.07% for the six-month and
12-month periods, respectively.
As always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. Our goal is to provide shareholders with
competitive returns, while always keeping one eye on managing the unavoidable
risk inherent in investing.
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, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Fund outperformed the benchmark CSFB High Yield Index for the year,
benefiting from its use of leverage and strong returns from several individual
holdings.
How did the Fund perform during the fiscal year?
For the 12-month period ended August 31, 2004, the Common Stock of Corporate
High Yield Fund V, Inc. had net annualized yields of 10.03% and 10.49%, based on
a year-end per share net asset value of $16.15 and a per share market price of
$15.44, respectively, and $1.620 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was +20.92%,
based on a change in per share net asset value from $14.90 to $16.15, and
assuming reinvestment of $1.626 per share ordinary income dividends and $0.061
per share capital gains distributions.
The Fund's return significantly exceeded that of the high yield market, as
measured by the Credit Suisse First Boston (CSFB) High Yield Index, which
returned +14.68% for the 12-month period ended August 31, 2004. The Fund
slightly underperformed its comparable Lipper category of High Current Yield
Funds (Leveraged), which had an average return of +21.05% for the year. (Funds
in this Lipper category aim for relatively high current yield from investment in
fixed income securities, have no quality or maturity restrictions and tend to
invest in lower-grade debt issues.)
For the six-month period ended August 31, 2004, the total investment return on
the Fund's Common Stock was +5.04%, based on a change in per share net asset
value from $16.21 to $16.15, and assuming reinvestment of $0.798 per share
ordinary income dividends. The Fund outperformed the +3.42% return of the CSFB
High Yield Index and the +4.85% average return of the Lipper High Current Yield
Funds (Leveraged) category for the same six-month period.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's common stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section of
this report. As a closed-end fund, the Fund's shares may trade in the secondary
market at a premium or a discount to the Fund's net asset value. As a result,
total investment returns based on changes in the market value of the Fund's
common stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
What factors contributed to the Fund's performance?
Expectations of economic recovery and improving corporate earnings supported a
strong high yield market for much of the 12-month period. Toward the end of the
Fund's fiscal year, yields on 10-year U.S. Treasury issues fell sharply amid
fears of an aborted recovery. Better-quality high yield bonds rallied because
their performance is more closely tied to the Treasury market.
The Fund's performance benefited from the use of leverage and positive results
from several holdings that rebounded during the period. The Fund's strongest
performers during the fiscal year were securities of companies with solid credit
quality and good earnings prospects, such as the convertible bonds of Tyco
International Group, and bonds issued by companies in previously downtrodden
sectors that have shown sustainable recovery, including those of independent
power producer Mission Energy Holding Company. Conversely, the value of our
holding in power producer Calpine Corp. declined significantly amid fears that
the company will not generate sufficient earnings growth to service its
substantial debt burden. We believe that Calpine, which is one of the
lowest-cost electricity producers in the industry, has significant asset value
and resources to pay its obligations for the next few years. In our view, a
strengthening economy should continue to support its earnings prospects.
What changes were made to the portfolio during the period?
We allocated approximately 6.5% of the Fund's net assets to convertible
securities in an effort to capture the potential upside in the equity markets.
The goal also was to diversify the portfolio amid what we believe is an
increasingly skittish and fully valued high yield market. Convertible securities
can be volatile, reflecting movements in the underlying stocks; therefore, we
anticipate that our holdings will be subject to the same risks. However, we have
attempted to mitigate that risk by choosing higher-quality issues and by
purchasing bonds that are somewhat insulated from downside volatility while
benefiting from rising stock prices. Among the Fund's most significant
convertible positions are General Motors Corp. (BBB) and Liberty Media
Corporation (BBB-). During
4 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
the period, we sold most of our position in Tyco International convertible bonds
at a substantial profit.
With short-term interest rates rising, we invested modestly in floating rate
securities and bank loans, which totaled approximately 3.3% of the portfolio's
net assets at the end of the period. In addition, we temporarily increased our
holdings in the riskier CCC-rated credits. The strong performance of a number of
our downtrodden credits -- most notably Mission Energy -- increased the Fund's
weighting in the CCC sector, as we did not reduce our holdings when the prices
of these securities rose. Our overweight position in this rating category also
reflects our view that the underlying credit quality of several companies with
CCC-rated securities is better than the credit quality implied by the rating. We
believe the low rating may reflect recently resolved financial difficulties (as
is the case with Qwest Communications, a telecommunications provider), or high
financial leverage on what we consider to be sound and improving fundamentals
(for example, American Tower Corporation).
The Fund's leverage position averaged 25.2% during the past six months. That is,
the Fund borrowed the equivalent of 25.2% of total assets invested, earning
incremental yield on the investments we made with the borrowed funds. As of
August 31, 2004, the Fund was 27.4% leveraged after borrowing $199.7 million at
a cost of 1.5%. Over the past 12 months, the average amount borrowed was
approximately $180.5 million and the daily weighted average borrowing rate was
1.42%. While leveraging will hinder the Fund's total return in a weak market,
the converse also is true. We intend to maintain our leverage position in the
mid-20% range, although that level may vary somewhat as we adjust the
portfolio's holdings. (For a more complete discussion of the benefits and risks
of leveraging, see page 2 of this report to shareholders.)
In May, we received approval from the Fund's Board of Directors to execute
various credit shorting strategies, such as selling uncovered call options or
buying protection under a credit default swap. However, we had not made use of
these capabilities as of period-end.
How would you characterize the Fund's position at the close of the period?
We expect increasing market volatility in the near term, but believe high yield
securities will continue to find support from a gradually improving economy and
the resultant positive corporate earnings. We have positioned the Fund to
benefit in this environment. We believe that higher interest rates will begin to
have a greater effect on the high yield market, and we have taken steps -- for
example, adding floating rate securities for interest rate protection -- to
moderate the impact on the portfolio.
Within this broad picture, we believe certain industries, such as the chemical
sector and the utility and independent power producer sector represent good
relative value. As of August 31, 2004, the Fund's largest industry allocations
were in chemicals, at 13.1% of net assets, and utilities at 12.8%. In our
opinion, the utility sector has exhibited favorable fundamentals, and the
independent power producer subsector 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 is underweight in the leisure sector, based on our belief that these
securities already have priced in the upside potential. We maintain an
underweight position in information technology, given our perception of high
valuations, unstable earnings and potentially limited recovery value if earnings
decline in the sector. We have limited exposure to the retail, food and drug,
and finance sectors based on what we believe is inadequate and uncertain asset
protection in these areas of the market. Similar to the CSFB High Yield Index,
the Fund had an average credit rating of B at the close of the period.
Elizabeth M. Phillips
Vice President and Portfolio Manager
September 17, 2004
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 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 B2 $ 3,700,000 Alliant Techsystems Inc. 2.75% due 2/15/2024
Defense--2.5% (Convertible) (a) $ 3,750,875
B+ B1 1,625,000 Esterline Technologies Corporation, 7.75% due 6/15/2013 1,726,562
B B3 600,000 K & F Industries, Inc., 9.625% due 12/15/2010 664,500
B- Caa1 2,875,000 Standard Aero Holdings, Inc., 8.25% due 9/01/2014 (a) 2,954,063
B- B3 1,250,000 TD Funding Corp., 8.375% due 7/15/2011 1,321,875
B B2 2,925,000 The Titan Corporation, 8% due 5/15/2011 3,020,063
------------
13,437,938
====================================================================================================================================
Airlines--1.9% BB+ B1 6,000,000 American Airlines, Inc., 7.80% due 4/01/2008 5,137,657
Continental Airlines, Inc.:
BB- B3 1,250,000 7.25% due 11/01/2005 1,065,844
CCC+ Caa2 1,550,000 8% due 12/15/2005 1,418,250
B+ B2 907,028 6.541% due 9/15/2009 778,272
BB- B2 1,784,945 7.033% due 6/15/2011 1,384,028
BB+ Ba2 237,309 6.90% due 1/02/2017 186,555
------------
9,970,606
====================================================================================================================================
Automotive--2.6% B B3 2,025,000 Asbury Automotive Group, Inc., 8% due 3/15/2014 1,974,375
B- B3 3,100,000 Autocam Corporation, 10.875% due 6/15/2014 (a) 3,131,000
Metaldyne Corporation:
B Caa1 4,625,000 11% due 6/15/2012 4,023,750
B B3 1,959,000 10% due 11/01/2013 (a) 1,934,512
B Caa1 2,775,000 Stanadyne Corporation (Kohlberg Ownership), 10%
due 8/15/2014 (a) 2,872,125
------------
13,935,762
====================================================================================================================================
Broadcasting--5.6% CCC B3 3,675,000 Granite Broadcasting Corporation, 9.75% due 12/01/2010 3,463,687
B B1 2,775,000 LIN Television Corporation, 6.50% due 5/15/2013 2,733,375
B- B3 2,250,000 NextMedia Operating, Inc., 10.75% due 7/01/2011 2,520,000
CCC Caa1 3,400,000 Paxson Communications Corporation, 10.75% due 7/15/2008 3,417,000
CCC+ Caa1 4,650,000 Rainbow National Services LLC, 10.375%
due 9/01/2014 (a) 4,812,750
Salem Communications Holding Corporation:
B- B3 4,575,000 7.75% due 12/15/2010 4,758,000
B- B3 601,000 9% due 7/01/2011 655,090
B B3 4,210,000 Sinclair Broadcast Group, Inc., 4.875% due 7/15/2018
(Convertible) 3,888,988
CCC+ Caa1 3,700,000 Young Broadcasting Inc., 8.75% due 1/15/2014 3,547,375
------------
29,796,265
====================================================================================================================================
Cable-- B B3 3,450,000 Kabel Deutschland GmbH, 10.625% due 7/01/2014 (a) 3,536,250
International--1.4% B- B3 3,950,000 NTL Cable PLC, 6.61% due 10/15/2012 (a)(c) 4,029,000
------------
7,565,250
====================================================================================================================================
Cable--U.S.--7.2% Adelphia Communications Corporation (b):
NR* NR* 1,250,000 6% due 2/15/2006 (Convertible) 318,750
NR* NR* 3,100,000 12.48%** due 1/15/2008 1,953,000
CCC- Caa1 425,392 Avalon Cable LLC, 11.875% due 12/01/2008 448,788
BB- B1 5,000,000 CSC Holdings, Inc., 7.625% due 4/01/2011 5,187,500
D NR* 7,950,000 Century Cable Holdings LLC, Term, due 12/31/2009 (e) 7,752,904
Charter Communications Holdings, LLC:
CCC- Ca 4,775,000 8.625% due 4/01/2009 3,796,125
CCC- Ca 225,000 10% due 4/01/2009 185,625
CCC- Ca 3,225,000 9.625% due 11/15/2009 2,604,187
B- Caa2 6,950,000 Insight Communications Company, Inc., 12.396%**
due 2/15/2011 6,237,625
NR* NR* 2,350,000 Loral Cyberstar, Inc., 10% due 7/15/2006 (b) 1,915,250
NR* NR* 1,475,000 Loral Space & Communications Ltd., 9.50%
due 1/15/2006 (b) 457,250
B+ B2 6,825,000 Mediacom Broadband LLC, 11% due 7/15/2013 7,388,063
------------
38,245,067
==========================================================================================================
6 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Schedule of Investments (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
====================================================================================================================================
Chemicals--13.1% B- B3 $ 3,825,000 BCP Caylux Holdings Luxembourg SCA, 9.625%
due 6/15/2014 (a) $ 4,107,094
Crompton Corporation (a):
B B1 3,125,000 7.67% due 8/01/2010 (c) 3,195,312
B B1 3,675,000 9.875% due 8/01/2012 3,822,000
B+ B3 2,550,000 Geon Company, 6.875% due 12/15/2005 2,655,188
CCC+ NR* 3,500,000 HMP Equity Holdings Corporation, 14.96%** due 5/15/2008 2,065,000
CCC+ Caa2 3,250,000 Huntsman International Holdings LLC, 19.455%**
due 12/31/2009 1,657,500
Huntsman International LLC:
B- B3 900,000 9.875% due 3/01/2009 972,000
CCC+ Caa1 4,250,000 10.125% due 7/01/2009 4,377,500
BB- B1 2,000,000 ISP Chemco Inc., 10.25% due 7/01/2011 2,225,000
B+ B2 4,675,000 ISP Holdings, Inc., 10.625% due 12/15/2009 5,142,500
B- B3 1,825,000 Innophos, Inc., 8.875% due 8/15/2014 (a) 1,898,000
BB- B1 4,925,000 Millennium America Inc., 7% due 11/15/2006 5,060,437
Nalco Company (a):
B- B2 750,000 7.75% due 11/15/2011 798,750
B- Caa1 1,925,000 8.875% due 11/15/2013 2,076,594
B- Caa2 5,500,000 Nalco Finance Holdings Inc., 9.04%** due 2/01/2014 (a) 3,905,000
BB- B2 4,650,000 Omnova Solutions Inc., 11.25% due 6/01/2010 5,115,000
NR* NR* 1,150,000 PCI Chemicals, Canada, 10% due 12/31/2008 1,121,250
B+ B3 5,075,000 PolyOne Corporation, 10.625% due 5/15/2010 5,519,063
B- B3 3,025,000 Rockwood Specialties Group, Inc., 10.625% due 5/15/2011 3,297,250
B- Caa1 4,975,000 Terra Capital, Inc., 11.50% due 6/01/2010 5,547,125
B- B1 4,650,000 Wellman, Inc., Second Lien Term, due 2/10/2010 (e) 4,595,748
------------
69,153,311
====================================================================================================================================
Consumer-- B- Caa1 2,150,000 Sealy Mattress Company, 8.25% due 6/15/2014 (a) 2,219,875
Durables--0.7% B B2 1,242,000 Tempur-Pedic, Inc., 10.25% due 8/15/2010 1,397,250
------------
3,617,125
====================================================================================================================================
Consumer-- Chattem, Inc:
Non-Durables--2.1% B+ Ba3 1,050,000 4.79% due 3/01/2010 (c) 1,078,875
B- B2 1,025,000 7% due 3/01/2014 1,014,750
B B3 5,100,000 Hines Nurseries, Inc., 10.25% due 10/01/2011 5,355,000
B- B3 3,575,000 Samsonite Corporation, 8.875% due 6/01/2011 (a) 3,682,250
------------
11,130,875
====================================================================================================================================
Diversified Media-- B- B3 3,500,000 CBD Media LLC, 8.625% due 6/01/2011 3,701,250
5.9% B B2 1,400,000 Cadmus Communications Corporation, 8.375%
due 6/15/2014 (a) 1,487,500
B B2 2,271,000 Dex Media West LLC, 9.875% due 8/15/2013 2,611,650
B B2 4,325,000 Houghton Mifflin Company, 8.25% due 2/01/2011 4,460,156
BBB- Baa3 6,200,000 Liberty Media Corporation, 0.75% due 3/30/2023
(Convertible) 6,812,250
Primedia Inc.:
B B3 1,000,000 7.625% due 4/01/2008 980,000
B B3 500,000 8.875% due 5/15/2011 490,000
R.H. Donnelley Financial Corporation I:
BB Ba3 400,000 8.875% due 12/15/2010 450,500
B+ B2 1,125,000 10.875% due 12/15/2012 (a) 1,330,313
CCC+ B3 4,050,000 Six Flags, Inc., 9.50% due 2/01/2009 3,928,500
BB- B1 5,350,000 Yell Finance BV, 11.228%** due 8/01/2011 5,109,250
------------
31,361,369
====================================================================================================================================
Energy--Exploration & CCC+ Caa1 1,400,000 Continental Resources, Inc., 10.25% due 8/01/2008 1,447,250
Production--1.1% B+ Ba3 4,150,000 Plains Exploration & Production Company, 8.75%
due 7/01/2012 4,627,250
------------
6,074,500
==========================================================================================================
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 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-- B B2 $ 3,100,000 Dresser, Inc., 9.375% due 4/15/2011 $ 3,332,500
Other--4.5% B B2 3,475,000 Ferrellgas Partners LP, 8.75% due 6/15/2012 3,787,750
BBB Baa2 3,800,000 Halliburton Company, 3.125% due 7/15/2023
(Convertible) (a) 4,123,000
CCC B3 6,125,000 Ocean Rig Norway AS, 10.25% due 6/01/2008 6,086,719
Star Gas Partners, LP:
B B3 3,750,000 10.25% due 2/15/2013 4,050,000
B B3 750,000 10.25% due 2/15/2013 (a) 810,000
D Ca 3,300,000 Trico Marine Services, Inc., 8.875% due 5/15/2012 (b) 1,584,000
------------
23,773,969
====================================================================================================================================
Financial--0.9% B B3 4,625,000 Refco Finance Holdings LLC, 9% due 8/01/2012 (a) 4,786,875
====================================================================================================================================
Food/Tobacco--5.6% B B3 1,200,000 American Seafoods Group LLC, 10.125% due 4/15/2010 1,311,000
Commonwealth Brands, Inc. (a):
B- NR* 3,225,000 9.75% due 4/15/2008 3,410,437
B- B3 2,350,000 10.625% due 9/01/2008 2,485,125
B+ Ba3 5,500,000 Cott Beverages, Inc., 8% due 12/15/2011 5,960,625
B B2 2,075,000 Del Monte Corporation, 8.625% due 12/15/2012 2,308,437
CCC B2 3,625,000 Doane Pet Care Company, 10.75% due 3/01/2010 3,842,500
B- B3 2,125,000 Merisant Company, 9.50% due 7/15/2013 (a) 2,125,000
NR* NR* 3,600,000 New World Pasta Company, 9.25% due 2/15/2009 (b) 252,000
BB Ba2 4,075,000 Smithfield Foods, Inc., 8% due 10/15/2009 4,431,563
B- Caa1 2,075,000 Tabletop Holdings, Inc., 12.25%** due 5/15/2014 (a) 1,213,875
B+ B2 2,225,000 The Wornick Company, 10.875% due 7/15/2011 (a) 2,336,250
------------
29,676,812
====================================================================================================================================
Gaming--7.1% B+ B1 5,750,000 Boyd Gaming Corporation, 8.75% due 4/15/2012 6,325,000
B B3 3,125,000 Inn of the Mountain Gods Resort and Casino, 12%
due 11/15/2010 3,531,250
BB- Ba2 3,500,000 MGM Mirage Inc., 9.75% due 6/01/2007 3,876,250
B B2 5,875,000 The Majestic Star Casino, LLC, 9.50% due 10/15/2010 6,007,188
BB- Ba2 3,750,000 Park Place Entertainment Corporation, 7.875%
due 3/15/2010 4,162,500
CCC+ Caa1 2,325,000 Pinnacle Entertainment, Inc., 8.25% due 3/15/2012 2,336,625
B B2 4,150,000 Poster Financial Group, Inc., 8.75% due 12/01/2011 4,253,750
B B2 4,350,000 Resorts International Hotel/Casino, Inc., 11.50%
due 3/15/2009 4,937,250
CCC+ B3 1,673,000 Wynn Las Vegas, LLC, 12% due 11/01/2010 2,057,790
------------
37,487,603
====================================================================================================================================
Government-- Federal Republic of Brazil:
Foreign--1.5% B+ B1 1,817,794 8% due 4/15/2014 1,779,256
B+ B2 2,650,000 10.50% due 7/14/2014 2,842,125
B+ B2 3,100,000 10.125% due 5/15/2027 3,138,750
------------
7,760,131
====================================================================================================================================
Health Care--6.5% Alpharma, Inc.:
CCC+ NR* 3,100,000 3% due 6/01/2006 (Convertible) 3,820,750
B- B3 3,375,000 8.625% due 5/01/2011 (a) 3,383,437
A- NR* 3,200,000 Chiron Corporation, 2.75% due 6/30/2034
(Convertible) (a) 3,344,000
BB+ Ba3 4,639,000 Fisher Scientific International Inc., 8.125%
due 5/01/2012 5,149,290
BB- Ba2 6,000,000 Fresenius Medical Care Capital Trust II, 7.875%
due 2/01/2008 6,405,000
NR* NR* 4,675,000 HealthSouth Corporation, 8.375% due 10/01/2011 4,581,500
Tenet Healthcare Corporation:
B- B3 925,000 5.375% due 11/15/2006 931,938
B- B3 1,850,000 9.875% due 7/01/2014 (a) 1,928,625
B- B2 4,450,000 US Oncology, Inc., 9% due 8/15/2012 (a) 4,661,375
------------
34,205,915
==========================================================================================================
8 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Schedule of Investments (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
====================================================================================================================================
Housing--3.6% Building Materials Corporation of America:
B+ B2 $ 700,000 7.75% due 7/15/2005 $ 708,750
B+ B2 7,825,000 8% due 10/15/2007 7,922,812
B+ B2 3,225,000 8% due 12/01/2008 3,249,187
BB- Ba3 1,075,000 Forest City Enterprises, Inc., 7.625% due 6/01/2015 1,101,875
B- B3 3,125,000 Nortek, Inc., 8.50% due 9/01/2014 (a) 3,257,813
BB- B1 2,450,000 Texas Industries, Inc., 10.25% due 6/15/2011 2,793,000
------------
19,033,437
====================================================================================================================================
Information BB+ Ba2 3,150,000 Freescale Semiconductor, Inc., 4.38% due 7/15/2009
Technology--1.7% (a)(c) 3,205,125
B- B3 1,850,000 UGS Corp., 10% due 6/01/2012 (a) 2,016,500
CCC+ Caa2 3,875,000 Viasystems, Inc., 10.50% due 1/15/2011 3,739,375
------------
8,961,000
====================================================================================================================================
Leisure--1.6% FelCor Lodging LP:
B- B1 4,650,000 5.84% due 6/01/2011 (a)(c) 4,673,250
B- B1 2,000,000 9% due 6/01/2011 2,180,000
B+ B1 1,625,000 Intrawest Corporation, 7.50% due 10/15/2013 1,649,375
------------
8,502,625
====================================================================================================================================
Manufacturing--6.7% CCC+ Caa1 1,300,000 Columbus McKinnon Corporation, 8.50% due 4/01/2008 1,267,500
B- B2 1,525,000 Da-Lite Screen Company, Inc., 9.50% due 5/15/2011 (a) 1,601,250
B- B3 4,150,000 Eagle-Picher Incorporated, 9.75% due 9/01/2013 4,471,625
B- B3 5,650,000 Invensys PLC, 9.875% due 3/15/2011 (a) 5,734,750
B B2 4,675,000 JohnsonDiversey, Inc., 9.625% due 5/15/2012 5,236,000
B- Caa1 1,900,000 Mueller Group, Inc., 10% due 5/01/2012 (a) 2,047,250
B- B3 1,275,000 Rexnord Corporation, 10.125% due 12/15/2012 1,440,750
B- Caa1 1,525,000 Sensus Metering Systems Inc., 8.625% due 12/15/2013 (a) 1,494,500
B B3 2,950,000 Superior Essex Communications LLC, 9% due 4/15/2012 (a) 2,905,750
B B3 5,075,000 TriMas Corporation, 9.875% due 6/15/2012 5,379,500
BBB Baa3 2,645,000 Tyco International Group SA, 2.75% due 1/15/2018
(Convertible) 3,802,188
------------
35,381,063
====================================================================================================================================
Metal--Other--1.9% BB- B1 2,550,000 Century Aluminum Company, 7.50% due 8/15/2014 (a) 2,620,125
B B1 2,400,000 Foundation PA Coal Company, 7.25% due 8/01/2014 (a) 2,526,000
NR* NR* 1,500,000 Kaiser Aluminum & Chemical Corporation, 10.875%
due 10/15/2006 (b) 1,466,250
BB Ba3 1,000,000 Luscar Coal Ltd., 9.75% due 10/15/2011 1,127,500
NR* Ba2 2,150,000 Vale Overseas Ltd., 8.25% due 1/17/2034 2,042,500
------------
9,782,375
====================================================================================================================================
Packaging--6.7% CCC B3 2,275,000 Consolidated Container Company LLC, 10.75%**
due 6/15/2009 (a) 1,820,000
Crown Euro Holdings SA:
B+ B1 1,625,000 9.50% due 3/01/2011 1,803,750
B B2 875,000 10.875% due 3/01/2013 1,017,187
CCC+ Caa1 1,550,000 Graham Packaging Company, 8.75% due 1/15/2008 1,592,625
CCC+ Caa2 4,250,000 Graham Packaging Holdings Company, 10.75% due 1/15/2009 4,414,688
Owens-Brockway Glass Container, Inc.:
BB- B2 5,425,000 8.875% due 2/15/2009 5,899,687
B B3 1,225,000 8.25% due 5/15/2013 1,292,375
Pliant Corporation:
B B3 3,725,000 11.125%** due 6/15/2009 3,287,313
B- Caa2 5,775,000 13% due 6/01/2010 5,313,000
B- B3 3,150,000 Tekni-Plex, Inc., 12.75% due 6/15/2010 3,039,750
U.S. Can Corporation,:
CCC+ Caa1 625,000 10.875% due 7/15/2010 650,000
CCC+ Caa2 4,575,000 12.375% due 10/01/2010 4,231,875
B B2 1,100,000 Wise Metals Group LLC, 10.25% due 5/15/2012 (a) 1,105,500
------------
35,467,750
==========================================================================================================
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 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--6.9% BB Ba2 $ 4,375,000 Abitibi-Consolidated Inc., 5.02% due 6/15/2011 (a)(c) $ 4,462,500
BB Ba2 4,950,000 Bowater Incorporated, 4.52% due 3/15/2010 (c) 4,925,250
B Caa1 3,425,000 Caraustar Industries, Inc., 9.875% due 4/01/2011 3,621,937
Georgia-Pacific Corporation:
BB+ Ba2 2,275,000 7.375% due 7/15/2008 2,485,437
BB+ Ba2 1,950,000 9.375% due 2/01/2013 2,296,125
Graphic Packaging International Inc.:
B- B2 1,350,000 8.50% due 8/15/2011 1,498,500
B- B3 1,600,000 9.50% due 8/15/2013 1,792,000
B B3 3,025,000 JSG Funding PLC, 9.625% due 10/01/2012 3,403,125
B B2 4,875,000 Jefferson Smurfit Corporation, 8.25% due 10/01/2012 5,313,750
Norske Skog Canada Ltd.:
BB Ba3 4,000,000 8.625% due 6/15/2011 4,330,000
BB Ba3 250,000 7.375% due 3/01/2014 254,375
NR* NR* 1,659,000 Western Forest Products Inc., 15% due 7/28/2009 (g) 1,858,080
------------
36,241,079
====================================================================================================================================
Retail--0.5% B+ B1 450,000 Finlay Fine Jewelry Corporation, 8.375%
due 6/01/2012 (a) 479,250
B B3 2,100,000 The Jean Coutu Group, Inc., 8.50% due 8/01/2014 (a) 2,115,750
------------
2,595,000
====================================================================================================================================
Services--5.3% BB- Ba3 4,250,000 Allied Waste North America, Inc., 8.875% due 4/01/2008 4,664,375
B B2 1,325,000 Buhrmann US Inc., 8.25% due 7/01/2014 (a) 1,328,312
B- B2 4,825,000 The Coinmach Corporation, 9% due 2/01/2010 (a) 4,885,313
B B1 4,450,000 Corrections Corporation of America, 7.50% due 5/01/2011 4,683,625
BB- Ba2 1,500,000 MSW Energy Holdings II LLC, 7.375% due 9/01/2010 1,560,000
B+ B2 3,125,000 United Rentals (North America), Inc., 7.75%
due 11/15/2013 (a) 2,906,250
CCC Ca 1,275,000 Waste Services, Inc., 9.50% due 4/15/2014 (a) 1,128,375
Williams Scotsman, Inc.:
B- B3 6,000,000 9.875% due 6/01/2007 5,910,000
B B2 625,000 10% due 8/15/2008 684,375
------------
27,750,625
====================================================================================================================================
Steel--0.9% B+ B1 2,375,000 CSN Islands VIII Corp., 9.75% due 12/16/2013 (a) 2,363,125
B B2 2,000,000 UCAR Finance Inc., 10.25% due 2/15/2012 2,270,000
------------
4,633,125
====================================================================================================================================
Telecommunications-- ADC Telecommunications, Inc. (Convertible):
7.0% NR* NR* 3,900,000 1% due 6/15/2008 3,539,250
NR* NR* 900,000 2.235% due 6/15/2013 (c) 844,875
B- B2 4,075,000 Alaska Communications System Holdings, Inc., 9.875%
due 8/15/2011 4,075,000
B- B3 4,650,000 Cincinnati Bell Inc., 8.375% due 1/15/2014 4,115,250
B- Caa1 5,200,000 FairPoint Communications, Inc., 12.50% due 5/01/2010 5,564,000
NR* Caa1 5,300,000 LCI International, Inc., 7.25% due 6/15/2007 4,690,500
B Caa2 2,775,000 Qwest Capital Funding, Inc., 7.25% due 2/15/2011 2,372,625
B NR* 1,975,000 Qwest Services Corp., 14% due 12/15/2010 (a) 2,295,938
NR* NR* 1,500,000 Terremark Worldwide, Inc., 9% due 6/15/2009
(Convertible) (a) 1,434,375
B B1 1,400,000 Time Warner Telecom Holdings, Inc., 5.711%
due 2/15/2011 (c) 1,365,000
Time Warner Telecom, Inc.:
CCC+ B3 850,000 9.75% due 7/15/2008 824,500
CCC+ B3 6,150,000 10.125% due 2/01/2011 5,781,000
------------
36,902,313
====================================================================================================================================
Transportation--2.0% B+ B2 3,150,000 Laidlaw International, Inc., 10.75% due 6/15/2011 3,591,000
BB- Ba2 6,000,000 Teekay Shipping Corporation, 8.875% due 7/15/2011 6,727,500
------------
10,318,500
==========================================================================================================
10 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Schedule of Investments (continued) (in U.S. dollars)
S&P Moody's Face
Industry+ Ratings++ Ratings++ Amount Corporate Bonds Value
====================================================================================================================================
Utility--12.8% The AES Corporation:
B- B2 $ 7,199,000 9.375% due 9/15/2010 $ 8,008,888
B+ B1 3,475,000 8.75% due 5/15/2013 (a) 3,865,938
NR* NR* 1,450,000 AES Drax Energy Limited, 11.50% due 8/30/2010 (b) 7,250
CCC+ Caa1 11,875,000 Calpine Canada Energy Finance ULC, 8.50% due 5/01/2008 7,570,312
Calpine Corporation:
CCC+ Caa1 2,350,000 8.25% due 8/15/2005 2,291,250
CCC+ Caa1 1,550,000 8.75% due 7/15/2007 1,131,500
BBB- Ba2 7,400,000 CenterPoint Energy, Inc. 3.75% due 5/15/2023
(Convertible) 8,436,000
BB Ba1 3,314,000 ESI Tractebel Acquisition Corp., 7.99% due 12/30/2011 3,429,990
B B1 3,100,000 Edison Mission Energy, 9.875% due 4/15/2011 3,557,250
CCC+ Caa1 7,550,000 El Paso CGP Company, 7.75% due 6/15/2010 7,257,438
BB Ba1 2,550,000 MSW Energy Holdings LLC, 8.50% due 9/01/2010 2,779,500
CCC B3 4,375,000 Mission Energy Holding Company, 13.50% due 7/15/2008 5,501,562
Nevada Power Company:
NR* Ba2 4,800,000 10.875% due 10/15/2009 5,544,000
BB Ba2 1,400,000 9% due 8/15/2013 1,568,000
BB Ba2 2,800,000 Sierra Pacific Power Company, 8% due 6/01/2008 2,996,000
B- B2 1,875,000 Sierra Pacific Resources, 8.625% due 3/15/2014 (a) 1,968,750
B- B1 1,550,000 Southern Natural Gas Company, 8.875% due 3/15/2010 1,743,750
------------
67,657,378
====================================================================================================================================
Wireless--3.1% CCC B3 1,350,000 American Tower Escrow Corporation, 14.887%**
due 8/01/2008 1,007,437
CCC Caa1 3,250,000 Centennial Communications Corp., 10.125% due 6/15/2013 3,339,375
CCC B3 4,750,000 Crown Castle International Corp., 9.375% due 8/01/2011 5,486,250
B- B2 1,025,000 Rural Cellular Corporation, 6.02% due 3/15/2010 (a)(c) 1,040,375
CCC- Caa2 4,800,000 SBA Communications Corporation, 10.25% due 2/01/2009 5,052,000
CC Caa1 625,000 UbiquiTel Operating Company, 11.347%** due 5/15/2010 640,625
------------
16,566,062
----------------------------------------------------------------------------------------------------------
Total Investments in Corporate Bonds
(Cost--$666,481,278)--130.9% 691,771,705
==========================================================================================================
Shares
Held Common Stocks
====================================================================================================================================
Airlines--0.1% 129,348 ABX Air, Inc. (i) 751,512
4,533 US Airways Group, Inc. (Class A) (j) 9,746
------------
761,258
====================================================================================================================================
Cable-- 366,402 Telewest Global, Inc. (i) 4,231,943
International--0.8%
====================================================================================================================================
Paper--0.2% 74,889 Western Forest Products Inc. (i) 613,844
74,936 Western Forest Products Inc. (Restricted Shares) (a)(i) 614,230
------------
1,228,074
====================================================================================================================================
Telecommunications--0.1% 27,265 MCI, Inc. (i) 469,503
----------------------------------------------------------------------------------------------------------
Total Investments in Common Stocks
(Cost--$5,053,674)--1.2% 6,690,778
==========================================================================================================
Preferred Stocks
====================================================================================================================================
Airlines--0.0% 2,781 US Airways Group, Inc. (Convertible) (j) 0
====================================================================================================================================
Automotive--1.1% 205,000 General Motors Corporation (Convertible) 5,707,200
----------------------------------------------------------------------------------------------------------
Total Investments in Preferred Stocks
(Cost--$5,124,065)--1.1% 5,707,200
==========================================================================================================
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded) (in U.S. dollars)
Shares
Industry+ Held Warrants (d) Value
====================================================================================================================================
Airlines--0.0% 2,781 US Airways Group, Inc. $ 1,669
====================================================================================================================================
Health Care--0.0% 52,465 HealthSouth Corporation 118,046
====================================================================================================================================
Paper--0.0% 1,100 JSG Funding PLC 11,000
====================================================================================================================================
Wireless--0.1% 1,350 American Tower Escrow Corporation 249,750
----------------------------------------------------------------------------------------------------------
Total Investments in Warrants (Cost--$87,831)--0.1% 380,465
==========================================================================================================
Beneficial
Interest Other Interests (h)
==========================================================================================================
$ 6,615,420 US Airways Group, Inc.--Certificate of Beneficial
Interest (j) 1,984,626
----------------------------------------------------------------------------------------------------------
Total Investments in Other Interests
(Cost--$1,786,163)--0.4% 1,984,626
==========================================================================================================
Short-Term Investments
==========================================================================================================
$ 6,078,243 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (f) 6,078,243
----------------------------------------------------------------------------------------------------------
Total Short-Term Investments (Cost--$6,078,243)--1.1% 6,078,243
==========================================================================================================
Total Investments (Cost--$684,611,254***)--134.8% 712,613,017
Liabilities in Excess of Other Assets--(34.8%) (184,115,312)
------------
Net Assets--100.0% $528,497,705
============
+ 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.
*** The cost and unrealized appreciation/depreciation of investments as of
August 31, 2004, as computed for federal income tax purposes, were as
follows:
--------------------------------------------------------------------------
Aggregate cost .............................. $ 685,383,746
=============
Gross unrealized appreciation ............... $ 42,409,937
Gross unrealized depreciation ............... (15,180,666)
-------------
Net unrealized appreciation ................. $ 27,229,271
=============
(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; issuer filed for bankruptcy or is in
default of interest payments.
(c) Floating rate note.
(d) 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.
(e) Floating rate corporate debt in which the Fund invests generally pays
interest at rates that are periodically redetermined by reference to a
base lending rate plus a premium. The base lending rates are generally (i)
the lending rate offered by one or more major European banks, such as
LIBOR (London InterBank Offered Rate), (ii) the prime rate offered by one
or more major U.S. banks or (iii) the certificate of deposit rate.
Corporate loans represent 2.3% of the Fund's net assets.
(f) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) were as follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $5,780,305 $ 9,203
--------------------------------------------------------------------------
(g) Represents a pay-in-kind security which may pay interest/dividends in
additional face/shares.
(h) Other interests represent beneficial interest in liquidation trusts and
other reorganization entities.
(i) Non-income producing security.
(j) Non-income producing security; company is in bankruptcy.
Swaps outstanding as of August 31, 2004 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Receive a variable rate return based
on 1-month USD LIBOR and pay
a fixed rate of 1.56%
Broker, UBS Warburg
Expires June 2005 $50,000,000 $ 244,522
--------------------------------------------------------------------------
See Notes to Financial Statements.
12 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Statement of Assets, Liabilities and Capital
As of August 31, 2004
===============================================================================================================================
Assets
- -------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$678,533,011) ................................................ $ 706,534,774
Investments in affiliated securities, at value (identified
cost--$6,078,243) .................................................. 6,078,243
Unrealized appreciation on swaps .................................... 244,522
Cash ................................................................ 1,244,683
Receivables:
Securities sold .................................................. $ 13,447,553
Interest (including $238 from affiliates) ........................ 13,340,851
Dividends ........................................................ 1,193,614 27,982,018
-------------
Prepaid expenses .................................................... 10,386
-------------
Total assets ........................................................ 742,094,626
-------------
===============================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------------------
Loans ............................................................... 199,700,000
Payables:
Securities purchased ............................................. 13,259,311
Dividends to shareholders ........................................ 349,032
Swaps ............................................................ 127,722
Interest on loans ................................................ 73,735
Investment adviser ............................................... 23,708
Other affiliates ................................................. 4,704 13,838,212
-------------
Accrued expenses and other liabilities .............................. 58,709
-------------
Total liabilities ................................................... 213,596,921
-------------
===============================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets .......................................................... $ 528,497,705
=============
===============================================================================================================================
Capital
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.10 par value, 200,000,000 shares authorized ......... $ 3,272,978
Paid-in capital in excess of par .................................... 463,188,746
Undistributed investment income--net ................................ $ 5,803,764
Undistributed realized capital gains--net ........................... 27,985,932
Unrealized appreciation--net ........................................ 28,246,285
-------------
Total accumulated earnings--net ..................................... 62,035,981
-------------
Total capital--Equivalent to $16.15 per share based on 32,729,784
shares of capital stock outstanding (market price--$15.44) ......... $ 528,497,705
=============
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended August 31, 2004
===============================================================================================================================
Investment Income
- -------------------------------------------------------------------------------------------------------------------------------
Interest (including $9,203 from affiliates) ......................... $ 59,989,617
Dividends ........................................................... 1,514,587
Other ............................................................... 617,066
-------------
Total income ........................................................ 62,121,270
-------------
===============================================================================================================================
Expenses
- -------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................ $ 4,190,047
Loan interest expense ............................................... 2,563,478
Borrowing costs ..................................................... 279,397
Accounting services ................................................. 174,156
Professional fees ................................................... 101,565
Transfer agent fees ................................................. 61,797
Printing and shareholder reports .................................... 48,247
Custodian fees ...................................................... 33,684
Listing fees ........................................................ 27,029
Pricing services .................................................... 26,478
Directors' fees and expenses ........................................ 16,507
Other ............................................................... 48,354
-------------
Total expenses ...................................................... 7,570,739
-------------
Investment income--net .............................................. 54,550,531
-------------
===============================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ................................................. 39,333,551
Swaps--net ....................................................... (233,736) 39,099,815
-------------
Net increase from payments by affiliates ............................ 56,014
Change in unrealized appreciation/depreciation on:
Investments--net ................................................. 2,671,066
Swaps--net ....................................................... (210,939) 2,460,127
-------------------------------
Total realized and unrealized gain--net ............................. 41,615,956
-------------
Net Increase in Net Assets Resulting from Operations ................ $ 96,166,487
=============
See Notes to Financial Statements.
14 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Statements of Changes in Net Assets
For the Year Ended
August 31,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
===============================================================================================================================
Operations
- -------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. $ 54,550,531 $ 38,984,446
Realized gain--net .................................................. 39,155,829 4,098,708
Change in unrealized appreciation/depreciation--net ................. 2,460,127 43,442,753
-------------------------------
Net increase in net assets resulting from operations ................ 96,166,487 86,525,907
-------------------------------
===============================================================================================================================
Dividends & Distributions to Shareholders
- -------------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. (53,204,738) (37,430,569)
Realized gain--net .................................................. (2,009,085) --
-------------------------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .................................................... (55,213,823) (37,430,569)
-------------------------------
===============================================================================================================================
Capital Stock Transactions
- -------------------------------------------------------------------------------------------------------------------------------
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
Offering costs resulting from the issuance of Common Stock .......... -- 114,993
-------------------------------
Net increase in net assets derived from capital stock transactions .. -- 206,029,089
-------------------------------
===============================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ........................................ 40,952,664 255,124,427
Beginning of year ................................................... 487,545,041 232,420,614
-------------------------------
End of year* ........................................................ $ 528,497,705 $ 487,545,041
===============================
* Undistributed investment income--net ........................... $ 5,803,764 $ 4,422,619
===============================
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Statement of Cash Flows
For the Year Ended August 31, 2004
=====================================================================================================================
Cash Provided by Operating Activities
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ........................ $ 96,166,487
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Increase in receivables .................................................. (476,333)
Decrease in other assets ................................................. 87,376
Decrease in other liabilities ............................................ (1,178,370)
Realized and unrealized gain on investments--net ......................... (41,615,956)
Realized gain on swaps--net .............................................. (233,736)
Amortization of discount ................................................. (4,043,783)
Proceeds from sales and paydowns of long-term investments ................... 558,727,024
Purchases of long-term investments .......................................... (573,922,726)
Purchases of short-term investments--net .................................... (5,780,305)
-------------
Net cash provided by operating activities ................................... 27,729,678
-------------
=====================================================================================================================
Cash Used for Financing Activities
- ---------------------------------------------------------------------------------------------------------------------
Cash receipts from borrowings ............................................... 389,900,000
Cash payments on borrowings ................................................. (360,900,000)
Dividends paid to shareholders .............................................. (55,484,995)
-------------
Net cash used for financing activities ...................................... (26,484,995)
-------------
=====================================================================================================================
Cash
- ---------------------------------------------------------------------------------------------------------------------
Net increase in cash ........................................................ 1,244,683
Cash at beginning of year ................................................... --
-------------
Cash at end of year ......................................................... $ 1,244,683
=============
=====================================================================================================================
Cash Flow Information
- ---------------------------------------------------------------------------------------------------------------------
Cash paid for interest ...................................................... $ 2,550,010
=============
See Notes to Financial Statements.
16 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Financial Highlights
For the Period
The following per share data and ratios have been derived November 30,
from information provided in the financial statements. For the Year Ended August 31, 2001+ to
------------------------------- August 31,
Increase (Decrease) in Net Asset Value: 2004 2003 2002
=============================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 14.90 $ 12.54 $ 14.33
------------------------------------------------
Investment income--net ........................ 1.67@@ 1.68 1.08
Realized and unrealized gain (loss)--net ...... 1.27 2.37 (1.92)
------------------------------------------------
Total from investment operations ................. 2.94 4.05 (.84)
------------------------------------------------
Less dividends and distributions:
Investment income--net ........................ (1.63) (1.69) (.93)
Realized gain--net ............................ (.06) -- --
------------------------------------------------
Total dividends and distributions ................ (1.69) (1.69) (.93)
------------------------------------------------
Offering costs resulting from the issuance of
Common Stock .................................... -- --++ (.02)
------------------------------------------------
Net asset value, end of period ................... $ 16.15 $ 14.90 $ 12.54
================================================
Market price per share, end of period ............ $ 15.44 $ 14.47 $ 12.50
================================================
=============================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............... 20.92%+++ 34.62% (6.31%)@
================================================
Based on market price per share .................. 19.04% 31.16% (6.61%)@
================================================
=============================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and excluding interest
expense ......................................... .97% 1.05% .63%*
================================================
Expenses, net of waiver .......................... 1.46% 1.52% .89%*
================================================
Expenses ......................................... 1.46% 1.52% 1.12%*
================================================
Investment income--net ........................... 10.52% 12.22% 10.31%*
================================================
=============================================================================================================================
Leverage
- -----------------------------------------------------------------------------------------------------------------------------
Amount of borrowings outstanding, end of period
(in thousands) .................................. $ 199,700 $ 170,700 $ 58,400
================================================
Average amount of borrowings outstanding during
the period (in thousands) ....................... $ 180,502 $ 93,361 $ 30,993
================================================
Average amount of borrowings outstanding per share
during the period ............................... $ 5.51 $ 4.25 $ 1.71
================================================
=============================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $ 528,498 $ 487,545 $ 232,421
================================================
Portfolio turnover ............................... 82.36% 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.
++ Amount is less than $.01 per share.
+++ Fund Asset Management, L.P. (an affiliate), reimbursed the Fund for the
difference in value of unregistered securities sold by the Fund and the
same security of the issuer that had been registered for resale, which had
no impact on total investment return.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 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 U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. The Fund determines and makes available for publication the net
asset value of its Common Stock on a daily basis. The Fund's Common Stock is
listed on the New York Stock Exchange ("NYSE") under the symbol HYV. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- Debt securities are traded primarily in the
over-the-counter markets and are valued at the last available bid price in the
over-the-counter market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrices that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general direction
of the Board of Directors. Such valuations and procedures will be reviewed
periodically by the Board of Directors of the Fund. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last sales price in the case of exchange-traded options. In the
case of options traded in the over-the-counter ("OTC") market, valuation is the
last asked price (options written) or the last bid price (options purchased).
Swap agreements are valued by quoted fair valuations received daily by the Fund
from the counterparty. Short-term investments with a remaining maturity of 60
days or less are valued at amortized cost which approximates market value, under
which method the investment is valued at cost and any premium or discount is
amortized on a straight line basis to maturity. Repurchase agreements are valued
at cost plus accrued interest. Investments in open-end investment companies are
valued at their net asset value each business day. Securities and other assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Board of Directors
of the Fund.
Equity securities that are held by the Fund, which are traded on stock exchanges
or the Nasdaq National Market, are valued at the last sale price or official
close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available ask price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Directors of the Fund. Long
positions traded in the OTC market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price obtained from one or more dealers or
pricing services approved by the Board of Directors of the Fund. Short positions
traded in the OTC market are valued at the last available asked price. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of business on the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund's net asset value.
If events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their fair value as
determined in good faith by the Fund's Board of Directors or by the Investment
Adviser using a pricing service and/or procedures approved by the Fund's Board
of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
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, 2004
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.
(h) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year,
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
$25,506 has been reclassified between undistributed net realized capital gains
and undistributed net investment income and $9,846 has been reclassified between
paid-in capital in excess of par and undistributed net investment income as a
result of permanent differences attributable to amortization methods for
premiums and discounts on fixed income securities, accounting treatment for swap
contracts and non-deductible expenses. These reclassifications have no effect on
net assets or net asset values 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.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., or its
affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral
received by the Fund for such loans, among other things, in a private investment
company managed by MLIM, LLC or in registered money market funds advised by FAM
or its affiliates.
In addition, MLPF&S received $6,609 in commissions on the execution of portfolio
security transactions for the Fund for the year ended August 31, 2004.
FAM reimbursed the Fund $56,014 representing the difference in value of
unregistered securities sold by the Fund and the same security of the issuer
that had been registered for resale.
For the year ended August 31, 2004, the Fund reimbursed FAM $10,644 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, 2004 were $587,182,037 and $569,572,396, respectively.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10, all of which were initially classified as Common Stock. The Board of
Directors is authorized, however, to classify and reclassify any unissued shares
of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding during the year ended August 31, 2004 remained
constant and during the year ended August 31, 2003 increased by 13,724,304 as a
result of reorganization and by 463,835 as a result of dividend reinvestment.
5. Short-Term Borrowings:
On May 26, 2004, 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 U.S. money market banks plus .50%, or (ii) the issuance of
commercial paper notes by certain Lenders at rates of interest based upon the
weighted average of the per annum rates paid or payable by such Lenders in
respect of those commercial paper notes. As security for its obligations to the
Lenders under the revolving credit and security agreement, the Fund has granted
a security interest in substantially all of its assets to and in favor of the
Lenders. The Fund also pays additional borrowing costs which include a
commitment fee for this facility at the annual rate of .10% and a program fee of
..24% on the borrowings outstanding.
20 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Notes to Financial Statements (concluded)
For the year August 31, 2004, the average amount borrowed was approximately
$180,502,000 and the daily weighted average interest rate was 1.42%.
6. Distributions to Shareholders:
The Fund paid an ordinary income dividend in the amount of $.132000 per share on
September 30, 2004 to shareholders of record on September 14, 2004.
The tax character of distributions paid during the fiscal years ended August 31,
2004 and August 31, 2003 was as follows:
- --------------------------------------------------------------------------------
8/31/2004 8/31/2003
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ....................... $53,204,738 $37,430,569
Net long-term capital gains ........... 2,009,085 --
------------------------------
Total taxable distributions .............. $55,213,823 $37,430,569
==============================
As of August 31, 2004, the components of accumulated earnings on a tax basis
were as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income--net ........................ $11,802,440
Undistributed long-term capital gains--net ................ 23,048,289
-----------
Total undistributed earnings--net ......................... 34,850,729
Capital loss carryforward ................................. --
Unrealized gains--net ..................................... 27,185,252*
-----------
Total accumulated earnings--net ........................... $62,035,981
===========
* 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.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Report of Independent Registered Public Accounting Firm
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, 2004, and the related statements of operations and cash flows for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
respective periods then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Corporate High Yield Fund V, Inc. as of August 31, 2004, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and its financial
highlights for each of the respective periods then ended, in conformity with
U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 19, 2004
22 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distributions paid by Corporate High Yield Fund V, Inc. during the months of
January 2004 through August 2004:
- --------------------------------------------------------------------------------
Qualified Dividend Income for Individuals ....................... 3.57%
Dividends Qualifying for the Dividends Received
Deduction for Corporations ................................... 3.57%
- --------------------------------------------------------------------------------
Additionally, the Fund paid a long-term capital gain distribution of $0.061384
per share to shareholders of record on December 31, 2003.
Please retain this information for your records.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 23
[LOGO] Merrill Lynch Investment Managers
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 EquiServe, as
dividend paying agent. Such participants may elect not to participate in the
Plan and to receive all distributions of dividends and capital gains in cash by
sending written instructions to EquiServe, as dividend paying agent, at the
address set forth below. Participation in the Plan is completely voluntary and
may be terminated or resumed at any time without penalty by written notice if
received by the Plan Agent not less than ten days prior to any dividend record
date; otherwise such termination will be effective with respect to any
subsequently declared dividend or distribution.
Whenever the Fund declares an income dividend or capital gains distribution
(collectively referred to as "dividends") payable either in shares or in cash,
non-participants in the Plan will receive cash and participants in the Plan will
receive the equivalent in shares of Common Stock. The shares will be acquired by
the Plan Agent for the participant's account, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized shares of Common Stock from the Fund ("newly issued shares") or (ii)
by purchase of outstanding shares of Common Stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such conditions being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan Agent
will have until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. It is contemplated that the Fund
will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisitions of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases 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.
24 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
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.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Portfolio Information (unaudited)
Percent of
As of August 31, 2004 Total Assets
====================================================================================================================================
Ten Largest Holdings
- ------------------------------------------------------------------------------------------------------------------------------------
Sierra Pacific Resources* Sierra Pacific Resources is the holding company for two utilities, Nevada
Power Company and Sierra Pacific Power Company. Both utilities primarily
serve the state of Nevada. 1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
The AES Corporation* AES is a world-wide power producer with operations in the United States,
Europe, Latin America and Asia. Electricity generation and sales are
primarily to wholesale customers, though the company has a direct
distribution business to end users. 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Building Materials Corporation of America* Building Materials is a manufacturer of residential roofing products, with
Timberline as its major brand. 1.6
- ------------------------------------------------------------------------------------------------------------------------------------
Calpine Corporation* Calpine owns, develops and operates power generation facilities, as well as
selling electricity in the United States. The company also provides thermal
energy for industrial customers. 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
Qwest* Qwest provides a broad range of telecommunications services, including
broadband Internet-based data, voice and image communication, local
exchange services, and data and long-distance services to residential and
business customers. The company also provides Web-hosting, high-speed
Internet access and private networks. 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
Edison International Inc.* This utility holding company operates, through subsidiaries, electric power
generation facilities worldwide. The company is also involved in energy and
infrastructure projects. Our bonds are at the company's Mission Energy and
Edison Mission subsidiaries. 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
El Paso CGP Company* El Paso is a diversified energy company with operations primarily in
natural gas gathering, transportation and processing, as well as oil and
gas production. The company also has operations in power generation and
merchant energy services. Our bonds are also at the company's Southern
Natural Gas subsidiary. 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Pliant Corporation* Pliant is a top U.S. manufacturer of flexible packaging and value-added
films for food, personal care, medical and industrial applications. 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc. CenterPoint transmits and distributes gas and electricity, providing energy
services to customers in the Midwest and South, as well as Texas. 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
* Includes combined holdings and/or affiliates.
Portfolio Profile
Quality Ratings by Percent of
Standard & Poor's Total Investments
- --------------------------------------------------------------------------------
BBB ..................................................................... 5%
BB ...................................................................... 18
B ....................................................................... 57
CCC ..................................................................... 18
NR(Not Rated) ........................................................... 2
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Chemicals ............................................................... 13.1%
Utility ................................................................. 12.8
Cable--U.S. ............................................................. 7.2
Gaming .................................................................. 7.1
Telecommunications ...................................................... 7.1
- --------------------------------------------------------------------------------
* 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
Five Largest Foreign Countries* Total Investments
- --------------------------------------------------------------------------------
Canada ................................................................. 3.1%
Luxembourg ............................................................. 1.1
Brazil ................................................................. 1.1
Netherlands ............................................................ 1.0
Marshall Islands ....................................................... 0.9
- --------------------------------------------------------------------------------
* All holdings are denominated in U.S. dollars.
- --------------------------------------------------------------------------------
Average Portfolio Maturity 7.0 years
- --------------------------------------------------------------------------------
26 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Proxy Results
During the six-month period ended August 31, 2004, Corporate High Yield Fund V,
Inc.'s shareholders voted on the following proposal. The proposal was approved
at a shareholders' meeting on April 27, 2004. A description of the proposal and
number of shares voted are as follows:
- -------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- -------------------------------------------------------------------------------------------------------
1. To elect the Fund's Directors: James H. Bodurtha 30,762,324 896,838
Joe Grills 30,747,799 911,363
Herbert I. London 30,745,537 913,625
Andre F. Perold 30,757,633 901,529
Roberta Cooper Ramo 30,756,038 903,124
Robert S. Salomon, Jr. 30,743,576 915,586
Stephen B. Swensrud 30,734,160 925,002
- -------------------------------------------------------------------------------------------------------
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 27
[LOGO] Merrill Lynch Investment Managers
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 2001 to President of the Merrill Lynch Investment Managers, 124 Funds None
Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 157 Portfolios
08543-9011 Director ("FAM")--Advised Funds since 1999; Chairman
Age: 63 (Americas Region) of MLIM from 2000 to 2002;
Executive Vice President of MLIM and FAM (which
terms as used herein include their corporate
predecessors) from 1983 to 2002; President of
FAM Distributors, Inc. ("FAMD") from 1986 to 2002
and Director thereof from 1991 to 2002; Executive
Vice President and Director of Princeton Services,
Inc. ("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from
1989 to 2002; Director of Financial Data Services,
Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Fund based on his present and former positions with MLIM, FAM, 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 1996 38 Funds None
Bodurtha Princeton, NJ present and Executive Vice President thereof from 1996 to 55 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 60 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Joe Grills P.O. Box 9095 Director 2001 to Member of the Committee of Investment of Employee 38 Funds Kimco Realty
Princeton, NJ present Benefit Assets of the Association of Financial 55 Portfolios Corporation
08543-9095 Professionals ("CIEBA") since 1986; Member of
Age: 69 CIEBA's Executive Committee since 1988 and its
Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Corporation ("IBM")
and Chief Investment Officer of IBM Retirement Funds
from 1986 to 1993; Member of the Investment
Advisory Committee 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 University Management Company from 1992
to 2004, Vice Chairman thereof from 1998 to 2004
and Director Emeritus thereof since 2004; 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 its Vice Chairman 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.
28 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Officers and Directors (unaudited) (continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director 2002 to John M. Olin Professor of Humanities, New York 38 Funds None
London Princeton, NJ present University since 1993 and Professor thereof since 55 Portfolios
08543-9095 1980; President, Hudson Institute since 1997 and
Age: 65 Trustee thereof since 1980; Dean, Gallatin Division
of New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair, Hudson
Institute from 1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993; Director, Level Playing
Field (education) from 2000 to 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Andre F. P.O. Box 9095 Director 2002 to Harvard Business School: George Gund Professor of 38 Funds None
Perold Princeton, NJ present Finance and Banking since 2000; Senior Associate 55 Portfolios
08543-9095 Dean, Director of Faculty Recruiting since 2001;
Age: 52 Finance Area Chair from 1996 to 2001; Sylvan C.
Coleman Professor of Financial Management from
1993 to 2000; Director, Genbel Securities Limited and
Gensec Bank from 1999 to 2003; Director, Stockback,
Inc. from 2000 to 2002; Director, Sanlam Limited from
2001 to 2003; Trustee, Commonfund from 1989 to
2001; Director, Sanlam Investment Management from
1999 to 2001; Director, Bulldogresearch.com from
2000 to 2001; Director, Quantec Limited from 1991
to 1999; Director and Chairman of the Board of
UNX Inc. since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director 2002 to Shareholder of Modrall, Sperling, Roehl, Harris & 38 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 55 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 62 the Board of Governors thereof from 1994 to 1997;
Shareholder of Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director, Coopers, Inc. since
1999; Director of ECMC Group (service provider to
students, schools and lenders) since 2001; Director,
United New Mexico Bank (now Wells Fargo) from
1983 to 1988; Director, First National Bank of New
Mexico (now Wells Fargo) from 1975 to 1976.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director 2001 to Principal of STI Management (investment adviser) 38 Funds None
Salomon, Princeton, NJ present since 1994; Chairman and CEO of Salomon Brothers 55 Portfolios
Jr. 08543-9095 Asset Management from 1992 to 1995; Chairman
Age: 67 of Salomon Brothers equity mutual funds from 1992
to 1995; regular columnist with Forbes Magazine
from 1992 to 2002; Director of Stock Research and
U.S. Equity Strategist at Salomon Brothers from 1975
to 1991; Trustee, Commonfund from 1980 to 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Director 2001 to Chairman of Fernwood Advisors Inc. (investment 39 Funds None
Swensrud Princeton, NJ present adviser) since 1996; Principal, Fernwood Associates 56 Portfolios
08543-9095 (financial consultants) since 1975; Chairman of R.P.P.
Age: 71 Corporation (manufacturing) since 1978; Director of
International Mobile Communications, Incorporated
(telecommunications) 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.
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 29
[LOGO] Merrill Lynch Investment Managers
Officers and Directors (unaudited) (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2001 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999; Vice
08543-9011 and President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 44 Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
Elizabeth P.O. Box 9011 Vice 2001 to Director (Global Fixed Income) of MLIM since 2001; Vice President of MLIM from 1994
M. Princeton, NJ President present to 2001.
Phillips 08543-9011
Age: 54
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM since 2004; Global Director of Compliance at
08543-9011 Officer Morgan Stanley Investment Management from 2002 to 2004; Managing Director and
Age: 53 Global Director of Compliance at Citigroup Asset Management from 2000 to 2002;
Chief Compliance Officer at Soros Fund Management in 2000; and Chief Compliance
Officer at Prudential Financial from 1995 to 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997.
08543-9011
Age: 44
------------------------------------------------------------------------------------------------------------------------
* 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
30 CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site http://www.icsdelivery.com/live and follow the instructions. When you visit
this site, you will obtain a personal identification number (PIN). You will need
this PIN should you wish to update your e-mail address, choose to discontinue
this service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
CORPORATE HIGH YIELD FUND V, INC. AUGUST 31, 2004 31
[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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Corporate High Yield Fund V, Inc.
Box 9011
Princeton, NJ
08543-9011
#COYV -- 8/04
Item 2 - Code of Ethics - 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 - Audit Committee Financial Expert - 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 F. Perold, (3) Robert
S. Salomon, Jr., and (4) Stephen B. Swensrud.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending August 31, 2004 - $35,000
Fiscal Year Ending August 31, 2003 - $35,000
(b) Audit-Related Fees - Fiscal Year Ending August 31, 2004 - $7,500
Fiscal Year Ending August 31, 2003 - $7,500
The nature of the services include procedures related to revolving
credit and security agreements.
(c) Tax Fees - Fiscal Year Ending August 31, 2004 - $5,200
Fiscal Year Ending August 31, 2003 - $4,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2004 - $0
Fiscal Year Ending August 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending August 31, 2004 - $14,913,836
Fiscal Year Ending August 31, 2003 - $18,318,444
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
James H. Bodurtha
Joe Grills
Herbert I. London
Andre F. Perold
Roberta Cooper Ramo
Robert S. Solomon, Jr.
Stephen B. Swensrud
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("Proxy Voting Procedures") with respect to the
voting of proxies related to the portfolio securities held in the
account of one or more of its clients, including a Fund. Pursuant to
these Proxy Voting Procedures, the Investment Adviser's primary
objective when voting proxies is to make proxy voting decisions solely
in the best interests of each Fund and its shareholders, and to act in
a manner that the Investment Adviser believes is most likely to enhance
the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that that the Investment Adviser
considers the interests of its clients, including the Funds, and not
the interests of the Investment Adviser, when voting proxies and that
real (or perceived) material conflicts that may arise between the
Investment Adviser's interest and those of the Investment Adviser's
clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser's affiliates may serve as a
member of the Committee or participate in its decision making (except
to the extent such person is asked by the Committee to present
information to the Committee, on the same basis as other interested
knowledgeable parties not affiliated with the Investment Adviser might
be asked to do so). The Committee determines how to vote the proxies of
all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes
are consistent with the best interests of those clients and are free
from unwarranted and inappropriate influences. The Committee
establishes general proxy voting policies for the Investment Adviser
and is responsible for determining how those policies are applied to
specific proxy votes, in light of each issuer's unique structure,
management, strategic options and, in certain circumstances, probable
economic and other anticipated consequences of alternate actions. In so
doing, the Committee may determine to vote a particular proxy in a
manner contrary to its generally stated policies. In addition, the
Committee will be responsible for ensuring that all reporting and
recordkeeping requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The
Investment Adviser believes that certain proxy voting issues require
investment analysis - such as approval of mergers and other significant
corporate transactions - akin to investment decisions, and are,
therefore, not suitable for general guidelines. The Committee may elect
to adopt a common position for the Investment Adviser on certain proxy
votes that are akin to investment decisions, or determine to permit the
portfolio manager to make individual decisions on how best to maximize
economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that
the Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser's clients, the Committee, in conjunction
with a Fund's portfolio manager, may determine that the Fund's specific
circumstances require that its proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an
independent adviser that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment
managers, plan sponsors, custodians, consultants, and other
institutional investors. The services provided to the Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
generally will not seek to vote proxies related to portfolio securities
that are on loan, although it may do so under certain circumstances. In
addition, the Investment Adviser will vote proxies related to
securities of foreign issuers only on a best efforts basis and may
elect not to vote at all in certain countries where the Committee
determines that the costs associated with voting generally outweigh the
benefits. The Committee may at any time override these general policies
if it determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser's adherence to those procedures are designed to address such conflicts
of interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates and
Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
shall appoint to the subcommittee, where appropriate, only persons
whose job responsibilities do not include contact with the Client and
whose job evaluations would not be affected by the Investment Adviser's
relationship with the Client (or failure to retain such relationship).
The subcommittee shall determine whether and how to vote all proxies on
behalf of the Investment Adviser's clients or, if the proxy matter is,
in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee
determines to alter the Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser's policy is case-by-case,
does not follow the voting recommendation of any proxy voting service
or other independent fiduciary that may be retained to provide research
or advice to the Investment Adviser on that matter, no proxies relating
to the Client may be voted unless the Secretary, or in the Secretary's
absence, the Assistant Secretary of the Committee concurs that the
subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring
proxy issues that are not expected to involve unusual circumstances.
These policies are guidelines only, and the Investment Adviser may
elect to vote differently from the recommendation set forth in a voting
guideline if the Committee determines that it is in a Fund's best
interest to do so. In addition, the guidelines may be reviewed at any
time upon the request of a Committee member and may be amended or
deleted upon the vote of a majority of Committee members present at a
Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors of issuers
other than investment companies. As a general matter, the Committee
believes that a company's Board of Directors (rather than shareholders) is
most likely to have access to important, nonpublic information regarding a
company's business and prospects, and is therefore best-positioned to set
corporate policy and oversee management. The Committee, therefore,
believes that the foundation of good corporate governance is the election
of qualified, independent corporate directors who are likely to diligently
represent the interests of shareholders and oversee management of the
corporation in a manner that will seek to maximize shareholder value over
time. In individual cases, the Committee may look at a nominee's history
of representing shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent auditors. As
a general matter, the Committee believes that corporate auditors have a
responsibility to represent the interests of shareholders and provide an
independent view on the propriety of financial reporting decisions of
corporate management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the Committee may
look at an auditors' history of representing shareholder interests as
auditor of other companies, to the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits. As a
general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation, but
believes that compensation matters are normally best determined by an
issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not be
supported.
o Proposals related to requests, principally from management, for approval
of amendments that would alter an issuer's capital structure. As a general
matter, the Committee will support requests that enhance the rights of
common shareholders and oppose requests that appear to be unreasonably
dilutive.
o Proposals related to requests for approval of amendments to an issuer's
charter or by-laws. As a general matter, the Committee opposes poison pill
provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the Committee
believes that a fund's Board of Directors (rather than its shareholders)
is best-positioned to set fund policy and oversee management. However, the
Committee opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective, that the
Investment Company Act envisions will be approved directly by
shareholders.
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 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
10(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Corporate High Yield Fund V, Inc.
By: /s/ Terry K. Glenn
-----------------------
Terry K. Glenn,
President of
Corporate High Yield Fund V, Inc.
Date: October 18, 2004
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 18, 2004
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Corporate High Yield Fund V, Inc.
Date: October 18, 2004