<PAGE>
MANAGED HIGH YIELD PLUS FUND INC. ANNUAL REPORT
July 15, 1999
Dear Shareholder,
We are pleased to present you with the first annual report for the Managed
High Yield Plus Fund Inc. (the "Fund"), covering the fiscal period from
inception on June 26, 1998, to May 31, 1999.
REPORT HIGHLIGHTS
- -------------------------------------------------------------------------------
- - The high-yield market regained its footing after the sharp sell-off last
August, caused by Russia's financial crisis.
- - Fund performance was hurt by that sell-off and by the Fund's exposure to
smaller issues, which generally fared worse than the overall market. We
began reorienting the Fund toward larger issues.
- - The Fund has benefited from strong earnings and advantageous borrowing
costs.
- - Communications remained the Fund's largest sector, with an emphasis on
international long distance companies.
- - With spreads above average and issuance likely to tail off, we think the
high-yield sector is poised to outperform.
MARKET REVIEW
- -------------------------------------------------------------------------------
[GRAPHIC]
The overall bond market saw an improvement in liquidity and a narrowing
of credit quality spreads in the first four months of 1999. (The "spread" is
the premium in yield or income over Treasurys that securities must pay to
compensate for their additional risk.) Rates trended higher across the
Treasury yield curve, with the five- and 10-year bonds yielding 5.56% and
5.62%, respectively, on May 31, 1999.
The high-yield market, as measured by the CS First Boston High Yield Index
(the "Index"), gained 2.53% for the Fund's fiscal year. High-yield spreads to
Treasurys tightened from 657 basis points -- or 6.57% -- at year-end 1998 to
564 basis points on May 31, 1999. However, the tightening occurred mainly
because Treasury prices fell, not because high-yield prices rose. New
high-yield bond issuance is about $54 billion year to date -- about 64% of
the 1998 level. According to the DLJ Altman Default Study, for the 12 months
ended May 31, 1999, the high-yield default rate was 2.3%, with defaults
concentrated in the energy and healthcare sectors. We expect a default rate
in a range of 2--4% for 1999 -- up from 1.2% for 1998.
Despite offering attractive yields, the high-yield bonds of smaller
companies generally have not fared as well as those of larger, better-known
companies. We believe two factors are responsible for smaller issues'
underperformance:
1. The continuing impact of last year's market correction, which made
liquidity risk a primary concern and thus made larger issues more
attractive.
2. The increasing influence of institutional investors such as insurance
companies and pension plans, which tend to buy larger issues. In the
environment of falling interest rates that has prevailed in recent years,
institutional portfolio managers have sought to maintain their income
targets by increasing portfolio exposure to the high-yield sector. For
example, A-rated, 10-year corporate bonds yielded 8.5% in 1994,(1)
whereas today they yield about 5.6%.(2) With such relatively low yields
in the investment grade sector, we expect institutional investors to buy
even more high-yield bonds in the future. And we think the "bigger is
better" mentality amounts to a structural shift in the high-yield market.
(1) Source: Donaldson, Lufkin & Jenrette, high-yield research; used with
permission.
(2) Source: CNN Financial News Network, May 28, 1999
[SIDEBAR]
MANAGED HIGH YIELD PLUS FUND INC.
FUND PROFILE
[GRAPHIC] GOAL: High income; secondarily, capital appreciation
[GRAPHIC] PORTFOLIO MANAGER: Thomas J. Libassi, Mitchell Hutchins Asset
Management Inc.
[GRAPHIC] TOTAL NET ASSETS: $388.9 million as of May 31, 1999
[GRAPHIC] DIVIDEND PAYMENTS: Monthly
1
<PAGE>
ANNUAL REPORT
[SIDEBAR]
MANAGED HIGH YIELD PLUS FUND INC.
Credit Quality*
[PIE CHART]
BB & Higher 25.8%
B 56.8%
CCC & Lower 2.6%
Non-Rated 11.3%
Cash 1.4%
Equity/Preferred 2.1%
MANAGED HIGH YIELD PLUS FUND INC.
Top Five Sectors*
Communications (fixed) 17.5%
Cable 9.9%
Technology 8.1%
Service 8.0%
General Industrial 7.1%
PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
PERFORMANCE--
[GRAPHIC]
For the fiscal period ended May 31, 1999, the Fund (symbol: HYF) returned
- -9.22% based on changes in the Fund's net asset value (assuming, for
illustration only, that dividends were reinvested at the net asset value on
the payable dates) and -9.37% based on changes in its share price on the New
York Stock Exchange (assuming dividends were reinvested under the Dividend
Reinvestment Plan). At May 31, 1999, the Fund's net asset value per share was
$12.35, while its share price on the New York Stock Exchange was $12.31.
During the fiscal period ended May 31, 1999, the Fund paid dividends from
net investment income totaling $1.2375 per share. The Fund increased its
dividend in January 1999, to $0.1250 per share. The Fund's relatively low
borrowing costs allowed it to retain excess earnings, from which the higher
dividends were paid. The Fund also benefited from sustained earnings growth.
The Fund continues to benefit from favorable borrowing costs.
The June dividend of $0.1250 per share represents an IPO yield of 10.00%
and a yield to current market price of 12.19%. (IPO yield is calculated by
multiplying the June distribution by 12 and dividing by the initial public
offering price. Market yield is calculated by multiplying the June
distribution by 12 and dividing by the Fund's closing price on May 28, 1999.)
HIGHLIGHTS--
Smaller issues still can be attractive, though we now demand a higher
return to compensate for the higher risk of owning them. Mostly we are
looking at secondary market purchases, where the bonds may be available at
discounts to face value and may include enhancements such as equity
participation. Because of our higher demands, the Fund's allocation to
smaller issues dropped from 48.9% in July 1998 to 41.7% as of May 31, 1999.*
The Fund's largest sector weighting remains fixed communications (17.5%),
where we are emphasizing international long distance companies. Two companies
we like are Viatel (2.7%), which is building a European fiber optic network,
and Barak (0.7%), a competitive long distance carrier in Israel. In the U.S.
we continue to focus on companies with extensive fiber optic networks such as
Metromedia Fiber (1.2%) and Northeast Optic Network (1.7%). While we still
find competitive local exchange carriers attractive, we are opting to take
profits given their significant price appreciation. In cable, the second
largest sector weighting, we favor new entrants that offer integrated voice
data and video, such as RCN Corporation (1.3%).
The entire healthcare sector has suffered because of the distress in one
of its sub-sectors, long-term healthcare. As a result, we think other
sub-sectors offer attractive prices without similar distress. The Fund is
underweighted in the sector overall (2.2%), but we are opportunistically
buying bonds from sub-sectors such as acute-care hospitals, which we believe
are cheap yet still have strong fundamentals. The Fund recently purchased
bonds issued by Triad Hospitals (0.5%), a new issuer in the market. The Triad
bonds were offered at some of the best prices we've seen in the healthcare
sector in a long time.
We are applying the same opportunistic sub-sector strategy in the energy
sector (6.4%), where we favor oil service companies over exploration and
production companies. For example, the Fund purchased Pride International
(0.5%), an offshore services company that focuses on deepwater operations.
Deepwater work is more expensive and requires rig operators to make
longer-term commitments to the service companies -- which makes the oil
service companies' interest payments more reliable.
*Weightings represent percentages of portfolio assets as of May 31, 1999. The
Fund's portfolio is actively managed and its composition will vary over time.
2
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC. ANNUAL REPORT
As a result of the interest rate backup at the end of May, high-yield
spreads have widened somewhat. In light of this widening we intend to focus
more on BB-rated bonds, which now yield around 9%. We expect new bond
issuance to remain lighter in 1999 than it was in 1998 (we think the surge of
issuance now evident is foiled by borrowers rushing to market ahead of
year-end and potential Y2K problems). If supply diminishes later in the year,
we believe spreads will tighten again, so this seems like a good time to take
advantage of the attractive yields in BB credits.
OUTLOOK
- -------------------------------------------------------------------------------
Our 1999 outlook is for gross domestic product growth of about 3% and
inflation around 2%. We do not see any signs of recession. High-yield spreads
are still well above the 15-year average of 491 basis points and new issuance
continues at a rate below the 1998 level despite the increase in April and
May. We expect the high-yield sector to outperform against a backdrop of
range-bound interest rates. Solid fundamentals and slowly improving
technicals also should help support the market. Credit analysis of individual
companies remains critical, however, since quality and price vary so greatly
in the high-yield market.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued
support and welcome any comments or questions you may have.
For a QUARTERLY REVIEW on Managed High Yield Plus Fund Inc. or a fund in
the PaineWebber Family of Funds(3), please contact your Financial Advisor.
Sincerely,
/s/ Margo Alexander /s/ Brian M. Storms
MARGO ALEXANDER BRIAN M. STORMS
Chairman and Chief Executive Officer President and Chief Operating Officer
Mitchell Hutchins Mitchell Hutchins
Asset Management Inc. Asset Management Inc.
/s/ Thomas J. Libassi
THOMAS J. LIBASSI
Portfolio Manager
Managed High Yield Plus Fund Inc.
This letter is intended to assist shareholders in understanding how the
Fund performed during the fiscal year ended May 31, 1999, and reflects our
views at the time of its writing. Of course, these views may change in
response to changing circumstances. We encourage you to consult your
Financial Advisor regarding your personal investment program.
(3) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
[SIDEBAR]
Managed High Yield Plus Fund Inc.
Top Ten Holdings*
- -----------------------------------------------------------
Viatel 2.7%
Northeast Optic Network Inc. 1.7
Verio 1.7
Alestra S.A. 1.6
Hyperion Telecommunications 1.5
NTL Inc. 1.5
Westpoint Stevens 1.4
Samsung Electronics 1.4
Orion Refining 1.3
Lyondell 1.3
- -----------------------------------------------------------
Managed High Yield Plus Fund Inc.
Portfolio Statistics*
- -----------------------------------------------------------
Weighted Avg Maturity 7.89 Yrs
Weighted Avg Price $87.48
Net Leverage 26.46%
- -----------------------------------------------------------
3
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
PORTFOLIO OF INVESTMENTS MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
(000) MATURITY DATES RATES VALUE
- ---------- -------------- --------- -------------
<C> <S> <C> <C> <C>
CORPORATE BONDS--128.89%
AUTOMOTIVE--2.91%
$ 2,500 Federal Mogul Corporation**... 01/15/09 7.500% $ 2,334,275
HDA Parts Systems
6,000 Incorporated**................ 08/01/05 12.000 5,820,000
JL French Automotive
3,150 Castings**.................... 06/01/09 11.500 3,181,500
-------------
11,335,775
-------------
CABLE--13.40%
@Entertainment
3,050 Incorporated**................ 02/01/09 14.500+ 1,464,000
11,150 @Entertainment Incorporated... 07/15/08 14.500+ 5,352,000
21st Century Telecom Group
14,500 Incorporated.................. 02/15/08 12.250+ 6,670,000
5,500 EchoStar DBS Corporation**.... 02/01/09 9.375 5,596,250
Knology Holdings
8,000 Incorporated.................. 10/15/07 11.875+ 4,800,000
7,000 NTL Incorporated**............ 10/01/08 11.500 7,770,000
9,875 Park 'N View Incorporated..... 05/15/08 13.000 2,962,500
10,000 RCN Corporation............... 10/15/07 11.125+ 6,600,000
TVN Entertainment
3,000 Corporation**................. 08/01/08 14.000 2,190,000
UIH Australia/Pacific
3,000 Incorporated.................. 05/15/06 14.000+ 2,130,000
United International Holdings
10,000 Incorporated.................. 02/15/08 10.750+ 6,575,000
-------------
52,109,750
-------------
CHEMICALS--1.76%
6,800 Lyondell Chemical Company**... 05/01/07 9.875 6,834,000
-------------
COMMUNICATIONS-FIXED--21.74%
8,687 Alestra S.A.**................ 05/15/06 12.125 8,296,085
Allegiance Telecom
5,000 Incorporated.................. 05/15/08 12.875 5,400,000
6,750 Barak ITC..................... 11/15/07 12.500+ 3,881,250
5,000 Esprit Telecom Group PLC...... 06/15/08 10.875 5,262,500
Facilicom International
3,500 Incorporated.................. 01/15/08 10.500 2,730,000
5,000 Flag Limited.................. 01/30/08 8.250 4,750,000
GST Equipment Funding
6,000 Incorporated.................. 05/01/07 13.250 6,480,000
Hyperion Telecommunications
7,750 Incorporated**................ 11/01/07 12.000 7,905,000
Metromedia Fiber Network
6,000 Incorporated.................. 11/15/08 10.000 6,255,000
NEXTLINK Communications
5,125 Incorporated.................. 06/01/09 10.750 5,125,000
Northeast Optic Network
8,500 Incorporated.................. 08/15/08 12.750 8,755,000
7,475 Pathnet Incorporated.......... 04/15/08 12.250 4,186,000
4,750# Tele1 Europe BV**............. 05/15/09 13.000 4,797,500
4,000 Time Warner Telecom LLC....... 07/15/08 9.750 4,200,000
10,000 Viatel Incorporated........... 04/15/08 12.500+ 6,525,000
-------------
84,548,335
-------------
COMMUNICATIONS-MOBILE--4.76%
ICO Global Communications
6,500# Limited....................... 08/01/05 15.000 3,380,000
Nextel Communications
5,000 Incorporated.................. 02/15/08 9.950+ 3,325,000
Nextel International
12,500 Incorporated.................. 04/15/08 12.125+ 6,375,000
2,500 Orange PLC.................... 08/01/08 8.000 2,450,000
Spectrasite Holdings
5,250 Incorporated**................ 04/15/09 11.250+ 2,992,500
-------------
18,522,500
-------------
</TABLE>
4
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
(000) MATURITY DATES RATES VALUE
- ---------- -------------- --------- -------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONTINUED)
<TABLE>
<C> <S> <C> <C> <C>
CONSUMER MANUFACTURING--5.00%
Apparel Ventures
$ 3,625 Incorporated(a)............... 12/31/00 12.250% $ 725,000
Commemorative Brands
4,000 Incorporated.................. 01/15/07 11.000 2,680,000
Decora Industries
4,500 Incorporated.................. 05/01/05 11.000 4,325,625
Jafra Cosmetics International
5,000 Incorporated.................. 05/01/08 11.750 4,300,000
Westpoint Stevens
7,500 Incorporated.................. 06/15/08 7.875 7,406,250
-------------
19,436,875
-------------
ENERGY--8.59%
Grant Geophysical
5,000 Incorporated.................. 02/15/08 9.750 2,650,000
GulfMark Offshore
5,250 Incorporated.................. 06/01/08 8.750 4,948,125
Key Energy Services
4,000# Incorporated**................ 01/15/09 14.000 4,090,000
4,000 Northern Offshore ASA......... 05/15/05 10.000 2,040,000
Orion Refining
7,000 Corporation**................. 12/01/03 15.000 6,930,000
Pride International
2,700 Incorporated.................. 06/01/09 10.000 2,716,875
5,750 R & B Falcon Corporation**.... 12/15/08 9.500 5,117,500
Tesoro Petroleum
5,000 Corporation................... 07/01/08 9.000 4,912,500
-------------
33,405,000
-------------
FINANCE--6.05%
Airplanes Pass-Through
6,000 Trust......................... 03/15/19 10.875 5,880,000
Morgan Stanley Aircraft
5,000 Finance....................... 03/15/23 8.700 4,612,500
5,500 Olympic Financial Limited..... 03/15/07 11.500 4,675,000
5,000 Signet Capital Trust I........ 08/15/27 9.500 3,500,000
Superior National Insurance
5,050 Group......................... 12/01/17 10.750 4,848,000
-------------
23,515,500
-------------
FOOD & BEVERAGE--4.56%
6,500 Iowa Select Farms L.P.**...... 12/01/05 10.750 5,427,500
Mrs. Field's Holding Company
12,125# Incorporated**................ 12/01/05 14.000+ 6,001,875
6,358 Packaged Ice Incorporated..... 02/01/05 9.750 6,294,420
-------------
17,723,795
-------------
GAMING--2.12%
Hollywood Casino
3,750 Corporation**................. 05/01/07 11.250 3,740,625
International Game
2,500 Technology**.................. 05/15/09 8.375 2,468,750
Park Place Entertainment
2,125 Corporation................... 12/15/05 7.875 2,040,000
-------------
8,249,375
-------------
GENERAL INDUSTRIAL--10.23%
7,000 Aqua Chemical Incorporated.... 07/01/08 11.250 5,390,000
Coltec Industries
5,000 Incorporated.................. 04/15/08 7.500 4,950,000
Indesco International
5,000 Incorporated.................. 04/15/08 9.750 3,800,000
J.B. Poindexter & Company
3,000 Incorporated.................. 05/15/04 12.500 2,850,000
Jordan Telecommunication
5,900 Products...................... 08/01/07 11.750+ 5,015,000
Jordan Telecommunication
1,325 Products...................... 08/01/07 9.875 1,331,625
Roller Bearing Company of
5,000 America Incorporated.......... 06/15/07 9.625 4,750,000
7,000 Sabreliner Corporation**...... 06/15/08 11.000 6,195,000
</TABLE>
5
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
(000) MATURITY DATES RATES VALUE
- ---------- -------------- --------- -------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONTINUED)
GENERAL INDUSTRIAL (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
Waste Systems International
$ 5,500# Incorporated**................ 01/15/06 11.500% $ 5,500,000
-------------
39,781,625
-------------
HEALTHCARE--2.97%
Fresenius Medical Care Capital
3,000 Trust......................... 02/01/08 7.875 2,865,000
InSight Health Services
3,000 Corporation................... 06/15/08 9.625 3,015,000
Tenet Healthcare
3,000 Corporation**................. 12/01/08 8.125 2,895,000
Triad Hospitals Holdings
2,700 Incorporated**................ 05/15/09 11.000 2,760,750
-------------
11,535,750
-------------
HOTELS & LODGING--3.77%
4,650 Host Marriott L.P.**.......... 02/15/06 8.375 4,510,500
Raintree Resorts International
5,000 Incorporated.................. 12/01/04 13.000 3,200,000
Signature Resorts
2,875 Incorporated.................. 05/15/06 9.250 2,760,000
Silverleaf Resorts
5,072 Incorporated.................. 04/01/08 10.500 4,209,760
-------------
14,680,260
-------------
METALS--2.21%
Metal Management
6,000 Incorporated.................. 05/15/08 10.000 4,770,000
National Steel
3,750 Corporation**................. 03/01/09 9.875 3,825,000
-------------
8,595,000
-------------
PAPER & PACKAGING--2.16%
Packaging Corporation of
5,125 America**..................... 04/01/09 9.625 5,233,906
Portola Packaging
3,040 Incorporated.................. 10/01/05 10.750 3,161,600
-------------
8,395,506
-------------
REAL ESTATE--2.60%
American Architectural
6,000 Products Corporation.......... 12/01/07 11.750 4,680,000
3,575 D.R. Horton Incorporated...... 02/01/09 8.000 3,449,875
Forest City Enterprise
2,000 Incorporated.................. 03/15/08 8.500 2,000,000
-------------
10,129,875
-------------
RESTAURANTS--0.81%
American Restaurant Group
3,500 Incorporated.................. 02/15/03 11.500 3,158,750
-------------
RETAIL--4.14%
5,660 Advance Holding Corporation... 04/15/09 12.875+ 3,381,850
Ames Department Stores
5,500 Incorporated**................ 04/15/06 10.000 5,417,500
3,200 Big 5 Corporation............. 11/15/07 10.875 3,336,000
3,795 Tuesday Morning Corporation... 12/15/07 11.000 3,946,800
-------------
16,082,150
-------------
SERVICE--7.98%
5,995 American Eco Corporation...... 05/15/08 9.625 3,597,000
Ameriserve Food Distribution
6,750 Incorporated.................. 07/15/07 10.125 5,805,000
Atlantic Express
4,000 Transportation Corporation.... 02/01/04 10.750 4,050,000
</TABLE>
6
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT INTEREST
(000) MATURITY DATES RATES VALUE
- ---------- -------------- --------- -------------
<C> <S> <C> <C> <C>
</TABLE>
CORPORATE BONDS (CONCLUDED)
SERVICE (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
$ 5,250 Budget Group Incorporated**... 04/01/06 9.125% $ 5,040,000
Nationwide Credit
4,000 Incorporated.................. 01/15/08 10.250 2,820,000
Premier Graphics
4,750 Incorporated**................ 12/01/05 11.500 4,655,000
Protection One
5,250 Incorporated**................ 01/15/09 8.125 5,066,250
-------------
31,033,250
-------------
SUPERMARKETS & DRUGSTORES--1.57%
6,000 The Pantry Incorporated....... 10/15/07 10.250 6,120,000
-------------
TECHNOLOGY--10.83%
6,500 Ampex Corporation++........... 03/15/03 12.000 6,760,000
Fairchild Semiconductor
6,000 Corporation................... 03/15/07 10.125 5,985,000
Rhythms NetConnections
4,000 Incorporated**................ 04/15/09 12.750 3,760,000
Samsung Electronics America
7,000 Incorporated**................ 05/01/03 9.750 7,140,000
4,000 Source Media Incorporated..... 11/01/04 12.000 3,040,000
8,275 Verio Incorporated**.......... 12/01/08 11.250 8,730,125
11,000 Wam! Net Incorporated......... 03/01/05 13.250+ 6,710,000
-------------
42,125,125
-------------
TRANSPORTATION--6.68%
American Reefer Company
5,000 Limited....................... 03/01/08 10.250 3,150,000
Eletson Holdings
1,465 Incorporated.................. 11/15/03 9.250 1,406,400
Equimar Shipholdings
6,500 Limited....................... 07/01/07 9.875 4,420,000
Millenium Seacarriers
6,000 Incorporated.................. 07/15/05 12.000 3,720,000
Navigator Gas Transport
3,000 PLC**......................... 06/30/07 10.500 1,830,000
6,250 Stena AB...................... 06/15/07 8.750 5,812,500
7,000 TFM S.A. de C.V. ............. 06/15/09 11.750+ 4,165,000
Transportacion Maritima Mexica
2,000 na S.A. de C.V. .............. 11/15/06 10.000 1,470,000
-------------
25,973,900
-------------
UTILITIES--2.05%
5,000 Calpine Corporation........... 04/01/08 7.875 4,937,500
2,994 Panda Funding Corporation..... 08/20/12 11.625 3,053,737
-------------
7,991,237
-------------
Total Corporate Bonds
(cost--$559,779,279)..................... 501,283,333
-------------
CONVERTIBLE BONDS--1.15%
GENERAL INDUSTRIAL--1.15%
Corporate Express Incorporated
5,000 (cost--$4,789,887)............ 07/01/00 4.500 4,468,750
-------------
</TABLE>
7
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- --------------
<C> <S> <C> <C> <C>
COMMON STOCK(a)--2.54%
COMMUNICATIONS-FIXED--2.01%
173,441 Viatel Incorporated............................................. $ 7,804,838
-------------
COMMUNICATIONS-MOBILE--0.00%
100 ICO Global Communications Limited............................... 850
-------------
FOOD & BEVERAGE--0.04%
28,153 Packaged Ice Incorporated....................................... 161,880
-------------
GENERAL INDUSTRIAL--0.10%
2,000 Jordan Telecommunication Products............................... 400,000
-------------
SERVICE--0.39%
224,275 Waste Systems International Incorporated........................ 1,527,873
-------------
Total Common Stock (cost--$5,728,526)........................................ 9,895,441
-------------
PREFERRED STOCK(a)--0.92%
ENERGY--0.06%
282,988 Orion Refining Corporation...................................... 193,281
897,156 TCR Holdings.................................................... 53,328
-------------
246,609
-------------
GENERAL INDUSTRIAL--0.66%
2,514 Jordan Telecommunication Products............................... 2,564,280
-------------
PAPER & PACKAGING--0.20%
7,500 Packaging Corporation of America**.............................. 783,750
-------------
Total Preferred Stock (cost--$3,486,582)..................................... 3,594,639
-------------
WARRANTS(a)--0.24%
CABLE--0.06%
56,800 @Entertainment Incorporated..................................... 225,300
9,875 Park 'N View Incorporated....................................... 99
3,000 TVN Entertainment Corporation**................................. 7,500
-------------
232,899
-------------
COMMUNICATIONS-FIXED--0.02%
7,475 Pathnet Incorporated............................................ 74,750
-------------
HOTELS & LODGING--0.00%
5,000 Club Regina Resorts Incorporated................................ 5,000
-------------
SERVICE--0.02%
82,500 Waste Systems International Incorporated**...................... 82,500
-------------
</TABLE>
8
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- -------------
<C> <S> <C> <C> <C>
</TABLE>
WARRANTS(a) (CONCLUDED)
<TABLE>
<C> <S> <C> <C> <C>
TECHNOLOGY--0.14%
24,000 Wam! Net Incorporated........................................... $ 546,000
-------------
TRANSPORTATION NON-AIR--0.00%
6,000 Millenium Seacarriers Incorporated.............................. 750
-------------
Total Warrants (cost--$166).................................................. 941,899
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATE INTEREST RATE
- ---------- ------------- -------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT--1.92%
$ 7,453 Repurchase Agreement dated
5/28/99 with SG Cowen
Securities Corporation,
collateralized by $6,991,000
U.S. Treasury Notes, 7.250%
due 08/15/04
(value--$7,602,713); proceeds:
$7,456,974
(cost--$7,453,000)............ 06/01/99 4.800% 7,453,000
---------------
Total Investments
(cost--$581,237,440)--135.66%............ 527,637,062
Liabilities in excess of other
assets--(35.66)%......................... (138,708,300)
---------------
Net Assets-100.00%......................... $ 388,928,762
---------------
---------------
</TABLE>
- ---------------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities representing 1.7% of net assets. These securities are
valued at fair value as determined in good faith by a valuation committee
under the direction of the Fund's board of directors.
+ Denotes a step-up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(a) Non-income producing securities
See accompanying notes to financial statements
9
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value
(cost--$581,237,440).................. $ 527,637,062
Cash.................................... 68,346
Receivable for investments sold......... 6,492,440
Interest receivable..................... 12,470,790
Unrealized appreciation on interest rate
swap.................................. 83,431
Other assets............................ 51,148
-----------------
Total assets............................ 546,803,217
-----------------
LIABILITIES
Bank loan payable....................... 145,000,000
Payable for investments purchased....... 11,707,621
Payable for interest on bank loan....... 675,776
Payable to investment adviser and
administrator......................... 322,661
Interest payable on swap contract....... 21,354
Accrued expenses and other
liabilities........................... 147,043
-----------------
Total liabilities....................... 157,874,455
-----------------
NET ASSETS
Capital Stock--$0.001 par value;
200,000,000 shares authorized;
31,489,283 shares issued and
outstanding........................... 470,478,833
Undistributed net investment income..... 5,623,231
Accumulated net realized loss from
investment transactions............... (33,656,355)
Net unrealized depreciation of
investments and interest rate swap.... (53,516,947)
-----------------
Net assets applicable to shares
outstanding........................... $ 388,928,762
-----------------
-----------------
Net asset value per share............... $12.35
-----------------
-----------------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 26, 1998+
THROUGH
MAY 31, 1999
----------------
<S> <C>
INVESTMENT INCOME:
Interest and dividends.................. $ 55,427,115
----------------
EXPENSES:
Interest expense, loan commitment and
other fees............................ 6,975,751
Investment advisory and
administration........................ 3,433,461
Legal and audit......................... 321,152
Custody and accounting.................. 292,981
Organizational expenses................. 108,864
Reports and notices to shareholders..... 87,671
Transfer agency and service fees........ 12,473
Directors' fees......................... 10,500
Other expenses.......................... 39,770
----------------
11,282,623
----------------
Net investment income................... 44,144,492
----------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENT ACTIVITIES:
Net realized loss from investment
transactions.......................... (33,656,355)
Net change in unrealized
appreciation/depreciation of:
Investments......................... (53,600,378)
Interest rate swap.................. 83,431
----------------
NET REALIZED AND UNREALIZED LOSS FROM
INVESTMENT ACTIVITIES................. (87,173,302)
----------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $(43,028,810)
----------------
----------------
</TABLE>
- ---------------
+ Commencement of operations
See accompanying notes to financial statements
11
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 26, 1998+
THROUGH
MAY 31, 1999
--------------------
<S> <C>
FROM OPERATIONS:
Net investment income................... $ 44,144,492
Net realized loss from investment
transactions.......................... (33,656,355)
Net unrealized appreciation/depreciation
of investments and interest rate
swap.................................. (53,516,947)
--------------------
Net decrease in net assets resulting
from operations....................... (43,028,810)
--------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income................... (38,535,123)
--------------------
CAPITAL STOCK TRANSACTIONS:
Net proceeds from the sale of shares.... 460,575,000
Proceeds from dividends reinvested...... 9,817,675
--------------------
Net increase in net assets from capital
stock transactions.................... 470,392,675
--------------------
Net increase in net assets.............. 388,828,742
NET ASSETS:
Beginning of period..................... 100,020
--------------------
End of period (including undistributed
net investment income of
$5,623,231)........................... $388,928,762
--------------------
--------------------
</TABLE>
- -------------
+ Commencement of operations
See accompanying notes to financial statements
12
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 26, 1998+
THROUGH
MAY 31, 1999
--------------
<S> <C>
CASH FLOWS USED FOR OPERATING ACTIVITIES:
Interest received........................................... $ 33,543,765
Operating expenses paid..................................... (3,866,962)
Interest paid............................................... (6,299,975)
Purchase of short-term portfolio investments, net........... (7,453,000)
Purchase of long-term portfolio investments................. (863,471,889)
Sale of long-term portfolio investments..................... 270,658,835
--------------
Net cash used for operating activities...................... (576,889,226)
--------------
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES:
Dividends paid to shareholders.............................. (38,535,123)
Proceeds from bank loan..................................... 145,000,000
Net proceeds from the sale of shares and dividends
reinvested................................................ 470,392,675
--------------
Net cash provided from financing activities................. 576,857,552
--------------
Net decrease in cash........................................ (31,674)
Cash at beginning of period................................. 100,020
--------------
Cash at end of period....................................... $ 68,346
--------------
--------------
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations........ $ (43,028,810)
--------------
Increase in investments, at value........................... (527,637,062)
Increase in receivable for investments sold................. (6,492,440)
Increase in interest receivable............................. (12,470,790)
Increase in unrealized appreciation on interest rate swap... (83,431)
Increase in other assets.................................... (51,148)
Increase in payable for investments purchased............... 11,707,621
Increase in payable for interest on bank loan............... 675,776
Increase in payable to investment adviser and
administrator............................................. 322,661
Increase in payable for interest rate swap.................. 21,354
Increase in accrued expenses and other liabilities.......... 147,043
--------------
Total adjustments........................................... (533,860,416)
--------------
Net cash used for operating activities...................... $(576,889,226)
--------------
--------------
</TABLE>
- -------------
+ Commencement of operations
See accompanying notes to financial statements
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Managed High Yield Plus Fund Inc. (the "Fund") was incorporated in Maryland on
April 24, 1998 and is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended, as a closed-end,
diversified management investment company. The Fund's primary investment
objective is to seek high income. Its secondary objective is to seek capital
appreciation. Direct expenses of $1,071,662 relating to the public offering of
the Fund's shares were paid by PaineWebber Incorporated ("PaineWebber") at the
time of issuance.
The preparation of financial statements in accordance with generally accepted
accounting principles requires Fund management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies:
VALUATION OF INVESTMENTS--Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect the fair value of the securities, in the judgment of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), an asset management subsidiary of
PaineWebber and investment adviser and administrator of the Fund. When market
quotations are not readily available, securities are valued based upon
appraisals received from a pricing service using a computerized matrix system or
based upon appraisals derived from information concerning those securities or
similar securities received from recognized dealers in those securities. All
other securities are valued at fair value as determined in good faith by a
management committee under the direction of the Fund's board of directors. The
amortized cost method of valuation, which approximates market value, generally
is used to value short term debt instruments with sixty days or less remaining
to maturity, unless the Fund's board of directors determines that this does not
represent fair value.
REPURCHASE AGREEMENTS--The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/ or retention of the collateral may be subject
to legal proceedings. The Fund occasionally participates in joint repurchase
agreement transactions with other funds managed by Mitchell Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of investments.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to stockholders are
recorded on the ex-dividend date. Dividends from net investment income and
distributions from net realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
BORROWINGS
REVERSE REPURCHASE AGREEMENTS--The Fund enters into reverse repurchase
agreements with qualified, third party broker-dealers as determined by, and
under the direction of, the Fund's board of directors. Interest on the value of
reverse repurchase agreements issued and outstanding is based upon competitive
market rates at the time of issuance. At the time the Fund enters into a reverse
repurchase agreement, it establishes and maintains a segregated account with the
Fund's custodian containing liquid securities having a value not less than the
repurchase price, including accrued interest, of the reverse repurchase
agreement.
The average monthly balance of reverse repurchase agreements outstanding
during the period June 26, 1998 through May 31, 1999 was $49,873,116 at a
weighted average interest rate of 4.99%.
LOAN PAYABLE--The Fund has a $200 million dollar committed credit facility
("facility"). Under the terms of the facility, the Fund borrows at the London
Interbank Overnight Rate ("LIBOR") plus facility and administrative fees. In
addition, the Fund pays a liquidity fee on the unused portion of the facility.
The Fund may borrow up to 33 1/3% of its total assets up to the committed
amount. In accordance with the terms of the debt agreement, the Fund has pledged
assets in the amount of $366,733,516 at May 31, 1999 as collateral for the bank
loan.
For the period October 27, 1998 (commencement of borrowings) through May 31,
1999, the Fund borrowed a daily weighted average balance of $139,854,369 at an
interest rate of 5.55%.
INTEREST RATE SWAP AGREEMENT
The Fund entered into an interest rate swap to protect itself from interest
rate fluctuations on a portion of its borrowings. A swap is an agreement that
obligates two parties to exchange a series of cash flows at specified intervals
based upon or calculated by reference to interest rates for a specified amount.
The payment flows are usually netted against each other, with the difference
being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the contract. The loss incurred by the
failure of a counterparty is generally limited to the net interest payment to be
received by the Fund. Therefore, the Fund considers the creditworthiness of the
counterparty to a swap contract in evaluating potential credit risk.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as interest
income (or as an offset to interest income). Fluctuations in the value of swap
contracts are recorded for financial statement purposes as unrealized
appreciation or depreciation of investments.
At May 31, 1999, the Fund had an outstanding interest rate swap contract with
the following terms:
<TABLE>
<CAPTION>
RATE TYPE
----------------------------------------------
NOTIONAL TERMINATION PAYMENTS MADE PAYMENTS RECEIVED UNREALIZED
AMOUNT DATE BY THE FUND BY THE FUND APPRECIATION
- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
$ 20,000,000 3/16/01 5.5125% 5.0000%+ $ 83,431
</TABLE>
- -------------
+ Payment rate fixed through June 16, 1999, subsequent receipts based on LIBOR
(London Interbank Offered Rate).
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
CONCENTRATION OF RISK
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments, including those
particular to a specific industry, country or region. In addition, the Fund's
use of leverage creates greater volatility in the Fund's net asset value and
market price of its Shares.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has entered into an Investment Advisory and Administration Contract
("Advisory Contract") with Mitchell Hutchins, under which Mitchell Hutchins
serves as investment adviser and administrator of the Fund. The Advisory
Contract provides Mitchell Hutchins with a fee, computed weekly and payable
monthly, in an amount equal to the annual rate of 0.70% of the Fund's average
weekly total assets minus liabilities other than the aggregate indebtedness
constituting leverage.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at May 31, 1999
was substantially the same as the cost of securities for financial statement
purposes.
At May 31, 1999, the components of the net unrealized depreciation of
investments (excluding interest rate swap) were as follows:
<TABLE>
<S> <C>
Gross depreciation (investments having an excess of cost over value)........... $(63,279,620)
Gross appreciation (investments having an excess of value over cost)........... 9,679,242
------------
Net unrealized depreciation of investments..................................... $(53,600,378)
------------
------------
</TABLE>
For the period June 26, 1998 through May 31, 1999, aggregate purchases and
sales of portfolio securities, excluding short-term securities, were
$875,179,510 and $277,151,275, respectively.
FEDERAL TAX STATUS
The Fund intends to distribute all of its taxable income and to comply with
the other requirements of the Internal Revenue Code applicable to regulated
investment companies. Accordingly, no provision for federal income taxes is
required. In addition, by distributing during each calendar year substantially
all of its net investment income, capital gains and certain other amounts, if
any, the Fund intends not to be subject to a federal excise tax.
At May 31, 1999, the Fund had a net capital loss carryover of $9,728,324 that
will expire by May 31, 2007. This loss carryforward is available as a reduction,
to the extent provided in the regulations, of future net realized capital gains.
To the extent that such losses are used to offset future net realized capital
gains, it is probable these gains will not be distributed. In accordance with
U.S. Treasury regulations, the Fund has elected to defer $23,622,273 of net
realized capital losses arising after October 31, 1998. Such losses are treated
for tax purposes as arising on June 1, 1999.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended May 31, 1999, undistributed net investment income was increased
by $13,862 and capital stock was decreased by $13,862.
CAPITAL STOCK
There are 200,000,000 shares of $0.001 par value common stock authorized. Of
the 31,489,283 shares of common stock outstanding, 7,282 shares are owned by
Mitchell Hutchins.
Transactions in shares of common stock for the period June 26, 1998 through
May 31, 1999 were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Shares issued.......................................................................... 30,705,000 $460,575,000
Dividends reinvested................................................................... 777,615 9,817,675
---------- ------------
Net increase........................................................................... 31,482,615 $470,392,675
---------- ------------
---------- ------------
</TABLE>
16
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period is
presented below:
<TABLE>
<CAPTION>
FOR THE PERIOD
JUNE 26, 1998+
THROUGH
MAY 31, 1999
------------------
<S> <C>
Net asset value, beginning of period.... $ 15.00
--------
Net investment income................... 1.42
Net realized and unrealized loss from
investment transactions................ (2.83)
--------
Net decrease from investment
operations............................. (1.41)
--------
Dividends from net investment income.... (1.24)
--------
Net asset value, end of period.......... $ 12.35
--------
--------
Market value, end of period............. $ 12.31
--------
--------
Total investment return (1)............. (9.37)%
--------
--------
Ratios/Supplemental Data:
Net assets, end of period (000's)....... $388,929
Expenses to average net assets**........ 3.02%*
Net investment income to average net
assets................................. 11.82%*
Portfolio turnover rate................. 52%
Asset coverage++........................ $ 3,682
</TABLE>
- ---------------
+ Commencement of operations
++ Per $1,000 of bank loans outstanding
* Annualized
** This ratio includes 1.87% related to interest expense for the period June 26,
1998 through May 31, 1999 which represents the cost of leverage to the Fund.
(1) Total investment return is calculated assuming a purchase of capital stock
at market value on the first day of the period reported and a sale at market
value on the last day of the period reported and assuming reinvestment of
dividends at prices obtained under the Fund's Dividend Reinvestment Plan.
Total investment return does not reflect brokerage commissions and has not
been annualized.
17
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Boards of Directors and Shareholders of
Managed High Yield Plus Fund Inc.
We have audited the accompanying statement of assets and liabilities of the
Managed High Yield Plus Fund Inc. (the "Fund"), including the portfolio of
investments, as of May 31, 1999, and the related statements of operations,
changes in net assets, cash flows and the financial highlights for the period
June 26, 1998 (commencement of operations) through May 31, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 and financial highlights. Our procedures included confirmation of
investments owned at May 31, 1999, by correspondence with the custodian and
brokers. 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 audit provides 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 the
Fund at May 31, 1999, the results of its operations, changes in its net assets,
cash flows and the financial highlights for the period June 26, 1998 to May 31,
1999, in conformity with generally accepted accounting principles.
[ERNST & YOUNG SIGNATURE]
New York, New York
July 22, 1999
18
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
TAX INFORMATION(UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (May 31,
1999) as to the federal tax status of distributions received by stockholders
during such fiscal year. Accordingly, we are advising you that all dividends
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. Additionally, 1.12% of the distributions paid by the
Fund qualify for the dividend received deduction available for corporate
shareholders.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not
be reported as taxable income. Some retirement trusts (e.g., corporate, Keogh,
and 403(b)(7) plans) may need this information for their annual reporting.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1999. The second notification, which
reflects the amount to be used by calendar year taxpayers on their federal
income tax returns, will be made in conjunction with Form 1099 DIV and will be
mailed in January 2000. Stockholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund.
19
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
GENERAL INFORMATION(UNAUDITED)
THE FUND
Managed High Yield Plus Fund Inc. (the "Fund") is a diversified, closed-end
management investment company whose shares trade on the New York Stock Exchange,
Inc. ("NYSE"). The Fund's primary investment objective is to seek high income.
Its secondary objective is to seek capital appreciation. The Fund's investment
adviser and administrator is Mitchell Hutchins Asset Management Inc. ("Mitchell
Hutchins"), a wholly-owned asset management subsidiary of PaineWebber
Incorporated ("PaineWebber"), which has over $58 billion in assets under
management as of June 30, 1999.
SHAREHOLDER INFORMATION
The NYSE ticker symbol for the Managed High Yield Plus Fund Inc. is "HYF."
Weekly comparative net asset value and market price information about the Fund
is published each Monday in THE WALL STREET JOURNAL, each Sunday in THE NEW YORK
TIMES and each week in BARRON'S, as well as in numerous other newspapers.
YEAR 2000 RISKS
Like other funds and financial and business organizations around the world,
the Fund could be adversely affected if the computer systems used by its
investment adviser, other service providers and entities with computer systems
that are linked to Fund records do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Issue."
Mitchell Hutchins is taking steps that it believes are reasonably designed to
address the Year 2000 Issue with respect to the computer systems that it uses,
and to obtain satisfactory assurances that each of the Fund's other major
service providers is taking comparable steps. However, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
In addition, issuers of securities in which the Fund invests may be adversely
affected by Year 2000 related problems. This could have an impact on the value
of the Fund's investments and share price.
DISTRIBUTION POLICY
The Fund's board of directors has established a Dividend Reinvestment Plan
(the "Plan") under which all stockholders whose shares are registered in their
own names, or in the name of PaineWebber or its nominee, will have all dividends
and other distributions on their shares of common stock automatically reinvested
in additional shares of common stock, unless such stockholders elect to receive
cash. Stockholders who elect to hold their shares in the name of another broker
or nominee should contact such broker or nominee to determine whether, or how,
they may participate in the Plan. The ability of such stockholders to
participate in the Plan may change if their shares are transferred into the name
of another broker or nominee.
A stockholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and stockholders who have
previously terminated participation in the Plan may rejoin it at any time.
Changes in elections must be made in writing to the Fund's transfer agent and
should include the stockholder's name and address as they appear on that share
certificate or in the transfer agent's records. An election to terminate
participation in the Plan, until such election is changed, will be deemed an
election by a stockholder to take all subsequent distributions in cash. An
election will be effective only for distributions declared and having a record
date at least ten days after the date on which the election is received.
20
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
GENERAL INFORMATION(CONTINUED)(UNAUDITED)
The Transfer Agent will serve as agent for the stockholders in administering
the Plan. After the Fund declares a dividend or determines to make any other
distribution, the Transfer Agent, as agent for the participants, receives the
cash payment. Whenever the Fund declares an income dividend or a capital gain
distribution (collectively referred to in this section 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. The Transfer
Agent will acquire Shares for the participants' accounts, depending upon the
circumstances described below, either (i) through receipt of unissued but
authorized Shares from the Fund ("newly issued Shares") or (ii) by purchase of
outstanding Shares on the open market, on the NYSE or elsewhere ("open-market
purchases"). If, on the dividend payment date, the net asset value per Share is
equal to or less than the market price per Share plus estimated brokerage
commissions (such condition being referred to herein as "market premium"), the
Transfer Agent will invest the dividend amount in newly issued Shares on behalf
of the participants. The number of newly issued Shares to be credited to each
participant's account will be determined by dividing the dollar amount of the
dividend by the net asset value per Share (but in no event less than 95% of the
then current market price per Share) on the date the Shares are issued. If, on
the dividend payment date, the net asset value per Share is greater than the
market value per Share, plus estimated brokerage commissions (such condition
being referred to herein as "market discount"), the Transfer Agent will invest
the dividend amount in Shares acquired on behalf of the participants in
open-market purchases. The number of outstanding Shares purchased with each
distribution for a particular Shareholder equals the result obtained by dividing
the amount of the distribution payable to that Shareholder by the average price
per Share (including applicable brokerage commissions) that the Transfer Agent
was able to obtain in the open market.
In the event of a market discount on the dividend payment date, the Transfer
Agent will have until the last business day before the next date on which the
Shares trade on an "ex-dividend" basis, but 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 of the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Transfer Agent has completed its
open-market purchases, the market price of a Share, plus estimated brokerage
commissions, exceeds the net asset value per Share, the average per Share
purchase price paid by the Transfer Agent may exceed the Fund's net asset value
per Share, resulting in the acquisition 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 Transfer 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 Transfer 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 earlier
of the last purchase date or the first day during the purchase period on which
the net asset value per Share equals or is less than the market price per Share,
plus estimated brokerage commissions. The Transfer Agent will maintain all
Shareholder accounts in the Plan and will furnish written confirmations of all
transactions in the accounts, including information needed by Shareholders for
personal and tax records. Shares in the account of each Plan participant will be
held by the Transfer Agent in non-certificated form in the name of the
participant, and each Shareholder's proxy will include those Shares purchased
pursuant to the Plan.
21
<PAGE>
MANAGED HIGH YIELD PLUS FUND INC.
GENERAL INFORMATION(CONCLUDED)(UNAUDITED)
There will be no charge to participants for reinvesting dividends. However,
each participant will pay a pro rata share of brokerage commissions incurred
with respect to the Transfer Agent's open market purchases of Shares in
connection with the reinvestment of dividends.
The automatic reinvestment of dividends in Shares will not relieve
participants of any income tax that may be payable on such dividends.
Shareholders who participate in the Plan may receive benefits not available to
Shareholders who do not participate in the Plan. If the market price (plus
commissions) of the Shares is above their net asset value, participants in the
Plan will receive Shares at less than they could otherwise purchase them and
will have Shares with a cash value greater than the value of any cash dividends
they would have received on their Shares. If the market price plus commissions
is below the net asset value, participants will receive dividends in Shares with
a net asset value greater than the value of any cash dividends they would have
received on their Shares. However, there may be insufficient Shares available in
the market to distribute dividends in Shares at prices below the net asset
value. Also, since the Fund does not redeem its Shares, the price on resale may
be more or less than the net asset value.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan with
respect to any dividend or other distribution if notice of the change is sent to
Plan participants at least 30 days before the record date for such distribution.
The Plan also may be amended or terminated by the transfer agent by at least 30
days' written notice to all Plan participants. Additional information regarding
the Plan may be obtained from, and all correspondence concerning the Plan should
be directed to, the transfer agent at PNC Bank, National Association, c/o PFPC
Inc., P.O. Box 8950, Wilmington, Delaware 19899.
22
<PAGE>
DIRECTORS
E. Garrett Bewkes, Jr.
CHAIRMAN
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
Brian M. Storms
PRINCIPAL OFFICERS
Margo N. Alexander
PRESIDENT
Victoria E. Schonfeld
VICE PRESIDENT
Dianne E. O'Donnell
VICE PRESIDENT AND SECRETARY
Paul H. Schubert
VICE PRESIDENT AND TREASURER
Thomas J. Libassi
VICE PRESIDENT
Dennis McCauley
VICE PRESIDENT
INVESTMENT ADVISER AND ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(c) OF THE INVESTMENT
COMPANY ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE SHARES OF
ITS COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT
IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR THE USE IN THE
PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS
REPORT.
<PAGE>
PAINEWEBBER
- -C-1999 PaineWebber Incorporated
Member SIPC
MANAGED HIGH YIELD PLUS FUND INC.
MAY 31, 1999
ANNUAL REPORT
