<PAGE>
ANNUAL REPORT -- SEPTEMBER 16, 1996
-------------------------------------------------------------
DEAR SHAREHOLDER,
We are pleased to present you with the Annual Report for Managed High Yield Fund
Inc. (the 'Fund') for the year ended July 31, 1996.
GENERAL MARKET OVERVIEW
During the 12 months ended July 31, 1996, the high yield market--which is your
Fund's underlying holding--did well relative to other areas of the fixed income
market. After exceptional performance during most of 1995, the first half of
1996 was difficult for fixed income investors. Accelerating economic growth,
reflected in strong employment, retail sales and investment spending numbers, as
well as a surprisingly robust housing sector, combined to sway market
expectations from the Fed easing, to the Fed tightening. The change in sentiment
was clearly reflected in the 30-year U.S. Treasury bond, the benchmark of bond
market performance, as its yield increased from 5.95% on December 29, 1995, to
6.97% by July 31, 1996. When bond yields increase, bond prices decrease.
Meanwhile, the Federal Reserve's Open Market Committee decided to keep monetary
policy unchanged at the March, May and July 1996 meetings; the Fed's decision to
do so suggested that officials did not foresee a recession or accelerating
inflation.
In comparison, throughout the first six months of the fiscal year, the high
yield market was relatively strong as cash inflows remained steady and new issue
supply remained low. During the latter portion of the year, high yield
securities, while not immune to the bond market volatility of recent months,
were not as affected by fears of a possible Fed tightening. New issue supply was
high and new issue demand was strong. Moreover, unlike earlier in the year, the
number of issuer defaults was extremely low. All of these factors combined to
result in a high yield market that was virtually the only area of the domestic
fixed income market to turn in a positive performance.
PORTFOLIO REVIEW
The total return (the net asset value change with dividends reinvested) for the
Fund for the year ended July 31, 1996 was 8.83% based on the Fund's net asset
value and 12.16% based on the Fund's share price on the New York Stock Exchange.
As of July 31, 1996, the Fund's net asset value per share was $13.25,
<PAGE>
-------------------------------------------------------------
PORTFOLIO REVIEW
while its share price on the New York Stock Exchange was $12.50. During the year
ended July 31, 1996, the Fund paid dividends from net investment income
totalling $1.32 per share. We hope to maintain the Fund's current dividend for
the remainder of 1996. Based on the dividend paid in July and the Fund's market
price on July 31, 1996, the Fund's market yield was 10.08% annualized.
A breakdown of the Fund's credit quality and the Fund's top five sectors as of
July 31, 1996 follows:
CREDIT QUALITY TOP 5 SECTORS
------------------------- ------------------
BB 34.9% Cable 12.0%
B 51.6 Media 9.8
CCC 1.2 Packaging 9.2
Not Rated 6.6 Communications 8.3
Equity 3.8 General Industrial 7.9
Cash and cash equivalents 1.9
In the last six months, the Fund's credit quality composition remained virtually
unchanged from the prior six-month period, a reflection of the portfolio's
credit stability. Currently, we do not anticipate any major changes in the near
future. The Fund's sector allocation, however, changed slightly over the course
of the 12-month period. The Fund increased its presence in the cable sector, now
the largest sector, constituting 12.0% of the Fund's net assets on July 31, 1996
versus 6.2% on July 31, 1995. The large increase reflects our optimism for the
sector, where our focus is primarily on offshore cable companies. We currently
see better value in overseas cable companies, including the United Kingdom's
TeleWest PLC (1.8%). Domestically, we invest a small portion of the sector in
Cablevision System (0.6%).
While the first half of the fiscal year saw an increase in the communications
sector (11.9% of the Fund's net assets on January 31, 1996 versus 7.7% on July
31, 1995), we have gradually decreased the Fund's holdings in this sector over
the last six months (8.3% of the Fund's net assets on July 31, 1996). However,
we continue to view the sector positively given ongoing consolidation trends
within the industry, and we anticipate that the passage of the
Telecommunications Bill in February 1996--which effectively deregulated the
industry--should continue to stimulate competition among communications
companies. Examples
2
<PAGE>
-------------------------------------------------------------
PORTFOLIO REVIEW
of companies that should benefit include GST Telecommunications Inc. (1.5%), a
competitive local exchange carrier ('CLEC'), and People's Telecommunications Co.
(1.2%), a payphone provider.
Going forward, we believe that many of the factors that contributed to the
strength of the high yield market over the past six months will remain in place.
We remain cautiously optimistic about the economy--the continuation of a
positive economic environment should be beneficial for high yield issuers--and
believe that we have positioned the Fund accordingly. We anticipate that over
the next six months new issuance in the high yield market will remain high,
demand strong and new issue default rates low. We expect to see a decrease in
initial public offering activity, but an increase in merger acquisitions as the
high yield market continues to benefit from the aggressive lending activities of
a buoyant bank 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.
Sincerely,
/s/ Margo N. Alexander /s/ Thomas J. Libassi
MARGO N. ALEXANDER THOMAS J. LIBASSI
President, Portfolio Manager,
Mitchell Hutchins Asset Management Inc. Managed High Yield Fund Inc.
3
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS JULY 31, 1996
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------------------------------------------------------- --------------------- ------------------------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS-92.95%
AIRLINES-0.98%
$ 750 Airplane Pass Through Trust................... 03/15/19 10.875% $ 781,875
750# USAfrica Airways, Inc.++...................... 05/31/99 12.000(a) 0
-----------
781,875
-----------
CABLE-10.27%
575# Australis Media Ltd........................... 05/15/03 14.000+ 322,000
3,000 Diamond Cable................................. 12/15/05 11.750+ 1,785,000
1,750 Echostar Satellite Broadcasting............... 03/15/04 13.125+ 1,085,000
2,500 International CableTel Inc.................... 04/15/05 to 02/01/06 11.500+ to 12.750+ 1,462,500
2,000 Kablemedia Holdings GMBH...................... 08/01/06 13.625+ 1,040,000
2,500 Telewest PLC.................................. 10/01/07 11.000+ 1,462,500
2,000 UIH Australia Pacific**....................... 05/15/06 14.000+ 1,050,000
-----------
8,207,000
-----------
CHEMICALS-0.96%
750 Texas Petrochemical Corp...................... 07/01/06 11.125 772,500
-----------
COMMUNICATIONS-7.91%
2,000 Clearnet Communications Inc................... 12/15/05 14.750+ 1,200,000
2,325 Comcast Cellular.............................. 03/05/00 7.264(1) 1,586,813
1,720 GST Telecommunications Inc.................... 12/15/05 13.875+ 963,200
1,000 IXC Communications Inc.**..................... 10/01/05 12.500 1,030,000
1,000 People's Telecommunications Co................ 07/15/02 12.250 975,000
750 Shared Technologies**......................... 03/01/06 12.250+ 562,500
-----------
6,317,513
-----------
CONSUMER MANUFACTURING-4.69%
1,800 Apparel Ventures, Inc......................... 12/31/00 12.250 1,368,000
1,000 Chattem Inc................................... 06/15/04 12.750 1,030,000
1,750 Decorative Home Accents....................... 06/30/02 13.000 1,347,500
-----------
3,745,500
-----------
ENERGY-6.69%
1,000 Crown Central Petroleum....................... 02/01/05 10.875 1,015,000
2,500 Empire Gas Corp............................... 07/15/04 12.875+ 2,087,500
1,000 Petroleos Mexicanos**......................... 12/01/23 8.625 750,000
1,500 TransTexas Gas Corp........................... 06/15/02 11.500 1,492,500
-----------
5,345,000
-----------
ENTERTAINMENT-1.55%
125 Cobb Theaters**............................... 03/01/03 10.625 126,875
1,240 United Artists Theatre Circuit................ 07/01/15 9.300 1,109,537
-----------
1,236,412
-----------
</TABLE>
4
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------------------------------------------------------- --------------------- ------------------------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS-(CONTINUED)
FINANCIAL SERVICES-1.89%
$ 1,000 American Life Holding Co...................... 09/15/04 11.250% $ 1,045,000
500 Imperial Credit Industries.................... 01/15/04 9.750 465,000
-----------
1,510,000
-----------
FOOD & BEVERAGE-7.79%
1,000 American Rice Inc............................. 07/31/02 13.000 930,000
750 Flagstar Corp................................. 12/01/02 10.875 656,250
1,000 Fresh Delmonte Produce N.V.................... 05/01/03 10.000 920,000
5,000 Iowa Select Farms++........................... 02/15/04 17.250+ 2,706,000
1,000 TLC Beatrice International.................... 10/01/05 11.500 1,015,000
-----------
6,227,250
-----------
GAMING-3.35%
1,000 Fitzgeralds Gaming Corp....................... 12/31/02 13.000 780,000
1,659# Grand Palais Casino, Inc++.................... 11/01/97 18.250(a) 0
1,578 PRT Funding Inc............................... 04/15/04 11.625 1,451,760
1,063 Sam Houston Race Park Ltd..................... 09/01/01 11.000 441,332
-----------
2,673,092
-----------
GENERAL INDUSTRIAL-7.94%
1,000 Alpine Group.................................. 07/15/03 12.250 1,020,000
1,500 Avondale Mills**.............................. 05/01/06 10.250 1,481,250
1,000 Communications & Power........................ 08/01/05 12.000 1,052,500
500 Dominion Textile USA.......................... 04/01/06 9.250 486,250
500 Jordan Industries............................. 08/01/05 11.750+ 362,500
1,000 Poindexter JB Inc............................. 05/15/04 12.500 920,000
1,000 Polysindo International Finance............... 06/15/06 11.375 1,025,000
-----------
6,347,500
-----------
HEALTHCARE-1.84%
1,500 Mariner Health Group Inc...................... 04/01/06 9.500 1,470,000
-----------
HOMEBUILDING-0.92%
750 Ryland Group Inc.............................. 07/01/06 10.500 733,125
-----------
MEDIA-9.61%
1,500 Affiliated Newspapers......................... 07/01/06 13.250+ 1,095,000
2,000 Grupo Televisa S.A.**......................... 05/15/08 13.250+ 1,075,000
500 Hollinger International....................... 02/01/06 9.250 460,000
1,500 InterAct Systems Inc.......................... 08/01/03 14.000+ 1,005,000
1,000 NeoData Services Inc.......................... 05/01/03 12.000+ 997,500
1,250 Newsquest Capital PLC**....................... 05/01/06 11.000 1,256,250
1,000 Pegasus Media................................. 07/01/05 12.500 1,070,000
750 Sullivan Graphics............................. 08/01/05 12.750 721,050
-----------
7,679,800
-----------
</TABLE>
5
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------------------------------------------------------- --------------------- ------------------------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS-(CONCLUDED)
METAL/MINING/STEEL-0.91%
$ 750 Weirton Steel Corp**.......................... 07/01/04 11.375% $ 727,500
-----------
PACKAGING-9.20%
1,250 Doman Industries Ltd.......................... 03/15/04 8.750 1,125,000
500 Grupo Industrial Durango S.A.................. 08/01/03 12.625 502,500
750 Indah Kiat International...................... 06/15/06 12.500 793,125
750 Indah Kiat Paper & Pulp....................... 11/01/00 8.875 714,375
1,500 Owens-Illinois Inc............................ 12/01/03 11.000 1,616,250
1,000 Quno Corp..................................... 05/15/05 9.125 970,000
1,750 Tembec Finance Corp........................... 09/30/05 9.875 1,627,500
-----------
7,348,750
-----------
RETAIL-5.58%
1,000 County Seat................................... 10/01/02 12.000 820,000
1,500 Great American Cookie Inc..................... 01/15/01 10.875 1,192,500
1,000 Michaels Stores Inc........................... 06/15/06 10.875 990,000
1,500 Petro PSC Properties L.P...................... 06/01/02 12.500 1,455,000
-----------
4,457,500
-----------
SUPERMARKETS & DRUGSTORES-1.78%
803 Farm Fresh Holdings........................... 10/01/02 14.250 200,859
500 Pantry Inc.................................... 11/15/00 12.000 452,500
750 Smiths Food & Drug............................ 05/15/07 11.250 768,750
-----------
1,422,109
-----------
TRANSPORT NON-AIR-6.06%
1,250 Alamo Rent A Car Inc.......................... 01/31/06 11.750 1,300,000
1,000 Collins & Aikman.............................. 04/15/06 11.500 1,020,000
500 Hayes Wheels International Inc................ 07/15/06 11.000 508,750
500 Stena Shipping................................ 12/15/05 10.500 496,250
1,500 Viking Star Shipping Inc...................... 07/15/03 9.625 1,520,625
-----------
4,845,625
-----------
UTILITIES-3.03%
1,000 Calpine Corp.................................. 02/01/04 9.250 940,000
1,000 Cleveland Electric............................ 05/15/05 9.500 976,590
500 Panda Funding Corp**.......................... 08/20/12 11.625 502,500
-----------
2,419,090
-----------
Total Corporate Bonds (cost - $77,534,843)............... 74,267,141
-----------
CONVERTIBLE BONDS-1.39%
CABLE-1.13%
1,000 International CableTel Inc.................... 06/15/08 7.000 900,000
-----------
COMMUNICATIONS-0.26%
215 GST Telecommunications Inc.................... 12/15/05 13.875+ 210,700
-----------
Total Convertible Bonds (cost - $1,123,888).............. 1,110,700
-----------
</TABLE>
6
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------- -----------
<S> <C>
COMMON STOCK (A)-2.12%
COMMUNICATIONS-0.09%
7,000 PageMart Nationwide Inc.................................................................... $ 70,000
-----------
GAMING-0.99%
59,668 Casino America Inc......................................................................... 410,218
105,643 Colorado Gaming & Entertainment Co......................................................... 316,929
299 SHRP Equity Inc............................................................................ 68,770
-----------
795,917
-----------
TECHNOLOGY-1.04%
122,676 Ampex Inc.................................................................................. 828,063
-----------
Total Common Stock (cost - $1,081,033)................................................................ 1,693,980
-----------
PREFERRED STOCK-0.62%
CABLE-0.62%
5,212 Cablevision System Corp. (cost - $515,850)................................................. 496,446
-----------
<CAPTION>
NUMBER OF
WARRANTS
- ---------
<S> <C>
WARRANTS (A)-1.04%
COMMUNICATIONS-0.08%
6,900 PageMart Nationwide Inc.................................................................... 63,825
-----------
CONSUMER MANUFACTURING-0.47%
2,000 AVI Holdings Inc........................................................................... 10,000
2,000 Chattem Inc................................................................................ 25,000
1,750 Decorative Home Accents.................................................................... 10,500
3,000 Icon Health & Fitness...................................................................... 327,000
-----------
372,500
-----------
ENERGY-0.11%
3,450 Empire Gas Corp............................................................................ 15,525
34,186 Transamerican Refining Corp................................................................ 68,372
-----------
83,897
-----------
FOOD & BEVERAGE-0.09%
50,000 Iowa Select Farms++........................................................................ 75,000
-----------
GAMING-0.06%
10,563 Casino America Inc......................................................................... 50,703
-----------
HOMEBUILDING-0.01%
7,900 Capital Pacific Holdings Inc............................................................... 11,850
-----------
MEDIA-0.15%
2,000 Affiliated Newspapers...................................................................... 60,000
100 Pegasus Media.............................................................................. 60,000
-----------
120,000
-----------
</TABLE>
7
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
NUMBER
OF
WARRANTS VALUE
- --------- -----------
<S> <C>
WARRANTS-(CONCLUDED)
RETAIL-0.07%
270 Cookies USA Inc............................................................................ $ 2,700
1,500 Petro PSC Properties L.P................................................................... 54,000
-----------
56,700
-----------
Total Warrants (cost - $689,574)...................................................................... 834,475
-----------
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATE INTEREST RATE
- ----------------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT-1.57%
$ 1,250 Repurchase Agreement dated 07/31/96, with Dresdner 08/01/96 5.600% 1,250,000
Securities (USA) Inc., collateralized by $1,268,000 U.S.
Treasury Notes, 4.375% due 11/15/96; proceeds: $1,250,194
(cost - $1,250,000).........................................
-----------
Total Investments (cost - $82,195,188) - 99.69%........................ 79,652,742
Other assets in excess of liabilities - 0.31%.......................... 251,334
-----------
Net Assets - 100.00%................................................... $79,904,076
-----------
-----------
</TABLE>
- ------------------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities represent 3.5% of portfolio assets. These 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.
(a) Non-income producing securities
+ 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.
(1) Interest rate shown reflects yield to maturity at purchase date
See accompanying notes to financial statements
8
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost - $82,195,188)......... $79,652,742
Interest receivable.............................................. 1,254,815
Deferred organizational expenses................................. 70,489
Other assets..................................................... 9,691
-----------
Total assets..................................................... 80,987,737
-----------
LIABILITIES
Payable for investments purchased................................ 999,885
Payable to investment adviser and administrator.................. 60,948
Accrued expenses and other liabilities........................... 22,828
-----------
Total liabilities................................................ 1,083,661
-----------
NET ASSETS
Common Stock - $0.001 par value; total authorized shares -
100,000,000;
6,031,667 shares issued and outstanding........................ 90,475,005
Distributions in excess of net investment income................. (828)
Accumulated net realized losses from investment transactions..... (8,027,655)
Net unrealized depreciation of investments....................... (2,542,446)
-----------
Net assets applicable to shares outstanding...................... $79,904,076
-----------
-----------
Net asset value per share........................................ $13.25
-----------
-----------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest and dividends........................................... $8,750,022
----------
EXPENSES:
Investment advisory and administration........................... 720,500
Custody and accounting........................................... 69,120
Legal and audit.................................................. 67,616
Reports and notices to shareholders.............................. 57,936
Amortization of organizational expenses.......................... 30,620
Transfer agency and service fees................................. 12,831
Directors' fees.................................................. 6,000
Other expenses................................................... 16,275
----------
980,898
----------
NET INVESTMENT INCOME............................................ 7,769,124
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT
ACTIVITIES:
Net realized gains from investment transactions.................. 1,035,278
Net change in unrealized appreciation/depreciation of
investments.................................................... (2,049,902)
----------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT ACTIVITIES...... (1,014,624)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $6,754,500
----------
----------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JULY 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
FROM OPERATIONS:
Net investment income......................... $ 7,769,124 $ 8,422,750
Net realized gains (losses) from investment
transactions................................. 1,035,278 (5,669,521)
Net change in unrealized
appreciation/depreciation of investments..... (2,049,902) 3,656,941
----------- -----------
Net increase in net assets resulting from
operations................................... 6,754,500 6,410,170
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income......................... (7,931,642) (8,323,701)
----------- -----------
Net decrease in net assets.................... (1,177,142) (1,913,531)
NET ASSETS:
Beginning of year............................. 81,081,218 82,994,749
----------- -----------
End of year (including undistributed net
investment income of $171,020 at July 31,
1995)........................................ $79,904,076 $81,081,218
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Managed High Yield Fund Inc. (the 'Fund') was incorporated in Maryland on June
11, 1993 and is registered with the Securities and Exchange Commission as a
closed-end, diversified management investment company. Organizational costs have
been deferred and are being amortized on the straight line method over a period
not to exceed 60 months from the date the Fund commenced operations.
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'), a wholly owned subsidiary of
PaineWebber Incorporated ('PaineWebber') and investment adviser and
administrator of the Fund. When market quotations are not readily available,
securities are valued 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 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.
12
<PAGE>
Dividends and Distributions to Shareholders - Dividends and distributions to
shareholders 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.
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.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's board of directors has approved an Investment Advisory and
Administration Contract ('Advisory Contract') with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, Mitchell Hutchins receives
compensation from the Fund, computed weekly and paid monthly, at the annual rate
of 0.90% of the Fund's average weekly net assets.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at July 31, 1996
was substantially the same as the cost of securities for financial statement
purposes.
At July 31, 1996, the components of net unrealized depreciation of investments
were as follows:
<TABLE>
<S> <C>
Gross depreciation (investments having an excess of cost over
value)......................................................... $(5,481,591)
Gross appreciation (investments having an excess of value over
cost).......................................................... 2,939,145
-----------
Net unrealized depreciation of investments....................... $(2,542,446)
-----------
-----------
</TABLE>
For the year ended July 31, 1996, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $103,802,935 and $104,712,442,
respectively.
13
<PAGE>
COMMON STOCK
There are 100,000,000 shares of $0.001 par value common stock authorized. Of the
6,031,667 common shares outstanding, 6,667 shares are owned by Mitchell
Hutchins.
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 July 31, 1996, the Fund had a net capital loss carryforward of $6,093,030.
The loss carryforward is available as a reduction, to the extent provided in the
regulations, of future net realized capital gains, and will expire by July 31,
2004. To the extent that such losses are used to offset future capital gains, it
is probable that the gains so offset will not be distributed.
In accordance with U.S. Treasury regulations, the Fund has elected to defer
$1,822,914 of net realized capital losses arising after October 31, 1995. Such
losses are treated for tax purposes as arising on August 1, 1996.
14
<PAGE>
MANAGED HIGH YIELD FUND INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
JULY 31, FOR THE PERIOD
----------------- DECEMBER 7, 1993+
1996 1995 THROUGH JULY 31, 1994
------- ------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period................... $13.44 $13.76 $ 15.00
------- ------- --------
Net investment income.................................. 1.29 1.40 0.77
Net realized and unrealized losses from investment and
foreign currency transactions........................ (0.16) (0.34) (1.25)
------- ------- --------
Net increase (decrease) from
investment operations................................ 1.13 1.06 (0.48)
------- ------- --------
Dividends from net investment income................... (1.32) (1.38) (0.76)
------- ------- --------
Net asset value, end of period......................... $13.25 $13.44 $ 13.76
------- ------- --------
------- ------- --------
Per share market value, end of period.................. $12.50 $12.38 $ 12.38
------- ------- --------
------- ------- --------
Total investment return:
On net asset value(1)............................... 8.83% 9.27% (3.00)%
------- ------- --------
------- ------- --------
On market value(2).................................. 12.16% 11.87% (12.76)%
------- ------- --------
------- ------- --------
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)........... $79,904 $81,081 $82,995
Ratio of expenses to average net assets............. 1.25% 1.21% 1.17%*
Ratio of net investment income
to average net assets............................. 9.87% 10.68% 8.27%*
Portfolio turnover rate............................. 135% 103% 85%
</TABLE>
- ------------------
+ Commencement of operations
* Annualized
(1) Total investment return on net asset value is calculated assuming a purchase
of stock at net asset value on the first day of each period reported and a
sale at net asset value on the last day of each period reported and assuming
reinvestment of dividends at prices obtained under the Fund's Dividend
Reinvestment Plan (the 'Plan'). Total investment return on net asset value
has not been annualized for periods of less than one year. Total investment
return does not reflect brokerage commissions.
(2) Total investment return on market value is calculated assuming a purchase of
stock at market value on the first day of each period reported and a sale at
market value on the last day of each period reported and assuming
reinvestment of dividends at prices obtained under the Plan. Total
investment return on market value has not been annualized for periods of
less than one year. Total investment return does not reflect brokerage
commissions.
15
<PAGE>
MANAGED HIGH YIELD FUND INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Managed High Yield Fund Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Managed High Yield Fund Inc. as of July 31,
1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
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 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. Our procedures included confirmation of investments owned at July
31, 1996 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 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
Managed High Yield Fund Inc. at July 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of two years in the
period then ended, and the financial highlights for each of the indicated
periods in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
September 11, 1996
16
<PAGE>
MANAGED HIGH YIELD FUND INC.
TAX INFORMATION
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 (July 31,
1996) as to the federal tax status of distributions received by shareholders
during such fiscal year. Accordingly, we are advising you that the distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income. Of these distributions, 0.08% qualifies for the
dividends received deduction available to 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 information
reporting.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 1996. The second notification, which
will reflect 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 1997. Shareholders are advised to consult their own tax
advisers with respect to the tax consequences of their investment in the Fund.
17
<PAGE>
MANAGED HIGH YIELD FUND INC.
GENERAL INFORMATION
THE FUND
Managed High Yield Fund Inc. (the 'Fund') is a diversified closed-end management
investment company whose shares trade on the New York Stock Exchange, Inc.
('NYSE'). The investment objective of the Fund is to achieve a high level of
current income consistent with the preservation of capital. The Fund's
investment adviser and administrator is Mitchell Hutchins Asset Management Inc.,
a wholly owned subsidiary of PaineWebber Incorporated, which has over $43
billion in assets under management as of August 31, 1996.
SHAREHOLDER INFORMATION
The NYSE ticker symbol for Managed High Yield Fund Inc. is 'PHT.' 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 numerous other newspapers.
A Special Meeting of Shareholders of the Fund was held on April 11, 1996. At the
meeting, Margo N. Alexander, Richard Q. Armstrong, E. Garrett Bewkes, Jr.,
Richard R. Burt, Mary C. Farrell, Meyer Feldberg, George W. Gowen, Frederic V.
Malek, Carl W. Schafer and John R. Torell III were elected to serve as directors
until the next annual meeting of shareholders, or until their successors are
elected and qualified.
PROPOSAL 1
To vote for or against the election of the Board of Directors:
<TABLE>
<CAPTION>
SHARES SHARES
VOTED FOR WITHHOLD AUTHORITY
--------- ------------------
<S> <C> <C>
Margo N. Alexander........ 3,163,018 139,956
Richard Q. Armstrong...... 3,165,570 137,404
E. Garrett Bewkes, Jr..... 3,165,564 137,410
Richard R. Burt........... 3,164,340 138,634
Mary C. Farrell........... 3,165,250 137,724
Meyer Feldberg............ 3,165,211 137,763
George W. Gowen........... 3,162,119 140,855
Frederic V. Malek......... 3,159,189 143,785
Carl W. Schafer........... 3,164,870 138,104
John R. Torell III........ 3,164,841 138,133
</TABLE>
18
<PAGE>
MANAGED HIGH YIELD FUND INC.
PROPOSAL 2
To vote for or against the following changes to the Fund's fundamental
investment restrictions and policies:
<TABLE>
<CAPTION>
SHARES SHARES SHARES BROKER
VOTED FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- ---------
<S> <C> <C> <C> <C>
Modification of fundamental
restriction on portfolio
diversification:................. 2,328,083 45,634 159,257 770,000
Modification of fundamental
restriction on concentration:.... 2,326,573 47,533 158,868 770,000
Modification of fundamental
restriction on senior securities
and borrowing:................... 2,327,730 45,620 159,624 770,000
Modification of fundamental
restriction on making loans:..... 2,321,525 47,413 164,036 770,000
Modification of fundamental
restriction on underwriting
securities:...................... 2,334,450 46,711 151,813 770,000
Modification of fundamental
restriction on real estate
investments:..................... 2,331,734 43,481 157,759 770,000
Modification of fundamental
restriction on investing in
commodities:..................... 2,316,028 58,399 158,547 770,000
Elimination of fundamental
restriction on pledging portfolio
securities:...................... 2,307,357 60,401 165,216 770,000
Elimination of fundamental
restriction on margin
transactions:.................... 2,301,912 61,005 170,057 770,000
Elimination of fundamental
restriction on short sales:...... 2,306,062 66,489 160,423 770,000
Elimination of fundamental
restriction on investments in
oil, gas and mineral leases and
programs:........................ 2,321,676 54,993 156,306 770,000
</TABLE>
19
<PAGE>
MANAGED HIGH YIELD FUND INC.
DISTRIBUTION POLICY
The Fund's board of directors has established a Dividend Reinvestment Plan (the
'Plan') under which all common 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. Common 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. Additional shares of common stock
acquired under the Plan will be purchased in the open market, on the NYSE, at
prices that may be higher or lower than the net asset value per share of the
common stock at the time of the purchase. The Fund will not issue any new shares
of common stock in connection with the Plan.
20
<PAGE>
BOARD OF 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
John R. Torell III
PRINCIPAL OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Julian F. Sluyters
Vice President and Treasurer
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 at market
prices shares of its common stock in the open market.
This report is sent to the shareholders of the Fund for their information. It is
not a prospectus, circular or representation intended for use in the purchase or
sale of shares of the Fund or of any securities mentioned in the report.
PaineWebber
(Copyright) 1996 PaineWebber Incorporated
Member SIPC
--------------------
MANAGED HIGH
YIELD FUND INC.
ANNUAL REPORT
JULY 31, 1996
