<PAGE>
MANAGED HIGH
YIELD FUND INC.
SEMI-ANNUAL REPORT
JANUARY 31, 1996
<PAGE>
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March 15, 1996
Dear Shareholder,
During the six months ended January 31, 1996, the pace of economic growth
slackened. The Federal Reserve's 0.25% cut in the Federal Funds rate in July
1995 had the intended effect early in the period, boosting GDP growth to 3% in
the third quarter. However, this impact faded as the Federal Reserve remained on
the sidelines until December 19, 1995, when the Federal Funds rate was decreased
another 0.25%. In the fourth quarter, estimated GDP growth fell to just 1%,
indicating a significant softening in the economy. Inflation was benign at just
2.5% for the year; 1995 was the fifth consecutive year in which consumer price
inflation remained under 3%. Citing low inflation, the Federal Reserve Board
trimmed short-term interest rates by another 0.25% on January 31, 1996, bringing
the Federal Funds rate down to 5.25%.
Politics dominated the U.S. financial markets during the six month period,
as budget negotiations first raised hopes for a balanced budget, then stalled
late in 1995. The Federal Government shut down in November and December,
dampening an already sluggish economy. The U.S. Government's focus on fiscal
responsibility, combined with the slower growth and low inflation environment,
created a very favorable climate for the bond market. Long-term interest rates
declined sharply during the second half of the year, as they had throughout
1995. By the end of 1995 and early in 1996, the bond market came under pressure,
based on slightly stronger economic data and the possibility that the Federal
Reserve Board might not ease again in the near future.
PORTFOLIO REVIEW
During the six months ended January 31, 1996, the high yield market was
relatively strong, as cash inflows into the high yield market remained
relatively strong, and new issue supply remained low. Despite the strong
absolute performance of the high yield market during the period, there were some
disappointments. For example, the number of high yield issuers defaulting
increased during 1995, after declining for several years. In addition, the
retail sector experienced price weakness for most of 1995, and this trend
continued into early 1996.
The total return for Managed High Yield Fund Inc. (the 'Fund') for the six
months ended January 31, 1996 was 3.03% based on the Fund's net asset value and
6.60% based on the Fund's share price on the New York Stock Exchange. As of
January 31, 1996, the Fund's net asset value per share was $13.15, while its
share price on the New York Stock Exchange was $12.50. During the six months
ended January 31, 1996, the Fund paid dividends from net investment income
totalling $0.69 per share. After maintaining a monthly dividend of $0.1160 per
share for fifteen months, the Fund reduced its dividend in January 1996 to
$0.1050 per share. This $0.0110 reduction in the monthly dividend was
necessitated by the dramatic decline in interest rates as well as the overall
portfolio credit quality improvement--higher quality issues tend to pay lower
dividends. An indication of the steep decline in interest rates can be seen in
10-year Treasury bond yields. Ten-year Treasuries were yielding 7.83% on
December 30, 1994, and 5.57% on December 29, 1995. We will attempt to maintain
this dividend for the remainder of 1996. Based on the dividend paid in January
and the Fund's market price on January 31, 1996, the Fund's market yield was
10.08%.
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A breakdown of the Fund's credit quality and the Fund's top five sectors as
of January 31, 1996 follows:
Credit Quality Top 5 Sectors
- -------------- -------------
BB..................... 35.2% Communications......................... 11.9%
B...................... 50.3 Food & Beverage........................ 10.6
CCC.................... 1.2 Media.................................. 10.2
Not Rated.............. 11.6 Energy................................. 7.9
Equity................. 1.7 Consumer Manufacturing................. 7.7
During the six-month period, the Fund's sector allocation changed slightly.
As of January 31, 1996, the Fund's largest sector was communications (11.9% of
net assets versus 7.7% on July 31, 1995). This increase reflects our optimism
for the sector, based on continuing consolidation trends within the
communications industry. The first signs of strategic consolidation within the
industry were apparent with the proposed purchase of Continental Cablevision by
U.S. West Telecommunications. The passage of the Telecommunications Bill, which
was enacted in February 1996, effectively deregulated the industry--which should
prove beneficial to many communications companies. Examples of competitive
access providers ('CAPs') that should benefit from the increased competition
include GST Telecommunications (1.4% of net assets on January 31, 1996) and MFS
Communications Inc. (0.3%). The Fund's investment in this sector also focuses on
companies that provide telephone services, including IXC Communications Inc.
(1.3%)--that may be purchased by a regional Bell or long distance carrier, and
People's Telecommunications Co. (1.0%)--one of the nation's largest payphone
operators whose cash flow is expected to increase substantially now that the
Telecommunications Bill has passed.
Another area of expansion during the period was in the cable sector (7.2%
of net assets on January 31, 1996 versus 6.2% on July 31, 1995). The Fund's main
area of expansion within this sector was in United Kingdom cable companies,
including TeleWest PLC (1.9%), International Cabletel Inc. (2.3%) and Diamond
Cable Communications (2.3%). These cable companies offer number portability,
which enables consumers to change telephone providers without getting new
numbers--this should increase the penetration of U.K. cable companies in terms
of phone service. The media sector (10.2% of net assets on January 31, 1996
versus 6.6% on July 31, 1995) was another area of expansion. Paxson
Communications Corp. (1.3%), which will be offering a nationwide infommercial
network, was added to the portfolio. In addition, we are optimistic about the
newspaper industry. We believe there has been a peak in newsprint prices and
that the 1996 Olympics as well as the Presidential election should benefit
newspaper circulation. We do not currently anticipate making any major credit
quality changes to the portfolio, as the restructuring process has already taken
place.
On November 22, 1995, Harrah's Jazz Company filed for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code. Grand Palais Casino, Inc. (2.8% of
net assets on November 17, 1995) owned one-third of Harrah's Jazz. We are
continuing to consider what options, if any, may be available to the Fund in
connection with the bankruptcy filing by Harrah's Jazz. While we are pursuing
avenues of recovery, we believe that any upside potential is highly speculative.
Going forward, we expect a continuation of low new issue supply as well as
strong cash inflows into the high yield market, as investors continue to chase
higher yields. If interest rates remain relatively low and banks continue their
aggressive lending policies, low new issue supply
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2
<PAGE>
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will probably continue for the next six months at least. In addition, we expect
to see a continuation of companies going public through IPOs as well as
increased merger activity--as high yield companies are consolidated into better
capitalized companies--which should be beneficial for the outstanding bonds. We
believe there will be greater volatility in high yield security prices over the
next six months due to movements in Treasury bond prices as well as concerns
over the economy. We are cautiously optimistic about the economy and believe we
have positioned the Fund accordingly.
We value you as a shareholder and as a client, and thank you for your
continued support. We welcome any comments or questions you may have.
Sincerely,
/s/ Margo Alexander /s/ Thomas J. Libassi
MARGO ALEXANDER THOMAS J. LIBASSI
President, Portfolio Manager,
Mitchell Hutchins Asset Management Inc. Managed High Yield Fund Inc.
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3
<PAGE>
MANAGED HIGH YIELD FUND INC.
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Portfolio of Investments
January 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ---------- -------------------- ----------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS - 89.87%
AIRLINES - 0.47%
$ 750# USAfrica Airways, Inc.++.......................... 05/31/99 12.000%(a) $ 375,000
-----------
CABLE - 7.24%
750# Australis Media Ltd. ............................. 05/15/03 14.000+ 558,750
3,000 Diamond Cable Communications...................... 12/15/05 11.750+ 1,830,000
3,000 International Cabletel Inc. ...................... 04/15/05 to 02/01/06 11.500 to 12.750+ 1,820,000
2,500 TeleWest PLC...................................... 10/01/07 11.000+ 1,537,500
-----------
5,746,250
-----------
CHEMICALS - 1.63%
1,250 Acetex Corp. ..................................... 10/01/03 9.750 1,296,875
-----------
COMMUNICATIONS - 11.73%
3,825 Comcast Cellular.................................. 03/05/00 9.183(2) 2,945,250
1,000 Communications & Power Industries Inc. ........... 08/01/05 12.000 1,032,500
1,000 Echostar Communications Corp. .................... 06/01/04 12.875+ 745,000
215(1) GST Telecommunications**.......................... 12/15/05 13.875+ 1,123,375
1,000 IXC Communications Inc.**......................... 10/01/05 13.000 1,050,000
350 MFS Communications Inc. .......................... 01/15/06 8.875+ 229,687
425 Mobile Telecommunications......................... 12/15/02 13.500 472,812
1,325 PageMart Nationwide Inc. ......................... 02/01/05 15.000+ 891,063
1,000 People's Telecommunications Co. .................. 07/15/02 12.250 815,000
-----------
9,304,687
-----------
CONSUMER MANUFACTURING - 7.29%
1,800 Apparel Ventures, Inc. ........................... 12/31/00 12.250 1,413,000
1,747 Chattem Inc. ..................................... 06/15/04 12.750 1,690,223
2,000 Decorative Home Accents........................... 06/30/02 13.000 1,980,000
1,000 US Leather Inc. .................................. 07/31/03 10.250 700,000
-----------
5,783,223
-----------
ENERGY - 7.73%
1,000 Crown Central Petroleum........................... 02/01/05 10.875 1,055,000
2,500 Empire Gas Corp. ................................. 07/15/04 12.875+ 2,212,500
1,000 Petroleos Mexicanos............................... 12/01/23 8.625 815,000
2,000 TransTexas Gas Corp. ............................. 06/15/02 11.500 2,050,000
-----------
6,132,500
-----------
</TABLE>
4
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ---------- -------------------- ----------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS--(CONTINUED)
ENTERTAINMENT - 1.58%
$1,250 United Artists Theatre Circuit.................... 07/01/15 9.300% $ 1,253,125
-----------
FINANCIAL SERVICES - 4.05%
1,000 American Life Holding Co. ........................ 09/15/04 11.250 1,060,000
1,250 Imperial Credit Industries........................ 01/15/04 9.750 1,187,500
1,000 Tembec Finance Corp. ............................. 09/30/05 9.875 965,000
-----------
3,212,500
-----------
FOOD & BEVERAGE - 10.11%
1,000 American Rice Inc. ............................... 07/31/02 13.000 940,000
1,000 Flagstar Corp. ................................... 12/01/02 10.875 902,500
1,000 Fresh Delmonte Produce N.V........................ 05/01/03 10.000 907,500
5,000 Iowa Select Farms++............................... 02/15/04 17.250+ 2,176,086
2,000 Specialty Equipment Companies Inc. ............... 12/01/03 11.375 2,095,000
1,000 TLC Beatrice International........................ 10/01/05 11.500 1,000,000
-----------
8,021,086
-----------
GAMING - 5.58%
1,000 Fitzgeralds Gaming Corp. ......................... 12/31/02 13.000 935,080
1,810# Grand Palais Casino, Inc.++....................... 11/01/97 18.250(a) 0
3,559# Hemmeter Enterprises**............................ 12/15/00 12.000(a) 1,530,370
1,853 PRT Funding Inc. ................................. 04/15/04 11.625 1,426,810
1,009 Sam Houston Race Park Ltd. ....................... 09/01/01 11.000 529,973
-----------
4,422,233
-----------
GENERAL INDUSTRIAL - 7.63%
1,000 Alpine Group...................................... 07/15/03 12.250 980,000
500 Jordan Industries Inc. ........................... 08/01/05 11.750+ 317,500
1,000 Kindercare Learning Centers....................... 06/01/01 10.375 1,062,500
2,250 Owens-Illinois Inc. .............................. 12/01/03 11.000 2,548,125
500 Poindexter JB Inc. ............................... 05/15/04 12.500 400,000
750 Sullivan Graphics................................. 08/01/05 12.750 742,500
-----------
6,050,625
-----------
HEALTHCARE - 1.74%
250 DynaCare Inc. .................................... 01/15/06 10.750 256,250
1,000 Tenet Healthcare.................................. 03/01/05 10.125 1,120,000
-----------
1,376,250
-----------
</TABLE>
5
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
- ---------- -------------------- ----------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS--(CONCLUDED)
MEDIA - 9.81%
$2,000 Affiliated Newspapers............................. 07/01/06 13.250%+ $ 1,270,000
1,000 NeoData Services Inc. ............................ 05/01/03 12.000+ 950,000
1,000 Paxson Communications Corp. ...................... 10/01/02 11.625 1,050,000
1,000 Pegasus Media..................................... 07/01/05 12.500 1,000,000
3,700 Universal Outdoor Holdings Inc. .................. 07/01/04 14.000+ 2,497,500
1,000 Viacom............................................ 07/07/06 8.000 1,015,000
-----------
7,782,500
-----------
PACKAGING - 4.60%
650 Grupo Industrial Durango S.A. .................... 07/15/01 12.000 617,500
2,000 Indah Kiat International.......................... 06/15/06 12.500 1,995,000
1,000 Quno Corp. ....................................... 05/15/05 9.125 1,040,000
-----------
3,652,500
-----------
RETAIL - 4.48%
1,500 Great American Cookie Inc. ....................... 01/15/01 10.875 1,200,000
1,500 Petro PSC Properties L.P. ........................ 06/01/02 12.500 1,440,000
1,350 Wickes Lumber Co. ................................ 12/15/03 11.625 911,250
-----------
3,551,250
-----------
SUPERMARKETS & DRUGSTORES - 1.56%
1,000 Duane Reade Holding Corp. ........................ 09/15/02 12.000 965,000
750 F F Holdings...................................... 10/01/02 14.250 270,000
-----------
1,235,000
-----------
TRANSPORT NON-AIR - 2.64%
500 Stena AB.......................................... 12/15/05 10.500 520,000
1,500 Viking Star....................................... 07/15/03 9.625 1,575,000
-----------
2,095,000
-----------
Total Corporate Bonds (cost--$74,033,211)....................... 71,290,604
-----------
CONVERTIBLE BONDS - 3.30%
TECHNOLOGY - 3.30%
1,000 Ampex Inc. ....................................... 06/30/97 26.187(2) 1,168,000
1,300 EMC Corp. ........................................ 01/01/01 4.250 1,452,750
-----------
Total Convertible Bonds (cost--$1,955,334)...................... 2,620,750
-----------
</TABLE>
6
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
- ---------- -----------
<S> <C>
COMMON STOCK (A) - 0.54%
COMMUNICATIONS - 0.08%
7,000 PageMart Nationwide Inc. .................................................................. $ 63,000
-----------
ENERGY - 0.09%
34,186 Transamerican Refinancing Corp. ........................................................... 68,372
-----------
GAMING - 0.09%
298 SHRP Equity Inc. .......................................................................... 70,030
-----------
HEALTHCARE - 0.20%
6,000 Total Renal Care Inc. ..................................................................... 166,500
-----------
MEDIA - 0.11%
2,000 Affiliated Newspapers...................................................................... 60,000
-----------
Total Common Stock (cost--$118,980)...................................................................... 427,902
-----------
<CAPTION>
NUMBER
OF
WARRANTS
- ----------
<S> <C>
WARRANTS (a) - 1.55%
COMMUNICATIONS - 0.06%
6,900 PageMart Nationwide Inc. .................................................................. 48,300
-----------
CONSUMER MANUFACTURING - 0.41%
2,000 Chattem Inc. .............................................................................. 7,500
2,000 Decorative Home Accents.................................................................... 20,000
3,000 IFA Cap Inc. .............................................................................. 300,000
-----------
327,500
-----------
ENERGY - 0.03%
3,450 Empire Gas Corp. .......................................................................... 24,150
-----------
FOOD & BEVERAGE - 0.51%
50,000 Iowa Select Farms++........................................................................ 405,400
-----------
HOMEBUILDING - 0.01%
7,900 Peters JM Inc. ............................................................................ 5,925
-----------
</TABLE>
7
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF
WARRANTS
- ----------
<S> <C>
WARRANTS--(CONCLUDED)
MEDIA - 0.23%
2,000 AVI Holdings Inc. ......................................................................... $ 10,000
100 Pegasus Media.............................................................................. 25,000
3,700 Universal Outdoor Holdings Inc. ........................................................... 148,000
-----------
183,000
-----------
PACKAGING - 0.15%
1,500 Data Documents Inc. ....................................................................... 120,000
-----------
RETAIL - 0.07%
270 Cookies USA Inc. .......................................................................... 3,375
1,500 Petro PSC Properties Ltd. ................................................................. 51,000
-----------
54,375
-----------
Total Warrants (cost--$632,211).......................................................................... 1,168,650
-----------
Total Investments (cost--$76,739,736) - 95.18%........................................................... 75,507,906
Other assets in excess of liabilities - 4.82%............................................................ 3,820,991
-----------
Net Assets - 100.00%..................................................................................... $79,328,897
-----------
-----------
</TABLE>
- ------------------
# Security represents a unit which is comprised of the stated bond with
attached warrants or common stock.
++ Illiquid securities representing 3.9% of portfolio assets.
+ Represents 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 security
(1) Represents 215 units. Each unit consists of eight senior discount notes and
one convertible senior subordinated discount note.
(2) Interest rates shown reflect yield to maturity at purchase date.
See accompanying notes to financial statements
8
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
January 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost--$76,739,736)....... $75,507,906
Cash.......................................................... 915,057
Receivable for investments sold............................... 2,501,069
Interest receivable........................................... 1,117,446
Deferred organizational expenses.............................. 87,051
Other assets.................................................. 15,227
-----------
Total assets............................................... 80,143,756
-----------
LIABILITIES
Payable for investments purchased............................. 667,676
Payable to investment adviser and administrator............... 60,009
Accrued expenses and other liabilities........................ 87,174
-----------
Total liabilities.......................................... 814,859
-----------
NET ASSETS
Common stock--$0.001 par value; total authorized 100,000,000
shares; 6,031,667 shares
issued and outstanding...................................... 90,475,005
Distributions in excess of net investment income.............. (25,273)
Accumulated net realized losses from investment
transactions................................................ (9,889,005)
Net unrealized depreciation of investments.................... (1,231,830)
-----------
Net assets.................................................... $79,328,897
-----------
-----------
Net asset value per share..................................... $13.15
------
------
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended January 31, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................. $ 4,427,277
-----------
EXPENSES:
Investment advisory and administration................... 362,675
Custody and accounting................................... 35,756
Legal and audit.......................................... 34,789
Reports and notices to shareholders...................... 28,578
Amortization of organizational expenses.................. 14,058
Transfer agency and service fees......................... 5,166
Directors' fees.......................................... 3,033
Other expenses........................................... 7,823
-----------
491,878
-----------
NET INVESTMENT INCOME....................................... 3,935,399
-----------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES:
Net realized losses from investment transactions............ (816,742)
Net change in unrealized appreciation/depreciation of
investments............................................... (739,286)
-----------
Net realized and unrealized losses from investment
activities................................................ (1,556,028)
-----------
Net increase in net assets resulting from operations........ $ 2,379,371
-----------
-----------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
MANAGED HIGH YIELD FUND INC.
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Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
January 31, 1996 Ended
(unaudited) July 31, 1995
----------------------- ----------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 3,935,399 $ 8,422,750
Net realized losses from investment
transactions............................ (816,742) (5,669,521)
Net change in unrealized
appreciation/depreciation of
investments............................. (739,286) 3,656,941
----------------------- ----------------------
Net increase in net assets resulting from
operations.............................. 2,379,371 6,410,170
----------------------- ----------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income..................... (4,131,692) (8,323,701)
----------------------- ----------------------
Net decrease in net assets................ (1,752,321) (1,913,531)
NET ASSETS:
Beginning of period....................... 81,081,218 82,994,749
----------------------- ----------------------
End of period (including undistributed net
investment income of $171,020
at July 31, 1995)....................... $79,328,897 $ 81,081,218
----------------------- ----------------------
----------------------- ----------------------
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements--(unaudited)
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Managed High Yield Fund Inc. (the 'Fund') was incorporated in Maryland on
June 11, 1993 as a closed-end, diversified management investment company.
Effective August 14, 1995, the Fund commenced conducting business under the name
'Managed High Yield Fund.' The Board of Directors of the Fund approved the
change of the Fund's name to Managed High Yield Fund Inc. at a meeting held on
June 2, 1995. Shareholders of the Fund approved the change of the Fund's name to
Managed High Yield Fund Inc. on November 16, 1995. 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.
Valuation of Investments--Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect, in the judgment of Mitchell Hutchins Asset Management Inc. ('Mitchell
Hutchins'), investment adviser and administrator of the Fund, the fair value of
the securities. 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 or under the direction of the Fund's board of directors. The amortized
cost method of valuation, which approximates market value, is used to value
certain debt obligations with 60 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 trade date. Realized gains and losses from investment transactions
are calculated on 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 identified cost of investments.
12
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
Federal Taxes--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.
Dividends and Distributions to Shareholders--The Fund records dividends and
distributions to its shareholders on the ex-date. The amount of dividends and
distributions from net investment income and 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 reclassifications. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
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 January
31, 1996 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1996, the components of the net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross appreciation (investments having an excess of value
over cost)................................................ $ 3,993,674
Gross depreciation (investments having an excess of cost
over value)............................................... (5,225,504)
-----------
Net unrealized depreciation of investments.................. $(1,231,830)
-----------
-----------
</TABLE>
13
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
For the six months ended January 31, 1996, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $47,448,134 and
$51,615,922, respectively.
FEDERAL INCOME TAX STATUS
At July 31, 1995, the Fund had a net capital loss carryforward of
$5,561,111. 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, 2003. 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
$3,481,408 of net realized capital losses arising after October 31, 1994. Such
losses are treated for tax purposes as arising on August 1, 1995.
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.
14
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
Quarterly Results of Operations (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized and Net Increase
Unrealized (Decrease)
Gains/(Losses) in Net Assets
Net Investment from Investment Resulting from
Income Activities Operations
---------------- ----------------- -----------------
Total Per Total Per Total Per
Quarter Ended (000's) Share (000's) Share (000's) Share
- -------------------- ------- ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1996.... $ 1,911 $0.31 $(1,221) $(0.19) $ 690 $ 0.12
October 31, 1995.... 2,024 0.34 (335) (0.06) 1,689 0.28
------- ----- ------- ------ ------- ------
Totals......... $ 3,935 $0.65 $(1,556) $(0.25) $ 2,379 $ 0.40
------- ----- ------- ------ ------- ------
------- ----- ------- ------ ------- ------
July 31, 1995....... $ 2,111 $0.35 $ 1,794 $ 0.30 $ 3,905 $ 0.65
April 30, 1995...... 2,106 0.35 3,215 0.53 5,321 0.88
January 31, 1995.... 2,054 0.34 (3,340) (0.56) (1,286) (0.22)
October 31, 1994.... 2,152 0.36 (3,682) (0.61) (1,530) (0.25)
------- ----- ------- ------ ------- ------
Totals......... $ 8,423 $1.40 $(2,013) $(0.34) $ 6,410 $ 1.06
------- ----- ------- ------ ------- ------
------- ----- ------- ------ ------- ------
July 31, 1994....... $ 2,066 $0.34 $(2,873) $(0.47) $ (807) $(0.13)
April 30, 1994...... 1,959 0.33 (5,959) (0.99) (4,000) (0.66)
January 31, 1994*... 614 0.10 1,280 0.21 1,894 0.31
------- ----- ------- ------ ------- ------
Totals......... $ 4,639 $0.77 $(7,552) $(1.25) $(2,913) $(0.48)
------- ----- ------- ------ ------- ------
------- ----- ------- ------ ------- ------
</TABLE>
- ------------------
* For the period December 7, 1993 (commencement of operations) through January
31, 1994
15
<PAGE>
MANAGED HIGH YIELD FUND INC.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each
period:
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year For the Period
January 31, 1996 Ended December 7, 1993+
(unaudited) July 31, 1995 through July 31, 1994
---------------- ------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of
period........................... $ 13.44 $ 13.76 $ 15.00
---------------- ------------- -----------
Net investment income.............. 0.65 1.40 0.77
Net realized and unrealized losses
on investments and foreign
currency transactions............ (0.25) (0.34) (1.25)
---------------- ------------- -----------
Net increase (decrease) from
investment operations............ 0.40 1.06 (0.48)
---------------- ------------- -----------
Dividends from net investment
income........................... (0.69) (1.38) (0.76)
---------------- ------------- -----------
Net asset value, end of period..... $ 13.15 $ 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).......... 3.03% 9.27% (3.00)%
---------------- ------------- -----------
---------------- ------------- -----------
On market value (2)............. 6.60% 11.87% (12.76)%
---------------- ------------- -----------
---------------- ------------- -----------
Ratios/Supplemental Data:
Net assets, end of period (000's
omitted)...................... $ 79,329 $81,081 $82,995
Ratio of expenses to average net
assets........................ 1.26%* 1.21% 1.17%*
Ratio of net investment income
to average net assets......... 10.10%* 10.68% 8.27%*
Portfolio turnover rate......... 62% 103% 85%
</TABLE>
- ---------------
+ Commencement of operations
* Annualized
(1) Total investment return on net asset value is calculated assuming
a purchase at net asset value on the first day of the period
reported and a sale at net asset value on the last day of the
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 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 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.
16
<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
('NYSE'). The Fund's investment objective 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 $45.5 billion in assets
under management as of February 29, 1996.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is 'PHT.' Weekly comparative net asset value
and market price information about the Fund is published each Monday in The Wall
Street Journal and The New York Times and each Saturday in Barron's, as well as
in numerous other newspapers.
The annual meeting of shareholders of the Fund was held on November 16,
1995. At the meeting, an amendment to the Fund's Articles of Incorporation to
change the name of the Fund was approved. Richard Q. Armstrong, E. Garrett
Bewkes, Jr., Richard R. Burt, John R. Torell III and William D. White were
elected to serve as directors until the annual meeting of shareholders in 1996,
or until their successors are elected and qualified. The selection of Ernst &
Young LLP as the Fund's independent auditors was ratified.
The votes were as follows:
<TABLE>
<CAPTION>
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
<S> <C> <C> <C>
Approval of the amendment of
the Fund's Articles of
Incorporation to change the
name of the Fund from
'PaineWebber Premier High
Income Trust Inc.' to
'Managed High Yield Fund
Inc.'....................... 5,396,302 35,647 373,362
</TABLE>
<TABLE>
<CAPTION>
SHARES SHARES
VOTED FOR WITHHOLD AUTHORITY
--------- ------------------
<S> <C> <C>
Richard Q. Armstrong...... 5,446,712 358,600
E. Garrett Bewkes, Jr..... 5,446,200 359,112
Richard R. Burt........... 5,450,242 355,070
John R. Torell III........ 5,450,886 354,426
William D. White.......... 5,447,265 358,047
</TABLE>
<TABLE>
<CAPTION>
SHARES SHARES SHARES
VOTED FOR VOTED AGAINST WITHHOLD AUTHORITY
--------- ------------- ------------------
<S> <C> <C> <C>
Ratification of the selection
of Ernst & Young LLP........ 5,460,695 22,795 321,821
</TABLE>
Broker non-votes and abstentions are included within the 'Shares Withhold
Authority' totals.
17
<PAGE>
DISTRIBUTION POLICY
The Fund's board of directors has established a Dividend Reinvestment Plan
under which stockholders in most cases 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 hold their shares in the name of a broker or nominee
should contact such broker or nominee to determine whether, or how, they may
participate in the Dividend Reinvestment Plan. Additional shares of Common Stock
acquired under the Dividend Reinvestment Plan will be purchased in the open
market, on the NYSE or otherwise, 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 its
Dividend Reinvestment Plan.
18
<PAGE>
-------------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr., Chairman
Richard Q. Armstrong
Richard R. Burt
John R. Torell III
William D. White
-------------------------------------------
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.
The financial information included herein is
taken from the records of the Fund without
examination by independent accountants who
do not express an opinion thereon.
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.
(Copyright) 1996 PaineWebber Incorporated
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