<PAGE>
Managed High Yield Fund Inc. Semiannual Report
- --------------------------------------------------------------------------------
Managed High Yield Fund Inc.
FUND PROFILE
Goal: High current income
Portfolio Manager: Tom Libassi, Mitchell Hutchins Asset Management Inc.
Total Net Assets: $83.2 million as of January 31, 1997
Dividend Payment: Monthly
- --------------------------------------------------------------------------------
March 17, 1997
Dear Shareholder,
We are pleased to present you with the semiannual report for Managed High
Yield Fund Inc. (the "Fund") for the six months ended January 31, 1997.
General Market Overview
During the six-month period, higher yielding securities--a major component
of Managed High Yield Fund Inc.--did well relative to other areas of the fixed
income market. This can be attributed to the fact that a number of elements,
including a compression of yields, strong cash inflows and extremely low new
issue defaults combined to result in a high yield market that was virtually the
only area of the domestic fixed income market to turn in a relatively strong
performance. Overall, however, the word "volatile" best described the nature of
the bond market over the six months ended January 31, 1997. Early in the period,
ongoing uncertainty over the direction of interest rates cast a cloud over the
market. By mid-summer, a moderating economy helped bolster the market for a
short period of time, a situation that was, however, only fleeting as renewed
fears of an overheating economy quickly re-emerged. The market would repeat this
about-face late in the period, when the release of new economic data appeared to
affirm the moderation in economic activity that brought about mid-summer's brief
revival in the market. A 28-basis point rally ensued that would be over before
year end as the release of unexpected economic data would again cause a
correction in yields that would last well into January 1997.
Portfolio Review
The total return for the Fund for the six months ended January 31, 1997 was
9.07% based on the Fund's net asset value and 11.24% based on the Fund's share
price on the New York Stock Exchange. As of January 31, 1997, the Fund's net
asset value per share was $13.80, while its share price on the New York Stock
Exchange was $13.25. During the six month period ended January 31, 1997, the
Fund paid dividends from net investment income totalling $0.63 per share. We
hope to maintain the Fund's current dividend for the remainder of 1997. Based on
the dividend paid in January and the Fund's market price on January 31, 1997,
the Fund's market yield was 9.51% annualized. Over the six-
1
<PAGE>
Semiannual Report
month period, the Fund's 9.07% return was comparable to that of the 9.10% return
of its Lipper peer group (High Current Yield).
The Fund's performance over the period can be attributed largely to
significant changes that took place with regard to investment strategy and
management of the Fund early in the year. First, we began the year by adding
senior credit analysts to the Fund's management team, bringing to five the total
number of people conducting analysis for the Fund. This in turn has enabled us
to carry out more in-depth and broader research on companies, industries and
investments. Additionally, after careful examination, we determined that by
targeting a specific credit mix, the Fund could assume a more conservative
stance and still have the potential to be a top performer. This mix, which
entails generally investing 35% of the Fund's portfolio in the upper tier
(BB-rated and above) of the credit market, 50% in the middle tier (B-rated) and
the remaining 15% in the lower tier (below B-rated), was quickly adopted by the
Fund.
Also strongly contributing to Fund performance during the period was the
stellar performance of the high yield market segment, as evidenced by the
approximately $10.5 billion that flowed into the segment during the six-month
period ended January 31, 1997. This inflow was coupled with a default rate of
slightly less than 1%--significantly less than the 4% figure anticipated by both
Moody's and Standard & Poor's.
- --------------------------------------------------------------------------------
Managed High Yield Fund Inc.
Top Five Industries as a percentage of net assets as of January 31, 1997
Communications 13.6%
Media 13.4%
Cable 13.0%
General Industrial 7.4%
Consumer Manufacturing 7.0%
- --------------------------------------------------------------------------------
With regard to industry weighting, much of high yield new issuance was
concentrated in media (13.4% of net assets as of January 31, 1997) and
communications (13.6%). Communications, a strong growth area, proved to be the
Fund's top-performing industry, particularly given our focus on rapidly
expanding Competitive Local Exchange Carriers ("CLECs"). Increasingly, CLECs
such as GST Telecommunications (1.5%) are successfully providing alternative
local phone services to regional bell companies. Within media, a dramatic
decline in print costs and increased advertising has benefited print media
(newspapers and magazines), and the Fund profited from its positions in this
industry as a result. Another industry of significance to Fund performance was
cable (13.0% of net assets as of January 31, 1997), particularly with regard to
those companies located in the United Kingdom. British cable companies are
currently laying the most advanced fiber optic networks in the world and
consolidation is just beginning to impact the industry. Although we remained
underweighted in U.S. cable companies (1.5%) given concerns over the
encroachment of alternative providers of media distribution such as satellite
providers, the Fund did acquire positions in the top tier of the industry over
the last three months of the year.
2
<PAGE>
Managed High Yield Fund Inc. Semiannual Report
Outlook
Going forward, we believe that the high yield market will continue to offer
strong returns, although it is unlikely that we will duplicate the performance
of the past year. As the first four months of the calendar year are historically
the most healthy with regard to the high yield market, we have remained
generally fully invested in order to benefit from any rally that may occur. We
will continue to focus on non-cyclical industries such as cable and
communications, placing particular emphasis on media. We expect this industry
will benefit from what is an increasing need for worldwide programming. Most
significantly, we will focus more on companies domiciled outside of the United
States. As of January 31, 1997, 26.0% of the Fund's holdings were invested in
these companies; it is not improbable that by this time next year, this figure
could approach 30%. We believe these securities, which are denominated in U.S.
dollars, currently offer greater investment potential than similarly situated
companies located in the U.S.
- --------------------------------------------------------------------------------
Managed High Yield Fund Inc.
Credit Quality as a percentage of net assets as of January 31, 1997
[PIE CHART]
AAA 4.7%
BB 33.3%
B 45.3%
CCC 1.6%
Non-rated 12.0%
Equity 3.1%
- --------------------------------------------------------------------------------
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.
PORTFOLIO OF INVESTMENTS JANUARY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- ---------------------- ------------------------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS - 90.66%
Airlines - 1.00%
$ 750 Airplane Pass Through Trust...................... 03/15/19 10.875% $ 830,625
750# USAfrica Airways, Incorporated++................. 05/31/99 12.000(a) 0
-----------
830,625
-----------
Cable - 11.31%
2,000 Diamond Cable Communications..................... 12/15/05 11.750+ 1,410,000
2,500 International CableTel Incorporated.............. 04/15/05 to 02/01/06 11.500+ to 12.750+ 1,697,500
1,000 Marcus Cable Company............................. 12/15/05 14.250+ 730,000
500 Multicanal S.A.**................................ 02/01/07 10.500 506,875
2,500 Telewest PLC..................................... 10/01/07 11.000+ 1,712,500
1,250 Tevecap S.A.**................................... 11/26/04 12.625 1,318,750
1,000 T.V. Azteca S.A. De C.V.**....................... 02/15/07 10.500 1,008,750
2,000 UIH Australia Pacific Incorporated............... 05/15/06 14.000+ 1,025,000
-----------
9,409,375
-----------
Chemicals - 0.97%
750 Texas Petrochemical Corporation.................. 07/01/06 11.125 806,250
-----------
Communications - 13.22%
2,000 Colt Telecom Group PLC........................... 12/15/06 12.000+ 1,250,000
2,325 Comcast Cellular................................. 03/05/00 7.264(1) 1,674,000
750 Dial Call Communications Incorporated............ 12/15/05 10.250+ 536,250
1,720 GST Telecommunications Incorporated.............. 12/15/05 13.875+ 1,062,100
1,750 Nextel Communications Incorporated............... 08/15/04 9.750+ 1,233,750
500 PageMart Nationwide Incorporated................. 02/01/05 15.000+ 350,000
750 Paging Network Incorporated...................... 10/15/08 10.000 753,750
1,000 People's Telecommunications Company.............. 07/15/02 12.250 1,062,500
2,000 RSL Communications Limited**..................... 11/15/06 12.250 2,100,000
375 Shared Technologies Fairchild.................... 03/01/06 12.250+ 315,000
1,000 Viatel Incorporated.............................. 01/15/05 15.000+ 660,000
-----------
10,997,350
-----------
Consumer Manufacturing - 6.51%
1,800 Apparel Ventures Incorporated.................... 12/31/00 12.250 1,440,000
1,000 Chattem Incorporated............................. 06/15/04 12.750 1,100,000
1,000 Coleman Holdings Incorporated.................... 05/27/98 11.736(1) 867,500
1,350 Decorative Home Accents.......................... 06/30/02 13.000 702,000
500 EKCO Group Incorporated.......................... 04/01/06 9.250 495,000
1,500 Icon Health & Fitness**.......................... 11/15/06 14.000+ 813,750
-----------
5,418,250
-----------
</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)
Energy - 4.37%
$ 730 Crown Central Petroleum.......................... 02/01/05 10.875% $ 746,425
1,500 Empire Gas Corporation........................... 07/15/04 12.875+ 1,297,500
750 Perez Companc S.A.**............................. 01/30/04 9.000 754,688
1,000 Petroleos Mexicanos.............................. 12/01/23 8.625 841,250
-----------
3,639,863
-----------
Entertainment - 1.52%
125 Cobb Theaters**.................................. 03/01/03 10.625 131,719
1,229 United Artists Theatre Circuit................... 07/01/15 9.300 1,130,618
-----------
1,262,337
-----------
Finance - 1.08%
875 Imperial Credit Industries....................... 01/15/07 9.875 896,875
-----------
Food & Beverage - 5.32%
1,000 American Rice Incorporated....................... 07/31/02 13.000 960,000
3,741 Iowa Select Farms++.............................. 02/15/04 17.250+ 2,410,326
1,000 TLC Beatrice International Holdings.............. 10/01/05 11.500 1,055,000
-----------
4,425,326
-----------
Gaming - 0.56%
1,659# Grand Palais Casino Incorporated++............... 11/01/97 18.250(a) 0
1,122 Sam Houston Race Park Limited.................... 09/01/01 11.000 465,606
-----------
465,606
-----------
General Industrial - 7.39%
1,500 Avondale Mills................................... 05/01/06 10.250 1,560,000
1,000 Communications & Power Industries Incorporated... 08/01/05 12.000 1,102,500
500 Dominion Textile USA............................. 04/01/06 9.250 510,000
500 Goss Graphic Systems Incorporated................ 10/15/06 12.000 523,750
500 Jordan Industries................................ 08/01/05 11.750+ 412,500
1,000 Poindexter JB Incorporated....................... 05/15/04 12.500 992,500
1,000 Polysindo International Finance Company B.V...... 06/15/06 11.375 1,050,000
-----------
6,151,250
-----------
Healthcare - 1.51%
750 Mariner Health Group Incorporated................ 04/01/06 9.500 752,126
500 Tenet Healthcare Corporation..................... 01/15/07 8.625 506,875
-----------
1,259,001
-----------
Homebuilding - 1.87%
750 K Hovnanian Enterprises Incorporated............. 04/15/02 11.250 766,875
750 Ryland Group Incorporated........................ 07/01/06 10.500 785,625
-----------
1,552,500
-----------
</TABLE>
5
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Media - 13.31%
$ 1,500 Affiliated Newspapers............................ 07/01/06 13.250%+ $ 1,237,500
1,000 All American Communications Incorporated......... 10/15/01 10.875 1,010,000
2,000 Grupo Televisa S.A............................... 05/15/08 13.250+ 1,365,000
500 Hollinger International Publishing............... 02/01/06 9.250 502,500
1,500 InterAct Systems Incorporated.................... 08/01/03 14.000+ 746,250
1,000 NeoData Services Incorporated.................... 05/01/03 12.000 1,070,000
1,250 Newsquest Capital PLC**.......................... 05/01/06 11.000 1,312,500
1,000 Pegasus Media & Communcations Incorporated....... 07/01/05 12.500 1,100,000
500 Petersen Publishing Company**.................... 11/15/06 11.125 535,000
750 Sullivan Graphics Incorporated................... 08/01/05 12.750 744,375
1,500 Viacom Incorporated.............................. 07/07/06 8.000 1,455,000
-----------
11,078,125
-----------
Metal/Mineral/Steel - 3.09%
1,000 AK Steel Corporation**........................... 12/15/06 9.125 1,022,500
1,500 WCI Steel Incorporated**......................... 12/01/04 10.000 1,545,000
-----------
2,567,500
-----------
Packaging - 6.77%
1,250 Doman Industries Limited......................... 03/15/04 8.750 1,181,250
500 FSW International Finance Company B.V.**......... 11/01/06 12.500 527,500
500 Grupo Industrial Durango S.A..................... 08/01/03 12.625 550,000
750 Indah Kiat International Finance Company B.V..... 06/15/06 12.500 832,500
750 Indah Kiat Paper & Pulp.......................... 11/01/00 8.875 746,250
750 Portola Packaging Incorporated................... 10/01/05 10.750 780,000
1,000 Quno Corporation................................. 05/15/05 9.125 1,020,000
-----------
5,637,500
-----------
Retail - 2.64%
1,000 County Seat Stores Incorporated.................. 10/01/02 12.000(a) 375,000
375 CSK Auto Incorporated**.......................... 11/01/06 11.000 393,750
1,500 Great American Cookie Incorporated............... 01/15/01 10.875 1,425,000
-----------
2,193,750
-----------
Supermarkets & Drugstores - 1.31%
861 Farm Fresh Holdings.............................. 10/01/02 14.250 86,068
1,000 Pantry Incorporated.............................. 11/15/00 12.000 1,007,500
-----------
1,093,568
-----------
Technology - 0.66%
800 Electronic Retailing Systems International**..... 02/01/04 13.250+ 552,000
-----------
Transport Non-Air - 2.54%
500 Stena Shipping................................... 12/15/05 10.500 540,000
</TABLE>
6
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATES INTEREST RATES VALUE
- --------- --------------------- ------------------------------- -----------
<S> <C> <C> <C>
CORPORATE BONDS - (CONCLUDED)
Transport Non-Air - (concluded)
$ 1,500 Viking Star Shipping Incorporated................ 07/15/03 9.625% $ 1,569,375
-----------
2,109,375
-----------
Utilities - 3.71%
1,000 AES China Generating Limited..................... 12/15/06 10.125 1,037,500
500 Cal Energy Incorporated.......................... 09/15/06 9.500 522,500
1,000 Calpine Corporation.............................. 02/01/04 9.250 1,017,500
500 Panda Funding Corporation**...................... 08/20/12 11.625 512,500
-----------
3,090,000
-----------
Total Corporate Bonds (cost-$76,753,718).................... 75,436,426
-----------
CONVERTIBLE BONDS - 1.28%
Cable - 1.06%
1,000 International CableTel Incorporated.............. 06/15/08 7.000 880,000
-----------
Communications - 0.22%
215 GST Telecommunciations Incorporated.............. 12/15/05 13.875+ 189,200
-----------
Total Convertible Bonds (cost-$1,131,631)................... 1,069,200
-----------
<CAPTION>
NUMBER
OF SHARES
- ---------
<S> <C>
COMMON STOCK(a) - 2.13%
Communications - 0.06%
7,000 PageMart Nationwide Incorporated........................................................................ 49,000
-----------
Gaming - 0.92%
59,668 Casino America Incorporated............................................................................. 164,087
105,643 Colorado Gaming & Entertainment Company................................................................. 528,215
299 SHRP Equity Incorporated................................................................................ 68,770
-----------
761,072
-----------
Technology - 1.15%
122,676 Ampex Incorporated...................................................................................... 958,406
-----------
Total Common Stock (cost-$1,081,033)............................................................................... 1,768,478
-----------
PREFERRED STOCK(a) - 1.06%
Cable - 0.60%
5,357 Cablevision Systems Corporation......................................................................... 498,200
-----------
Healthcare - 0.46%
375 Fresenius Medical Care Capital Trust.................................................................... 382,500
-----------
Total Preferred Stock (cost-$890,850).............................................................................. 880,700
-----------
</TABLE>
7
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
NUMBER
OF
WARRANTS VALUE
- --------- -----------
<S> <C>
WARRANTS(A) - 0.93%
Communications - 0.06%
2,475 Clearnet Communications Incorporated............................................... $ 17,325
6,900 PageMart Nationwide Incorporated................................................... 37,950
-----------
55,275
-----------
Consumer Manufacturing - 0.50%
2,000 AVI Holdings Incorporated**........................................................ 10,000
2,000 Chattem Incorporated............................................................... 24,500
1,350 Decorative Home Accents**.......................................................... 6,750
3,000 Icon Health & Fitness.............................................................. 375,000
-----------
416,250
-----------
Energy - 0.13%
3,450 Empire Gas Corporation............................................................. 13,800
34,186 Transamerican Refining Corporation................................................. 94,011
-----------
107,811
-----------
Food & Beverage - 0.09%
50,000 Iowa Select Farms++................................................................ 75,000
-----------
Gaming - 0.02%
10,563 Casino America Incorporated........................................................ 19,014
-----------
Homebuilding - 0.01%
7,900 Capital Pacific Holdings Incorporated.............................................. 10,665
-----------
Media - 0.11%
2,000 Affiliated Newspapers.............................................................. 60,000
1,500 InterAct Systems Incorporated**.................................................... 3,375
2,256 Pegasus Media & Communications Corporation......................................... 27,641
-----------
91,016
-----------
Retail - 0.01%
270 Cookies USA Incorporated........................................................... 2,700
-----------
Total Warrants (cost-$652,328)................................................................ 777,731
-----------
</TABLE>
8
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) MATURITY DATE INTEREST RATE VALUE
- --------- ------------- ------------- -----------
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 2.08%
$ 1,734 Repurchase Agreement dated 01/31/97 with State Street Bank
and Trust Company, collateralized by $1,635,000 U.S.
Treasury Bonds, 7.875% due 11/15/07; proceeds $1,734,798
(cost-$1,734,000)........................................... 02/03/97 5.520% $ 1,734,000
-----------
Total Investments (cost - $82,243,560) - 98.14%........................ 81,666,535
Other assets in excess of liabilities - 1.86%.......................... 1,544,443
-----------
NET ASSETS - 100.00%................................................... $83,210,978
===========
</TABLE>
- ------------------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities represent 3.0% of total investments. 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
9
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost - $82,243,560)....... $81,666,535
Cash........................................................... 23,042
Receivable for investments sold................................ 2,425,755
Interest receivable............................................ 1,183,319
Deferred organizational expenses............................... 55,179
Other assets................................................... 6,273
-----------
Total assets................................................... 85,360,103
-----------
Liabilities:
Payable for investments purchased.............................. 2,015,885
Payable to investment adviser and administrator................ 63,633
Accrued expenses and other liabilities......................... 69,607
-----------
Total liabilities.............................................. 2,149,125
-----------
Net Assets:
Capital Stock - $0.001 par value; 100,000,000 shares
authorized;
6,031,667 shares issued and outstanding....................... 90,475,005
Undistributed net investment income............................ 28,037
Accumulated net realized losses from investment transactions... (6,715,039)
Net unrealized depreciation of investments..................... (577,025)
-----------
Net assets applicable to shares outstanding.................... $83,210,978
===========
Net asset value per share...................................... $13.80
===========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Investment income:
Interest......................................................... $4,375,362
----------
Expenses:
Investment advisory and administration........................... 369,853
Legal and audit.................................................. 54,004
Reports and notices to shareholders.............................. 52,226
Custody and accounting........................................... 24,369
Amortization of organizational expenses.......................... 15,310
Transfer agency and service fees................................. 9,096
Directors' fees.................................................. 6,175
Other expenses................................................... 15,514
----------
546,547
----------
Net investment income............................................ 3,828,815
----------
Realized and unrealized gains from investment activities:
Net realized gains from investment transactions.................. 1,312,616
Net change in unrealized appreciation/depreciation of
investments.................................................... 1,965,421
----------
Net realized and unrealized gains from investment activities..... 3,278,037
----------
Net increase in net assets resulting from operations............. $7,106,852
==========
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
JANUARY 31, YEAR ENDED
1997 JULY 31,
(UNAUDITED) 1996
------------ -----------
<S> <C> <C>
From operations:
Net investment income.............................. $ 3,828,815 $ 7,769,124
Net realized gains from investment transactions.... 1,312,616 1,035,278
Net change in unrealized appreciation/depreciation
of investments.................................... 1,965,421 (2,049,902)
------------ -----------
Net increase in net assets resulting from
operations........................................ 7,106,852 6,754,500
------------ -----------
Dividends to shareholders from:
Net investment income.............................. (3,799,950) (7,931,642)
------------ -----------
Net increase (decrease) in net assets.............. 3,306,902 (1,177,142)
Net assets:
Beginning of period................................ 79,904,076 81,081,218
------------ -----------
End of period (including undistributed net
investment income of $28,037 at January 31,
1997)............................................. $83,210,978 $79,904,076
=========== ===========
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
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 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 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
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
13
<PAGE>
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
January 31, 1997 was substantially the same as the cost of
securities for financial statement purposes.
At January 31, 1997, the components of net unrealized
depreciation of investments were as follows:
Gross depreciation (investments having
an excess of cost over value).......... $(5,803,285)
Gross appreciation (investments having
an excess of value over cost).......... 5,226,260
-----------
Net unrealized depreciation of
investments....................... $ (577,025)
===========
For the six months ended January 31, 1997, aggregate purchases
and sales of portfolio securities, excluding short-term
securities, were $47,772,330 and $50,817,975, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value common stock
authorized. Of the 6,031,667 common shares outstanding, 7,564
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,
14
<PAGE>
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.
15
<PAGE>
MANAGED HIGH YIELD FUND INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD IS
PRESENTED BELOW:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEARS ENDED DECEMBER 7,
MONTHS ENDED JULY 31, 1993+
JANUARY 31, 1997 ---------------------------------- THROUGH JULY 31,
(UNAUDITED) 1996 1995 1994
---------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period...................... $ 13.25 $ 13.44 $ 13.76 $ 15.00
------- ------- ------- -------
Net investment income..................................... 0.63 1.29 1.40 0.77
Net realized and unrealized gains (losses) from
investments and foreign currency transactions........... 0.55 (0.16) (0.34) (1.25)
------- ------- ------- -------
Net increase (decrease) from
investment operations................................... 1.18 1.13 1.06 (0.48)
------- ------- ------- -------
Dividends from net investment income...................... (0.63) (1.32) (1.38) (0.76)
------- ------- ------- -------
Net asset value, end of period............................ $ 13.80 $ 13.25 $ 13.44 $ 13.76
======= ======= ======= =======
Per share market value, end of period..................... $ 13.25 $ 12.50 $ 12.38 $ 12.38
======= ======= ======= =======
Total investment return:
On net asset value(1)..................................... 9.07% 8.83% 9.27% (3.00)%
======= ======= ======= =======
On market value(2)........................................ 11.24% 12.16% 11.87% (12.76)%
======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)................. $83,211 $79,904 $81,081 $82,995
Expenses to average net assets............................ 1.33%* 1.25% 1.21% 1.17%*
Net investment income to average net assets............... 9.30%* 9.87% 10.68% 8.27%*
Portfolio turnover rate................................... 60% 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.
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, 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 ('PaineWebber'), which has over $44 billion in
assets under management as of February 28, 1997.
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 in numerous other newspapers.
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.
17
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<PAGE>
Directors
E. Garrett Bewkes, Jr. Meyer Feldberg
Chairman
George W. Gowen
Margo N. Alexander
Frederic V. Malek
Richard Q. Armstrong
Carl W. Schafer
Richard Burt
John R. Torell III
Mary C. Farrell
Principal Officers
Margo N. Alexander Julian F. Sluyters
President Vice President and Treasurer
Victoria E. Schonfeld Thomas J. Libassi
Vice President Vice President
Dianne E. O'Donnell
Vice President and Secretary
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.
The financial information included herein is taken from the records of the Trust
without examination by independent auditors 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 the use in the
purchase or sale of shares of the Fund or of any securities mentioned in this
report.
<PAGE>
SEMIANNUAL REPORT
January 31, 1997
Managed High Yield Fund Inc.
PaineWebber
(C) 1997 PaineWebber Incorporated
Member SIPC
