<PAGE>
MANAGED HIGH YIELD FUND INC.
SEMIANNUAL REPORT
March 23, 1998
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, 1998.
- -------------------------------------------------------------------------
MANAGED HIGH YIELD
FUND INC.
FUND PROFILE
Goal:
High current income
Portfolio Manager:
Thomas J. Libassi,
Mitchell Hutchins
Asset Management Inc.
Total Net Assets:
$87.2 million as of
January 31, 1998
Dividend Payments:
Monthly
- -------------------------------------------------------------------------
GENERAL MARKET OVERVIEW
The bond market ended January on a positive note. The economic crisis in
Asia, combined with the U.S. stock market's first stall in two and a half
years, prompted investors to buy bonds and bond funds. Defying concerns
that rising employment would drive up wages, the economy continued to
expand, unemployment fell, wages rose only slightly and inflation
registered an annual rate of 1.57%. Short-term rates did not fall as much
as long-term rates; the result was a flattening yield curve, a possible
signal of a slowing economy.
PORTFOLIO REVIEW
PERFORMANCE
For the six-month period ended January 31, 1998, the Managed High Yield
Fund Inc. (symbol: PHT) returned 5.58% based on changes in the Fund's net
asset value and 8.28% based on changes in its share price on the New York
Stock Exchange. During the period, the Fund's Lipper peer group, the High
Current Yield Average, gained 6.07% on a net-asset basis.
During the period, the Fund underperformed its peer group because of
holdings in the Asian emerging markets (5.5% of net assets on July 31,
1997). By early January we had reduced that position to 2.5% of net
assets.
At January 31, 1998 the Fund's net asset value per share was $14.45,
while its share price on the New York Stock Exchange was $14.44. During
the six-month period ended January 31, 1998, the Fund paid dividends from
net investment income totaling $0.63 per share, or about ten and a half
cents per share per month. Based on the dividend paid in January and the
Fund's market price on January 31, 1998, the Fund's market yield was
8.73% annualized.
PORTFOLIO POSITIONING
The Fund's investment strategy focuses on fundamental value within
companies and industries based on analyses of interest coverage;
debt-to-cash flow ratios; and potential for total return, yield, or
premium to comparable-maturity Treasury securities.
Over the six-month period ended January 31, 1998 we increased the Fund's
weightings in telecommunications, retail and non-air transportation, and
reduced holdings in media and cable.
1
<PAGE>
- ------------------------------------------------------------------------------
MANAGED HIGH YIELD FUND INC.
Top five sectors
as percent of
net assets,
January 31, 1998
Communications 15.1%
Media 9.9%
General Industrial 7.8%
Retail 7.2%
Transporation
Non-Air 7.1%
- ------------------------------------------------------------------------------
SEMIANNUAL REPORT
We think European long-distance and local telephone companies stand to
benefit from deregulation this year. Among our favorites are Colt Telecom
Group PLC, a UK-based, local phone company poised to expand across the
Continent; and Viatel Incorporated, an international long distance
company. Based on net assets as of January 31, 1998, Colt comprised 1.5%
of the Fund's holdings and Viatel comprised 1.0%.
Our only wireless play in the portfolio is Nextel Communications
Incorporated, a U.S. cellular phone company that has already provided
attractive returns. Based on net assets as of January 31, 1998, Nextel
comprised 3.4% of the Fund's holdings.
Non-air transportation includes shipping companies, which stand to
benefit from increased traffic as Asian countries with weakened
currencies export more goods to the U.S. Standouts in this sector include
Equimar Shipholdings Limited, an oil tanker company, and Navigator Gas
Transport PLC, a builder of refrigerated chemical tankers. Navigator
stands to benefit from the global trend to tighter safety standards for
ships, which will require most operators to upgrade their fleets. Based
on net assets as of January 31, 1998, Equimar comprised 1.3% and
Navigator comprised 1.6% of the Fund's holdings.
Last year we were bullish on media companies, especially newspapers, and
our media holdings performed well. Once our price objectives were
achieved we reduced positions, which accounts for the decrease in our
media weighting over the six-month period.
OUTLOOK
We think 1998 will be a good year for the U.S. bond markets. The economy
is slowing slightly due to Asia, and inflation is likely to fall below
1.5%. The Federal budget is now running a surplus, which should reduce
government borrowing and ease the upward pressure on market interest
rates.
Despite increased supply there is strong demand for high-yield bonds.
Investors fleeing the Asian turmoil continue to buy U.S. debt, and
institutions such as pension funds are now major buyers. Security
selection will be key over the next six months. In January we reduced our
BB-rated credits to buy B-rated bonds, which have greater potential to
benefit from positive market conditions.
High-yield issues should continue to benefit from consolidations. For
example, after consumer appliance maker Sunbeam announced that it would
buy CLN Holdings Incorporated, the camping equipment maker, CLN debt
gained value. CLN debt comprised 0.7% of the Fund's net assets as of
January 31, 1998.
We're more cautious on the emerging markets because of the Asian turmoil.
We see no reward for the extra volatility risk in these markets; we'll
reinvest when they show greater stability.
2
<PAGE>
MANAGED HIGH YIELD FUND INC.
SEMIANNUAL REPORT
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued
support and welcome any comments or questions you may have.
For a quarterly Fund Profile on Managed High Yield Fund Inc. or a fund in
the PaineWebber Family of Funds(1), please contact your investment
executive.
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.
(1) Mutual funds are sold by prospectus only. The prospectuses for the
funds contain more complete information regarding risks, charges and
expenses, and should be read carefully before investing.
This letter is intended to assist shareholders in understanding how the
Fund performed during the six-month period ended January 31, 1998, and
reflects our views at the time we are writing this report. Of course,
these views may change in response to changing circumstances. We
encourage you to consult your investment executive regarding your
personal investment program.
3
<PAGE>
MANAGED HIGH YIELD FUND INC.
PORTFOLIO OF INVESTMENTS JANUARY 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- -------- -----
<S> <C> <C> <C>
Corporate Bonds--91.83%
Airlines--0.97%
$ 750 Airplane Pass Through Trust........................ 03/15/19 10.875% $ 841,875
----------
Cable--6.20%
2,500 International CableTel Incorporated ............... 04/15/05 to 02/01/06 11.500+ to 12.750+ 2,030,000
625 Pratama Datakom Asia B.V.** ....................... 07/15/05 12.750 296,875
1,250 RCN Corporation** ................................. 10/15/07 11.125+ 828,125
750 Telewest PLC ...................................... 10/01/06 9.625 802,500
2,000 UIH Australia Pacific Incorporated ................ 05/15/06 14.000+ 1,445,000
-----------
5,402,500
-----------
Communications--14.31%
1,000 American Communications Services .................. 11/01/05 13.000+ 845,000
1,500 Colt Telecom Group PLC ............................ 12/15/06 12.000+ 1,297,500
625 Comcast Cellular Holdings Incorporated ............ 05/01/07 9.500 658,594
250 Facilicom International Incorporated** ............ 01/15/08 10.500 257,812
1,000 Globalstar L.P. ................................... 02/15/04 11.375 1,020,000
1,000 GST Equipment Funding Incorporated ................ 05/01/07 13.250 1,185,000
1,250 Hyperion Telecommunications Incorporated .......... 04/15/03 13.000+ 956,250
500 ITC Deltacom Incorporated ......................... 06/01/07 11.000 563,750
250 Mastec Incorporated** ............................. 02/01/08 7.750 249,655
1,750 McCaw International Limited ....................... 04/15/07 13.000+ 1,111,250
3,000 Nextel Communications Incorporated ................ 08/15/04 9.750+ 2,865,000
500 Verio Incorporated** .............................. 06/15/04 13.500 603,750
1,000 Viatel Incorporated ............................... 01/15/05 15.000+ 860,000
-----------
12,473,561
-----------
Consumer Manufacturing--6.06%
1,500 Apparel Ventures Incorporated ..................... 12/31/00 12.250 1,507,500
1,000 Chattem Incorporated .............................. 06/15/04 12.750 1,135,000
1,000 CLN Holdings Incorporated ......................... 05/15/01 14.615* 590,000
1,250 Commemorative Brands Incorporated ................. 01/15/07 11.000 1,262,500
750 EKCO Group Incorporated ........................... 04/01/06 9.250 791,250
-----------
5,286,250
-----------
Energy--4.47%
730 Crown Central Petroleum ........................... 02/01/05 10.875 766,500
1,000 Petroleos Mexicanos ............................... 09/15/27 9.500 991,250
1,000 Transamerican Energy Corporation .................. 06/15/02 13.000+ 855,000
750 Transamerican Refining Corporation** .............. 06/30/03 16.000 780,000
500 Trico Marine Services Incorporated** .............. 08/01/05 8.500 505,000
-----------
3,897,750
-----------
Entertainment--2.31%
750# Discovery Zone Incorporated** ..................... 08/01/02 13.500 765,000
1,206 United Artists Theatre Circuit .................... 07/01/15 9.300 1,248,066
-----------
2,013,066
-----------
</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)
Finance--3.09%
$ 1,500 Emergent Group Incorporated** ..................... 09/15/04 10.750% $ 1,440,000
500 Metris Companies Incorporated** ................... 11/01/04 10.000 521,250
750 Olympic Financial Limited ......................... 03/15/07 11.500 731,250
-----------
2,692,500
-----------
Food & Beverage--5.18%
1,000 American Rice Incorporated ........................ 07/31/02 13.000 950,000
1,000 Cuddy International Corporation** ................. 12/01/07 10.750 1,035,000
1,250 Iowa Select Farms L.P.** .......................... 12/01/05 10.750 1,256,250
1,250 Packaged Ice Incorporated** ....................... 02/01/05 9.750 1,275,000
-----------
4,516,250
-----------
General Industrial--6.23%
1,000 Communications & Power Industries Incorporated .... 08/01/05 12.000 1,125,000
500 Goss Graphic Systems Incorporated ................. 10/15/06 12.000 571,250
1,500 Jordan Telecommunication Products ................. 08/01/07 9.875 1,590,000
375 Motors & Gears Incorporated** ..................... 11/15/06 10.750 406,875
1,000 Poindexter J.B. Incorporated ...................... 05/15/04 12.500 970,000
750 Prestolite Electric Incorporated** ................ 02/01/08 9.625 766,875
-----------
5,430,000
-----------
Healthcare--1.08%
900 Integrated Health Services Incorporated** ......... 01/15/08 9.250 945,000
-----------
Media--9.61%
2,000 Fox Kids Worldwide Incorporated** ................. 11/01/07 9.250 1,990,000
1,500 Grupo Televisa S.A. de C.V. ....................... 05/15/08 13.250+ 1,155,000
300 Grupo Televisa S.A. de C.V. ....................... 05/15/06 11.875 341,250
500 Hollinger International Publishing ................ 02/01/06 9.250 533,750
1,000 Source Media Incorporated** ....................... 11/01/04 12.000 1,000,000
750 Sullivan Graphics Incorporated .................... 08/01/05 12.750 765,000
1,000 T.V. Azteca S.A. de C.V.** ........................ 02/15/07 10.500 1,053,750
1,500 Viacom Incorporated ............................... 07/07/06 8.000 1,537,500
-----------
8,376,250
-----------
Metals & Mining--3.30%
375 AEI Holding Incorporated** ........................ 11/15/07 10.000 390,000
500 Easco Corporation ................................. 03/15/01 10.000 512,500
1,250 Murrin Murrin Holdings Party Limited** ............ 08/31/07 9.375 1,190,625
750 WCI Steel Incorporated ............................ 12/01/04 10.000 780,000
-----------
2,873,125
-----------
Packaging--4.36%
750 Bear Island Paper** ............................... 12/01/07 10.000 757,500
1,000 Four M Corporation ................................ 06/01/06 12.000 1,065,000
500 FSW International Finance Company B.V. ............ 11/01/06 12.500 250,000
</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)
Packaging (concluded)
$ 500 Pindo Deli Finance Mauritius Limited** ............ 10/01/07 10.750% $ 395,000
750 Portola Packaging Incorporated .................... 10/01/05 10.750 800,625
500 Vicap, S.A. de C.V.** ............................. 05/15/07 11.375 535,000
-----------
3,803,125
-----------
Real Estate and Buildings--3.63%
1,000 American Architectural Products** ................. 12/01/07 11.750 1,035,000
500 D.R. Horton Incorporated .......................... 06/15/04 8.375 515,000
750 Ryland Group Incorporated ......................... 07/01/06 10.500 838,125
750 US Home Corporation ............................... 08/15/07 8.880 772,500
-----------
3,160,625
-----------
Restaurants--0.60%
500 Perkins Family Restaurant** ....................... 12/15/07 10.125 523,750
-----------
Retail--7.23%
500 Barry's Jewelers Incorporated ..................... 12/22/00 11.000(a) 300,000
750 Big 5 Corporation** ............................... 11/15/07 10.875 759,375
1,125 Chief Auto Parts Incorporated ..................... 05/15/05 10.500 1,125,000
500 CSK Auto Incorporated ............................. 11/01/06 11.000 552,500
1,500 Great American Cookie Incorporated ................ 01/15/01 10.875 1,537,500
1,000 Mrs Fields Original** ............................. 12/01/04 10.125 1,015,000
1,000 Tuesday Morning Corporation** ..................... 12/15/07 11.000 1,015,000
-----------
6,304,375
-----------
Supermarkets & Drugstores--1.21%
1,000 Jitney Jungle Stores of America Incorporated ...... 09/15/07 10.375 1,052,500
-----------
Technology--1.87%
500 Ampex Corporation**++ ............................. 03/15/03 12.000 501,250
800 Electronic Retailing Systems International ........ 02/01/04 13.250+ 528,000
1,500 InterAct Systems Incorporated ..................... 08/01/03 14.000+ 600,000
-----------
1,629,250
-----------
Transportation Non-Air--7.10%
500 Atlantic Express Transportation Corporation** ..... 02/01/04 10.750 536,250
1,250 Equimar Shipholdings Limited ...................... 07/01/07 9.875 1,175,000
1,000 Greater Bejing First Expressways** ................ 06/15/07 9.500 770,000
750 Guangzhou Shen Superhighway** ..................... 08/15/07 10.250 630,000
1,250 Navigator Gas Transport PLC** ..................... 06/30/07 12.000 1,425,000
500 Panoceanic Bulk Carriers Limited** ................ 12/15/07 12.000 470,000
500 Stena Shipping .................................... 12/15/05 10.500 545,000
1,000 TFM, S.A. de C.V. ................................. 06/15/09 11.750+ 635,000
-----------
6,186,250
-----------
Utilities--3.02%
500 AES Corporation** ................................. 11/01/07 8.500 512,500
1,000 Calpine Corporation ............................... 02/01/04 9.250 1,025,000
998 Panda Funding Corporation ......................... 08/20/12 11.625 1,097,750
-----------
2,635,250
-----------
Total Corporate Bonds (cost--$77,843,415) ................... 80,043,252
-----------
</TABLE>
6
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates Value
- --------- -------- -------- -----
<S> <C> <C> <C>
Convertible Bonds--1.74%
Communications--0.21%
$ 215 GST Telecommunications Incorporated ............... 12/15/05 13.875%+ $ 182,750
-----------
General Industrial--1.53%
1,500 Corporate Express Incorporated .................... 07/01/00 4.500 1,335,000
-----------
Total Convertible Bonds (cost--$1,507,401) .................. 1,517,750
-----------
<CAPTION>
Number
of Shares
- ---------
<S> <C>
Common Stock(a)--1.93%
Cable--0.05%
2,256 Pegasus Communications Corporation ................................................................... 47,094
-----------
Communications--0.27%
4,260 Nextel Communications Incorporated ................................................................... 116,351
7,000 PageMart Nationwide Incorporated ..................................................................... 54,250
6,900 PageMart Wireless Incorporated ....................................................................... 62,963
-----------
233,564
-----------
Gaming--0.89%
59,668 Casino America Incorporated .......................................................................... 160,358
105,643 Colorado Gaming & Entertainment Company .............................................................. 594,242
10,000 Hollywood Casino Corporation ......................................................................... 16,250
-----------
770,850
-----------
Media--0.29%
2,000 Affiliated Newspaper Investments ..................................................................... 250,000
-----------
Technology--0.43%
122,676 Ampex Corporation++ .................................................................................. 375,695
-----------
Total Common Stock (cost--$1,247,044) .......................................................................... 1,677,203
-----------
Preferred Stock--1.81%
Finance--0.61%
500,000 Superior National Insurance Group** .................................................................. 530,000
-----------
Healthcare--1.20%
1,000 Fresenius Medical Care Capital Trust ................................................................. 1,050,000
-----------
Total Preferred Stock (cost--$1,526,392) ....................................................................... 1,580,000
Number
of Warrants
- -----------
Warrants(a)--1.24%
Cable--0.01%
2,000 UIH Australia Pacific Incorporated ................................................................... 10,000
-----------
Communications--0.36%
1,000 Globalstar Telecommunications ........................................................................ 125,000
1,750 McCaw International Limited .......................................................................... 4,375
</TABLE>
7
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
Number
of Warrants Value
- ----------- -----
<S> <C>
Warrants(a) (concluded)
Communications (concluded)
2,000 RSL Communications Limited ........................................................................... $ 180,500
-----------
309,875
-----------
Consumer Manufacturing--0.62%
2,000 AVI Holdings Incorporated ............................................................................ 10,000
2,000 Chattem Incorporated ................................................................................. 84,000
3,000 IFA Capital Incorporated ............................................................................. 450,000
-----------
544,000
-----------
Finance--0.01%
750 Olympic Financial .................................................................................... 7,500
-----------
Food & Beverage--0.17%
1,250 Packaged Ice Incorporated ............................................................................ 150,000
-----------
Gaming--0.01%
10,563 Casino America Incorporated .......................................................................... 10,563
-----------
Retail--0.00%
270 Cookies USA Incorporated ............................................................................. 1,350
-----------
Technology--0.06%
17,000 Ampex Corporation++ .................................................................................. 21,250
800 Electronic Retailing Systems International ........................................................... 24,000
1,500 InterAct Systems Incorporated ........................................................................ 3,750
-----------
49,000
-----------
Total Warrants (cost--$273,371) 1,082,288
-----------
<CAPTION>
Principal
Amount Maturity Interest
(000) Dates Rates
- --------- -------- --------
<S> <C> <C> <C>
Repurchase Agreement--0.61%
$ 530 Repurchase Agreement dated 01/30/98 with State Street Bank
and Trust Company, collateralized by $536,386 U.S. Treasury
Notes 6.250% due 06/30/98 (value--$541,008); proceeds:
$530,221 (cost--$530,000) ................................. 02/02/98 5.000% 530,000
-----------
Total Investments (cost--$82,927,623)--99.16% ....................... 86,430,493
Other assets in excess of liabilities--0.84% ........................ 736,221
-----------
Net Assets--100.00% ................................................. $87,166,714
===========
</TABLE>
- --------------------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities represent 1.0% 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.
* Yield to maturity at purchase date on zero coupon bond.
** 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.
See accompanying notes to financial statements
8
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1998 (unaudited)
Assets:
Investments in securities, at value (cost--$82,927,623)............ $86,430,493
Cash............................................................... 4,605
Receivable for investments sold.................................... 119,125
Interest receivable................................................ 1,562,510
Deferred organizational expenses................................... 24,559
Other assets....................................................... 5,954
-----------
Total assets 88,147,246
-----------
Liabilities:
Payable for investments purchased................................. 781,353
Payable to investment adviser and administrator................... 66,012
Accrued expenses and other liabilities............................ 133,167
-----------
Total liabilities................................................. 980,532
-----------
Net Assets:
Capital Stock - $0.001 par value; 100,000,000 shares authorized;
6,031,667 shares issued and outstanding......................... 90,459,520
Undistributed net investment income............................... 21,493
Accumulated net realized loss from investment transactions........ (6,817,169)
Net unrealized appreciation of investments........................ 3,502,870
-----------
Net assets applicable to shares outstanding....................... $87,166,714
===========
Net asset value per share......................................... $14.45
======
See accompanying notes to financial statements
9
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF OPERATIONS
For the Six
Months Ended
January 31, 1998
(unaudited)
----------------
Investment income:
Interest and dividends............................................ $4,191,977
----------
Expenses:
Investment advisory and adminstration............................. 392,229
Legal and audit................................................... 47,464
Reports and notices to shareholders............................... 41,525
Custody and accounting............................................ 21,078
Amortization of organizational expenses........................... 15,310
Directors' fees................................................... 5,250
Transfer agency and service fees.................................. 3,725
Other expenses.................................................... 13,957
----------
540,538
----------
Net investment income............................................. 3,651,439
----------
Realized and unrealized gains from investment activities:
Net realized gain from investment transactions.................... 312,993
Net change in unrealized appreciation/depreciation
of investments................................................... 769,915
----------
Net realized and unrealized gain from investment activities....... 1,082,908
----------
Net increase in net assets resulting from operations.............. $4,734,347
==========
See accompanying notes to financial statements
10
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six
Months Ended For the
January 31, 1998 Year Ended
(unaudited) July 31, 1997
--------------- --------------
<S> <C> <C>
From operations:
Net investment income........................................................... $ 3,651,439 $ 7,755,248
Net realized gain from investment transactions.................................. 312,993 897,493
Net change in unrealized appreciation/depreciation of investments............... 769,915 5,275,401
------------ ------------
Net increase in net assets resulting from operations............................ 4,734,347 13,928,142
------------ ------------
Dividends to shareholders from:
Net investment income........................................................... (3,799,950) (7,599,901)
------------ ------------
Net increase in net assets...................................................... 934,397 6,328,241
Net assets:
Beginning of period............................................................. 86,232,317 79,904,076
------------ ------------
End of period (including undistributed net investment income of $21,493 and $170,004
at January 31, 1998 and July 31, 1997, respectively).......................... $ 87,166,714 $86,232,317
============ ============
</TABLE>
See accompanying notes to financial statements
11
<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"), an asset management 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 stockholders
are recorded on the ex-dividend date. Dividends from net investment income and
distributions from the 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
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, 1998 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1998, the components of net unrealized appreciation of
investments were as follows:
Gross appreciation
(investments having an excess of value over cost)............ $ 5,910,973
Gross depreciation
(investments having an excess of cost over value)............ (2,408,103)
___________
Net unrealized appreciation of investments..................... $ 3,502,870
===========
For the six months ended January 31, 1998, aggregate purchases and sales
of portfolio securities, excluding short-term securities, were $69,640,955 and
$70,654,363, respectively.
CAPITAL STOCK
There are 100,000,000 shares of $0.001 par value common stock
authorized. Of the 6,031,677 shares of common stock outstanding, 8,288 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, 1997, the Fund had a net capital loss carryforward of
$7,130,162. The loss carryforward is available as a reduction, to the extent
provided in the regulations, of future net realized capital gains, and will
expire between July 31, 2003 and by July 31, 2005. To the extent such losses
are used to offset future capital gains, it is probable that the gains so
offset will not be distributed.
13
<PAGE>
MANAGED HIGH YIELD FUND INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each period
is presented below:
<TABLE>
<CAPTION>
For the Period
For the Six December 7,
Months Ended For the Years Ended July 31, 1993+
January 31, 1998 ---------------------------- through July 31,
(unaudited) 1997 1996 1995 1994
------------- ------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 14.30 $ 13.25 $ 13.44 $ 13.76 $ 15.00
------- ------- ------- ------- -------
Net investment income............................... 0.61 1.29 1.29 1.40 0.77
Net realized and unrealized gains (losses) from
investments and foreign currency transactions..... 0.17 1.02 (0.16) (0.34) (1.25)
------- ------- ------- ------- --------
Net increase (decrease) from investment operations.. 0.78 2.31 1.13 1.06 (0.48)
------- ------- ------- ------- --------
Dividends from net investment income................ (0.63) (1.26) (1.32) (1.38) (0.76)
------- ------- ------- ------- --------
Net asset value, end of period...................... $ 14.45 $ 14.30 $ 13.25 $ 13.44 $ 13.76
======= ======= ======= ======= ========
Market value, end of period......................... $ 14.44 $ 13.94 $ 12.50 $ 12.38 $ 12.38
======= ======= ======= ======= =======
Total investment return (1)......................... 8.28% 22.59% 12.16% 11.87% (12.76)%
======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)........... $87,167 $86,232 $79,904 $81,081 $82,995
Expenses to average net assets...................... 1.24%* 1.34% 1.25% 1.21% 1.17%*
Net investment income to average net assets......... 8.38%* 9.39% 9.87% 10.68% 8.27%*
Portfolio turnover rate............................. 83% 122% 135% 103% 85%
</TABLE>
- ----------------------------------------
+ Commencement of operations
* Annualized
(1) Total investment return 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 Fund's Dividend Reinvestment Plan.
Total investment return has not been annualized for periods of less than one
year. Total investment return does not reflect brokerage commissions.
14
<PAGE>
MANAGED HIGH YIELD FUND INC.
GENERAL INFORMATION (unaudited)
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., an asset management subsidiary of PaineWebber Incorporated
("PaineWebber"), which has over $51 billion in assets under management as of
February 28, 1998.
SHAREHOLDER INFORMATION
The NYSE ticker symbol for the 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.
An annual meeting of shareholders of the Fund was held on November 20,
1997. 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 and Carl W. Schafer were elected to serve as
directors until the next annual meeting of shareholders, or until their
successors are elected and qualified.
<TABLE>
<CAPTION>
To vote for or against
the election of: Shares Voted For Shares Withhold Authority
<S> <C> <C>
Margo N. Alexander ........................... 5,719,478.024 66,877.693
Richard Q. Armstrong.......................... 5,724,328.075 62,027.642
E. Garrett Bewkes, Jr......................... 5,713,078.808 73,276.909
Richard R. Burt............................... 5,719,249.024 67,106.693
Mary C. Farrell............................... 5,724,841.024 61,514.693
Meyer Feldberg................................ 5,725,191.024 61,164.693
George W. Gowen............................... 5,706,914.808 79,440.909
Frederic V. Malek............................. 5,723,735.024 62,620.693
Carl W. Schafer............................... 5,728,828.024 57,527.693
<CAPTION>
Shares Shares Shares
Voted For Withhold Authority Against
--------- ------------------ -------
<S> <C> <C> <C>
Ratification of the selection of Ernst & Young LLP
as independent auditors: 5,750,674.717 20,570.000 15,111.000
</TABLE>
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.)
YEAR 2000 RISKS
Like other funds and financial and business organizations around the
world, the Fund could be adversely affected if the computer systems used by
its investment adviser, other service providers and entities with computer
systems that are linked to Fund records do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Issue."
15
<PAGE>
MANAGED HIGH YIELD FUND INC.
GENERAL INFORMATION (unaudited)
Mitchell Hutchins is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems
that it uses, and to obtain satisfactory assurances that each of the Fund's
other major service providers is taking comparable steps. However, there can
be no assurance that these steps will be sufficient to avoid any adverse
impact on the Fund.
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 common 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. The ability of such stockholders to participate in the Plan may
change if their shares are transferred into the name of another broker or
nominee.
A stockholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and stockholders who
have previously terminated participation in the Plan may rejoin it at any
time. Changes in elections must be made in writing to the Fund's transfer
agent and should include the stockholder's name and address as they appear on
that share certificate or in the transfer agent's records. An election to
terminate participation in the Plan, until such election is changed, will be
deemed an election by a stockholder to take all subsequent distributions in
cash. An election will be effective only for distributions declared and having
a record date at least ten days after the date on which the election is
received.
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 number of shares of common stock purchased with each
dividend will be equal to the result obtained by dividing the amount of the
dividend payable to a particular stockholder by the average price per share
(including applicable brokerage commissions) that the transfer agent was able
to obtain in the open market. The Fund will not issue any new shares of common
stock in connection with the Plan. There is no charge to participants for
reinvesting dividends or other distributions. The transfer agent's fees for
handling the reinvestment of distributions will be paid by the Fund. However,
each participant pays a pro rata share of brokerage commissions incurred with
respect to the transfer agent's open market purchases of common stock in
connection with the reinvestment of distributions. The automatic reinvestment
of dividends and other distributions in shares of common stock does not
relieve participants of any income tax that may be payable on such
distributions. See "Tax Information".
Additional information regarding the Plan may be obtained from, and all
correspondence concerning the Plan should be directed to, the transfer agent
at PNC Bank, National Association, c/o PFPC Inc., P.O. Box 8950, Wilmington,
Delaware 19899.
16
<PAGE>
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<PAGE>
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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 R. Burt
Mary C. Farrell
PRINCIPAL OFFICERS
Margo N. Alexander Paul H. Schubert
President Vice President and Treasurer
Victoria E. Schonfeld Thomas J. Libassi
Vice President Vice President
Dianne E. O'Donnell Dennis L. McCauley
Vice President and Secretary Vice President
INVESTMENT ADVISER AND ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
The financial information included herein is taken from the records of the
Fund without examination by independent auditors who do not express an opinion
thereon.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that from time to time the Fund may purchase shares of its
common stock in the open market at market prices.
This report is sent to the shareholders of the Fund for their information. It
is not a prospectus, circular or representation intended for the use in the
purchase or sale of shares of the Fund or of any securities mentioned in this
report.
<PAGE>
SEMIANNUAL REPORT
=====================
MANAGED HIGH
YIELD FUND INC.
JANUARY 31, 1998
PAINEWEBBER
(C)1998 PaineWebber Incorporated
Member SIPC
