ANNUAL REPORT
MANAGED HIGH
YIELD FUND INC.
PaineWebber
(C)1999 PaineWebber IncorporateD
Member SIPC
JULY 31, 1999
<PAGE>
MANAGED HIGH YIELD FUND INC. ANNUAL REPORT
MANAGED HIGH YIELD
FUND INC.
FUND PROFILE
as of July 31, 1999
INVESTMENT OBJECTIVE:
high current income
PORTFOLIO MANAGER:
Tom Libassi (since 1994),
Mitchell Hutchins
Asset Management Inc.
COMMENCEMENT:
December 7, 1993
NYSE SYMBOL:
PHT
DIVIDEND PAYMENTS:
monthly
TOTAL NET ASSETS:
$70.9 million
WEIGHTED AVG. MATURITY:
7.41 Yrs.*
WEIGHTED AVG. PRICE:
$85.82*
September 15, 1999
Dear Shareholder,
We are pleased to present you with the annual report for the Managed High Yield
Fund Inc. (the "Fund") for the fiscal year ended July 31, 1999.
MARKET REVIEW
- -------------------------------------------------------------------------------
[Graphic Omitted]
Market turbulence defined the Fund's fiscal year. When Russia devalued the ruble
in August 1998, nervous investors fled other assets for the safety of U.S.
Treasury securities. As a result, some sectors of the bond market became so
illiquid that they virtually shut down. The high yield sector was particularly
hard hit. Yield spreads--the yield premium that fixed-income securities must pay
above Treasurys to compensate for their higher risk--widened across all sectors.
The Federal Reserve lowered interest rates three times in an effort to avert the
crisis. The markets responded positively and began to stabilize by mid-October.
Spreads to Treasurys recovered somewhat, and the high-yield market made a
partial comeback in the final months of 1998.
Fear of inflation drove the bond markets during the second half of the
fiscal year. Bond prices declined as investors reacted to improving economic
prospects in Asia and Latin America, rapidly growing U.S. demand, higher oil
prices and fears that future wage increases would not be offset by commodity
deflation. The Federal Reserve took back two of the three rate cuts from last
fall, raising rates twice by 0.25%--once on June 30 and again on August 24.
The high-yield market regained its footing after heavy losses in 1998, and
outperformed all other bond sectors for the fiscal year ended July 31, 1999. The
CS First Boston High Yield Index gained 1.49% for the fiscal year. High-yield
spreads to Treasurys ended the fiscal year at 564 basis points, well above their
15-year average of 491 basis points. (A basis point equals 1/100th of 1%.)
PORTFOLIO REVIEW
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS, PERIODS ENDED 7/31/99
Since Inception
6 Mos.1 1 Yr. 5 Yrs. 12/07/93
--------------------------------------------------
[Graphic Omitted]
Net Asset Value Return2 0.85% -8.01% 6.81% 5.32%
Market Price Return3 0.64% -6.35% 8.76% 5.10%
- -------------------------------------------------------------------------------
- ---------
1 NAV and market price returns for periods of less than one year are
not annualized.
2 NAV return assumes, for illustration only, that dividends were reinvested
at the net asset value on the payable dates.
3 Market price return assumes dividends were reinvested under the Dividend
Reinvestment Plan.
* Weightings represent percentages of net assets as of July 31, 1999, except
where noted otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
1
<PAGE>
ANNUAL REPORT
SHARE PRICE, DIVIDEND AND YIELD, 7/31/99
- -------------------------------------------------------------------------------
Net Asset Value $11.76
Market Price $11.31
12-Mo. Dividend $1.26
Market Yield4 11.14%
IPO Yield4 8.40%
- -------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
The spread between high-yield bonds of larger companies and smaller
companies ended the fiscal year at less than 100 basis points. This was due to
the larger deals (greater than $500 million) backing up--that is, their yields
going higher rather than smaller deals (less than $200 million) tightening.
Despite offering attractive yields, smaller issues generally have not fared as
well as larger issues. We believe last year's market correction continues to
impact the market. We are demanding a higher return to compensate for the higher
risk of owning small issues. As a result, the Fund's allocation to smaller
issues has dropped to 42.7% from 61.0% in July 1998.* Mostly we are looking at
secondary market purchases, where the bonds may be available at discounts to
face value and may include enhancements such as equity participation.
CREDIT QUALITY* 7/31/99 1/31/99
- ------------------------------------------------------
BB & Higher 21.1 19.0
B 56.7 62.6
CCC & Lower 9.2 5.7
Non-Rated 6.9 7.6
Cash 3.3 1.6
Equity/Preferred 2.8 3.5
- -----------------------------------------------------
Total 100.0 100.0
The Fund maintained its credit quality with 77.8% of its assets in issues
rated single-B or higher. The Fund's largest sector weighting is fixed
communications (12.1%)--that is, stationary versus mobile telephone
systems--with an emphasis on international long distance companies. Two
companies we like are Viatel (0.9%), a long-term Fund holding that is building a
European fiber optic network, and Alestra (1.3%), a competitive long distance
carrier in Mexico that is 49% owned by AT&T.
- ----------
4 IPO yield is calculated by multiplying the July distribution by 12 and
dividing by the initial public offering price. Market yield is calculated by
multiplying the July distribution by 12 and dividing by the Fund's closing
price on July 31, 1999. Prices and yields will vary.
* Weightings represent percentages of net assets as of July 31, 1999, except
where noted otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
2
<PAGE>
MANAGED HIGH YIELD FUND INC. ANNUAL REPORT
TOP TEN HOLDINGS*
AS OF 7/31/99 AS OF 1/31/99
- -------------------------------------------------------------------------------
Nextel Communications Inc. 2.5 NTL Inc. 3.1
UIH Australia/Pacific Inc. 2.2 Packaged Ice Inc. 2.4
Samsung Electronics America Inc. 2.2 Nextel Communications Inc. 2.2
Packaged Ice Inc. 2.1 Airplane Pass-Through Trust 2.1
Airplane Pass-Through Trust 2.0 Samsung Electronics America Inc. 2.0
R&B Falcon Corp. 2.0 Jordan Telecommunication Products 2.0
Iowa Select Farms L.P. 1.9 Fox Family Worldwide Inc. 2.0
Wam! Net Inc. 1.7 Iowa Select Farms L.P. 1.8
Knology Holdings Inc. 1.6 Corporate Express Inc. 1.7
NTL Inc. 1.5 Park N View 1.7
- -------------------------------------------------------------------------------
In the U.S. we continue to focus on companies with extensive fiber optic
networks such as Metromedia Fiber (1.1%). In cable (10.1%), the third largest
sector weighting, we favor new entrants that offer integrated voice, data and
video transmission, such as RCN Corporation (1.2%) and Knology (1.6%).
Additionally, we continue to like international cable companies such as UIH
Australia/Pacific Inc. (2.3%) and NTL Inc. (1.5%), which also offers integrated
voice, data and video.
TOP FIVE SECTORS*
AS OF 7/31/99 AS OF 1/31/99
- -------------------------------------------------------------------------------
Communications (fixed) 12.1 Cable 10.6
Service 10.8 Communications (fixed) 9.4
Cable 10.1 Technology 7.9
Technology 9.3 Service 6.1
Food/Beverage 5.8 General Industrial 6.0
- -------------------------------------------------------------------------------
OUTLOOK
- -------------------------------------------------------------------------------
[Graphic Omitted]
We expect new bond issuance to remain lighter through 1999 than it was in
1998--in fact, we may be seeing this year's surge of issuance now, as borrowers
rush to market ahead of year-end and potential Y2K problems. In this
environment, spreads may tighten again, making it a good time to take advantage
of the attractive yields in BB credits. Credit analysis of individual companies
remains critical, since quality and price vary so greatly in the high-yield
market.
- ----------
* Weightings represent percentages of net assets as of July 31, 1999,
except where noted otherwise. The Fund's portfolio is actively managed and its
composition will vary over time.
3
<PAGE>
ANNUAL REPORT
Our outlook for calendar year 1999 calls for gross domestic product growth
of about 3% and inflation around 2%. We do not see any signs of recession. We
believe the Federal Reserve may be inclined to raise rates by another 0.25%
before year-end. We expect the long bond to remain range-bound around the 6%
level.
According to the DLJ Default Study, for the 12 months ended July 31, 1999,
the high-yield default rate was 2.73%. At the beginning of 1999, the DLJ
high-yield to Treasury spread stood at 626 basis points, implying a discounted
default rate of about 5.9%. By the end of August, the DLJ spread had narrowed to
588 basis points, implying a default rate of about 5.2%. We expect the actual
rate to fall below these implications, somewhere between 3-4%.
Prices of high-yield securities tend to reflect potential defaults six to
twelve months in advance. Today's prices thus may reflect a perceived default
rate of about 6% for 2000. We believe defaults are peaking this year, and that
the default rate will decline next year. If correct, our view implies that
current prices are discounting next year's default rate too heavily, and that
there may be upside potential in high yields.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued support
and welcome any comments or questions you may have. For a QUARTERLY REVIEW on
Managed High Yield Fund Inc. or a fund in the PaineWebber Family of Funds,5
please contact your Financial Advisor.
Sincerely,
/s/Margo Alexander /s/Brian M. Storms
- ------------------ ------------------
MARGO ALEXANDER BRIAN M. STORMS
Chairman and Chief Executive Officer President and Chief Operating Officer
Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc.
/s/Thomas J. Libassi
- --------------------
THOMAS J. LIBASSI
Portfolio Manager,
Managed High Yield Fund Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended July 31, 1999, and reflects our views at
the time of its writing. Of course, these views may change in response to
changing circumstances. We encourage you to consult your Financial Advisor
regarding your personal investment program.
- ---------
5 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.
4
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS JULY 31, 1999
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CORPORATE BONDS--91.38%
AUTOMOTIVE--1.93%
$1,000 HDA Parts Systems Incorporated** ................. 08/01/05 12.000% $ 1,010,000
350 J.L. French Automotive Castings** ................ 06/01/09 11.500 357,000
-----------
1,367,000
-----------
CABLE--9.88%
1,000 21st Century Telecommunications Group Incorporated 02/15/08 12.250+ 450,000
500 EchoStar DBS Corporation** ....................... 02/01/09 9.375 503,750
2,000 Knology Holdings Incorporated .................... 10/15/07 11.875+ 1,160,000
1,000 NTL Incorporated ................................. 10/01/08 11.500 1,095,000
2,400 Park N View Incorporated ......................... 05/15/08 13.000 720,000
1,250 RCN Corporation .................................. 10/15/07 11.125+ 825,000
2,000 UIH Australia Pacific Incorporated ............... 05/15/06 14.000+ 1,580,000
600 United Pan Europe ................................ 08/01/09 10.875+ 327,000
350 United Pan Europe ................................ 08/01/09 10.875 348,250
-----------
7,009,000
-----------
CHEMICALS--1.71%
700 Lyondell Chemical Company** ...................... 05/01/07 9.875 707,000
500 ZSC Specialty** .................................. 07/01/09 11.000 503,750
-----------
1,210,750
-----------
COMMUNICATIONS--FIXED--11.63%
1,000 Alestra S.A.** ................................... 05/15/06 12.125 945,000
1,500 Barak ITC ........................................ 11/15/07 12.500+ 855,000
413 Esprit Telecom Group PLC ......................... 06/15/08 10.875 417,130
500 Facilicom International Incorporated ............. 01/15/08 10.500 365,000
500 Globenet Communications Group** .................. 07/15/07 13.000 502,500
1,000 GST Equipment Funding Incorporated ............... 05/01/07 13.250 1,080,000
900 Hyperion Telecommunications Incorporated ......... 09/01/04 12.250 945,000
500 Hyperion Telecommunications Incorporated** ....... 11/01/07 12.000 507,500
750 Metromedia Fiber Network Incorporated ............ 11/15/08 10.000 757,500
425 NEXTLINK Communications Incorporated ............. 06/01/09 10.750 431,375
1,000 Pathnet Incorporated ............................. 04/15/08 12.250 550,000
250# Tele1 Europe BV** ................................ 05/15/09 13.000 263,750
1,000 Viatel Incorporated .............................. 04/15/08 12.500+ 625,000
-----------
8,244,755
-----------
COMMUNICATIONS--MOBILE--4.48%
500# ICO Global Communications Limited ................ 08/01/05 15.000 255,000
2,500 Nextel Communications Incorporated ............... 02/15/08 9.950+ 1,756,250
1,500 Nextel International Incorporated ................ 04/15/08 12.125+ 800,625
375 Orange PLC ....................................... 08/01/08 8.000 361,875
-----------
3,173,750
-----------
CONSUMER MANUFACTURING--2.86%
1,000 Apparel Ventures Incorporated(a) ................. 12/31/00 12.250 170,000
1,250 Commemorative Brands Incorporated ................ 01/15/07 11.000 900,000
1,000 Decora Industries Incorporated ................... 05/01/05 11.000 957,500
-----------
2,027,500
-----------
</TABLE>
5
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CORPORATE BONDS--(CONTINUED)
ENERGY--5.11%
$ 250 Gulfmark Offshore Incorporated ................... 06/01/08 8.750% $ 243,750
500# Key Energy Services Incorporated ................. 01/15/09 14.000 519,375
1,000 Northern Offshore ASA ............................ 05/15/05 10.000 610,000
300 Pride International Incorporated ................. 06/01/09 10.000 307,500
1,500 R & B Falcon Corporation ......................... 12/15/08 9.500 1,413,750
535 Transcontinental Refining Corporation** .......... 12/01/03 15.000 529,237
-----------
3,623,612
-----------
FINANCE--3.60%
1,500 Airplane Pass Through Trust ...................... 03/15/19 10.875 1,417,500
750 Olympic Financial Limited ........................ 03/15/07 11.500 660,000
500 Superior National Insurance Group ................ 12/01/17 10.750 475,000
-----------
2,552,500
-----------
FOOD & BEVERAGE--5.74%
1,625 Iowa Select Farms L.P.** ......................... 12/01/05 10.750 1,324,375
750# Mrs. Fields Holding Company Incorporated** ....... 12/01/05 14.000+ 363,750
1,000 Mrs. Fields Original Cookies Incorporated ........ 12/01/04 10.125 900,000
1,500 Packaged Ice Incorporated ........................ 02/01/05 9.750 1,485,000
-----------
4,073,125
-----------
GAMING--1.02%
250 Hollywood Casino Corporation** ................... 05/01/07 11.250 248,750
500 Park Place Entertainment Corporation ............. 12/15/05 7.875 475,000
-----------
723,750
-----------
GENERAL INDUSTRIAL--4.03%
750 J.B. Poindexter & Company Incorporated ........... 05/15/04 12.500 705,000
885 Jordan Telecommunication Products ................ 08/01/07 9.875 876,150
615 Jordan Telecommunication Products ................ 08/01/07 11.750+ 516,600
1,000 SabreLiner Corporation** ......................... 06/15/08 11.000 760,000
-----------
2,857,750
-----------
HEALTHCARE--2.74%
1,000 Fresenius Medical Care Capital Trust ............. 02/01/08 7.875 935,000
750 Tenet Healthcare Corporation ..................... 12/01/08 8.125 703,125
300 Triad Hospitals Holdings Incorporated** .......... 05/15/09 11.000 302,250
-----------
1,940,375
-----------
HOTELS & LODGING--1.46%
1,250 Silverleaf Resorts Incorporated .................. 04/01/08 10.500 1,037,500
-----------
MEDIA--0.89%
1,500 Inter Act Systems Incorporated ................... 08/01/03 14.000+ 630,000
-----------
METALS--2.12%
1,250 Metal Management Incorporated .................... 05/15/08 10.000 987,500
500 National Steel Corporation ....................... 03/01/09 9.875 515,000
-----------
1,502,500
-----------
</TABLE>
6
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CORPORATE BONDS--(CONTINUED)
PAPER & PACKAGING--1.79%
$ 500 Packaging Corporation of America** ............... 04/01/09 9.625% $ 512,500
750 Portola Packaging Incorporated ................... 10/01/05 10.750 757,500
-----------
1,270,000
-----------
REAL ESTATE--1.72%
1,000 American Architectural Products Corporation ...... 12/01/07 11.750 740,000
500 D.R. Horton Incorporated ......................... 02/01/09 8.000 477,500
-----------
1,217,500
-----------
RESTAURANTS--0.95%
750 American Restaurant Group Incorporated ........... 02/15/03 11.500 676,875
-----------
RETAIL--4.63%
1,550 Advance Holding Corporation ...................... 04/15/09 12.875+ 844,750
750 Advance Stores Company Incorporated .............. 04/15/08 10.250 697,500
500 Ames Department Stores Incorporated** ............ 04/15/06 10.000 492,500
535 Big 5 Corporation ................................ 11/15/07 10.875 529,650
690 Tuesday Morning Corporation ...................... 12/15/07 11.000 717,600
-----------
3,282,000
-----------
SERVICE--9.02%
1,000 Allied Waste North America Incorporated** ........ 08/01/09 10.000 987,500
1,000 American Eco Corporation ......................... 05/15/08 9.625 600,000
1,000 Ameriserve Food Distribution Incorporated ........ 07/15/07 10.125 800,000
500 Atlantic Express Transportation Corporation ...... 02/01/04 10.750 491,250
1,000 Budget Group Incorporated ........................ 04/01/06 9.125 880,000
1,000 Premier Graphics Incorporated .................... 12/01/05 11.500 935,000
750 Protection One Incorporated** .................... 01/15/09 8.125 699,375
1,000# Waste Systems International Incorporated** ....... 01/15/06 11.500 1,005,000
-----------
6,398,125
-----------
TECHNOLOGY--8.25%
500 Ampex Corporation++ .............................. 03/15/03 12.000 520,000
500 Chippac International Limited** .................. 08/01/09 12.750 500,000
800 Electronic Retailing Systems
International Incorporated ...................... 02/01/04 13.250+ 216,000
690 Fairchild Semiconductor Corporation .............. 03/15/07 10.125 676,200
1,500 Samsung Electronics America Incorporated** ....... 05/01/03 9.750 1,522,500
1,000 Source Media Incorporated ........................ 11/01/04 12.000 730,000
500 Verio Incorporated ............................... 12/01/08 11.250 507,500
2,000 Wam! Net Incorporated ............................ 03/01/05 13.250+ 1,180,000
-----------
5,852,200
-----------
TRANSPORTATION--3.71%
500 American Reefer Company Limited .................. 03/01/08 10.250 320,000
1,500 Equimar Shipholdings Limited ..................... 07/01/07 9.875 990,000
1,250# Navigator Gas Transport PLC** .................... 06/30/07 12.000 325,000
500 Stena AB ......................................... 06/15/07 8.750 463,750
1,000 TFM, S.A. de C.V. ................................ 06/15/09 11.750+ 530,000
-----------
2,628,750
-----------
</TABLE>
7
<PAGE>
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CORPORATE BONDS--(CONCLUDED)
UTILITIES--2.11%
$ 500 Calpine Corporation .............................. 04/01/08 7.875% $ 476,875
998 Panda Funding Corporation ........................ 08/20/12 11.625 1,017,914
-----------
1,494,789
-----------
TOTAL CORPORATE BONDS (cost--$74,348,542) .................... 64,794,106
-----------
CONVERTIBLE BONDS--1.68%
COMMUNICATIONS--FIXED--0.49%
215 GST Telecommunciations Incorporated .............. 12/15/05 13.875+ 344,000
-----------
SERVICES--1.19%
996 Waste Systems International Incorporated** ....... 05/13/05 7.000 846,935
-----------
TOTAL CONVERTIBLE BONDS (cost--$1,173,102) ................... 1,190,935
-----------
<CAPTION>
NUMBER OF
SHARES
--------
<S> <C>
COMMON STOCK(A)--2.31%
CABLE--0.08%
2,896 @Entertainment Incorporated ....................................................... 54,481
-----------
FOOD & BEVERAGE--0.09%
12,796 Packaged Ice Incorporated ......................................................... 64,780
-----------
GAMING--0.03%
10,000 Hollywood Casino Corporation ...................................................... 18,750
-----------
MEDIA--0.42%
2,000 Affiliated Newspaper Investments Incorporated ..................................... 300,000
-----------
RETAIL--0.29%
47,500 Samuels Jewelers Incorporated++ ................................................... 207,813
-----------
SERVICE--0.54%
69,469 Waste Systems International Incorporated .......................................... 384,047
-----------
TECHNOLOGY--0.86%
139,676 Ampex Corporation++ ............................................................... 611,083
-----------
TOTAL COMMON STOCK (cost--$1,219,494) ......................................................... 1,640,954
-----------
PREFERRED STOCK(A)--0.81%
ENERGY--0.02%
20,747 Orion Refining Corporation ........................................................ 14,170
-----------
RESTAURANTS--0.79%
559 American Restaurant Group Incorporated ............................................ 559,000
-----------
TOTAL PREFERRED STOCK (cost--$512,074) ........................................................ 573,170
-----------
</TABLE>
8
<PAGE>
PaineWebber
MANAGED HIGH YIELD FUND INC.
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS VALUE
------- -----------
<S> <C> <C>
WARRANTS(A)--0.39%
CABLE--0.15%
2,400 @Entertainment Incorporated .......................................................... $ 38,400
2,000 Knology Holdings Incorporated ........................................................ 5,000
2,400 Park N View Incorporated ............................................................. 24
2,000 UIH Australia Pacific Incorporated ................................................... 60,000
-----------
103,424
-----------
COMMUNICATIONS--FIXED--0.01%
1,000 Pathnet Incorporated ................................................................. 10,000
-----------
COMMUNICATIONS--MOBILE--0.01%
1,750 McCaw International Limited .......................................................... 4,375
-----------
CONSUMER MANUFACTURING--0.00%
2,088 AVI Holdings Incorporated ............................................................ 21
-----------
ENERGY--0.01%
500 Key Energy Services Incorporated** ................................................... 7,500
-----------
FINANCIAL SERVICES--0.00%
750 Olympic Financial Limited ............................................................ 750
-----------
MEDIA--0.01%
1,500 Inter Act Systems Incorporated ....................................................... 7,500
-----------
RESTAURANTS--0.00%
500 American Restaurant Group Incorporated ............................................... 5
-----------
TECHNOLOGY--0.20%
800 Electronic Retailing Systems International Incorporated .............................. 4,000
6,000 Wam! Net Incorporated ................................................................ 136,500
-----------
140,500
-----------
TOTAL WARRANTS (cost--$86,054) ................................................................... 274,075
-----------
<CAPTION>
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
-------- --------- ---------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT--0.83%
$590 Repurchase Agreement dated 07/30/99 with State Street Bank and Trust
Company, collateralized by $572,806 U.S. Treasury Notes, 7.000% due
07/15/06 (value--$602,162); proceeds :
$590,209 (cost--$590,000) 08/02/99 4.250% 590,000
-----------
Total Investments (cost--$77,929,266)--97.40% .................................................... 69,063,240
Other assets in excess of liabilities--2.60% ..................................................... 1,841,730
-----------
Net Assets--100.00% .............................................................................. $70,904,970
===========
</TABLE>
- -------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities represent 1.9% 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.
+ 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.
(a) Non-income producing securities.
See accompanying notes to financial statements
9
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value (cost--$77,929,266) ............................................ $69,063,240
Cash ............................................................................................... 17,974
Receivable for investments sold .................................................................... 486,321
Interest receivable ................................................................................ 1,475,600
-----------
Total assets ....................................................................................... 71,043,135
-----------
LIABILITIES:
Payable for investments purchased .................................................................. 16,853
Payable to investment adviser and administrator .................................................... 54,506
Accrued expenses and other liabilities ............................................................. 66,806
-----------
Total liabilities .................................................................................. 138,165
-----------
NET ASSETS:
Capital Stock--$0.001 par value; 100,000,000 shares authorized; 6,031,667 shares issued
and outstanding ................................................................................... 90,447,851
Undistributed net investment income ................................................................ 280,970
Accumulated net realized loss from investment transactions ......................................... (10,957,825)
Net unrealized depreciation of investments ......................................................... (8,866,026)
-----------
Net assets applicable to shares outstanding ........................................................ $70,904,970
===========
Net asset value per share .......................................................................... $11.76
======
</TABLE>
10
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
JULY 31, 1999
-------------
<S> <C>
INVESTMENT INCOME:
Interest ....................................................................................... $ 8,508,459
-----------
EXPENSES:
Investment advisory and administration ......................................................... 664,368
Reports and notices to shareholders ............................................................ 52,384
Legal and audit ................................................................................ 48,658
Custody and accounting ......................................................................... 45,303
Transfer agency and service fees ............................................................... 22,912
Directors' fees ................................................................................ 10,500
Amortization of organizational expenses ........................................................ 9,249
Other expenses ................................................................................. 22,008
-----------
875,382
-----------
NET INVESTMENT INCOME .......................................................................... 7,633,077
-----------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES:
Net realized loss from investment transactions ................................................. (5,530,734)
Net change in unrealized appreciation/depreciation of investments .............................. (9,122,545)
-----------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT ACTIVITIES .................................... (14,653,279)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................... $(7,020,202)
===========
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JULY 31,
------------------------
1999 1998
----------- ---------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ............................................................ $ 7,633,077 $ 7,555,238
Net realized gain (loss) from investment transactions ............................ (5,530,734) 1,813,855
Net change in unrealized appreciation/depreciation of investments ................ (9,122,545) (2,476,436)
----------- -----------
Net increase (decrease) in net assets resulting from operations .................. (7,020,202) 6,892,657
----------- -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ............................................................ (7,599,901) (7,599,901)
----------- -----------
Net decrease in net assets ....................................................... (14,620,103) (707,244)
NET ASSETS:
Beginning of year ................................................................ 85,525,073 86,232,317
----------- -----------
End of year (including undistributed net investment income of $229,300
and $196,124, respectively) ..................................................... $70,904,970 $85,525,073
=========== ===========
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Managed High Yield Fund Inc. (the "Fund") was incorporated in Maryland on
June 11, 1993 and is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended, as a closed-end,
diversified management investment company. The investment objective of the Fund
is to seek high current income. Organizational costs have been fully amortized
on a straight line basis over a period of 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--The Fund calculates its net asset value based on
the current market value for its portfolio securities. The Fund normally obtains
market values for its securities from independent pricing sources. Independent
pricing sources may use reported last sale prices, current market quotations or
valuations from computerized "matrix" systems that derive values based on
comparable securities. Securities traded in the over-the-counter ("OTC") market
and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at
the last sale price on Nasdaq prior to valuation. Other OTC securities are
valued at the last bid price available prior to valuation. Securities which are
listed on U.S. and foreign stock exchanges normally are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"),
a wholly owned asset management subsidiary of PaineWebber Incorporated
("PaineWebber") and investment adviser and administrator of the Fund. If a
market value is not available from an independent pricing source for a
particular security, that security is valued at fair value as determined in good
faith by or under the direction of the Fund's Board of Directors (the "board").
The amortized cost method of valuation, which approximates market value,
generally is used to value short-term debt instruments with sixty days or less
remaining to maturity, unless the board determines that this does not represent
fair value.
REPURCHASE AGREEMENTS--The Fund's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings. The Fund occasionally
participates in joint repurchase agreement transactions with other funds managed
by Mitchell Hutchins.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of investments.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to stockholders
are recorded on the ex-dividend date. Dividends from net investment income and
distributions from net realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments, including those
particular to a specific industry, country or region.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's board of directors has approved an Investment Advisory and
Administration Contract ("Advisory Contract") with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, Mitchell Hutchins receives
compensation from the Fund, computed weekly and paid monthly, at the annual rate
of 0.90% of the Fund's average weekly net assets.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at July 31,
1999 was substantially the same as the cost of securities for financial
statement purposes.
At July 31, 1999, the components of net unrealized depreciation of
investments were as follows:
<TABLE>
<S> <C>
Gross depreciation (investments having an excess of cost over value) ....... $(10,794,789)
Gross appreciation (investments having an excess of value over cost) ....... 1,928,763
------------
Net unrealized depreciation of investments ................................. $ (8,866,026)
============
</TABLE>
For the year ended July 31, 1999, aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $73,476,966 and
$76,201,935, respectively.
CAPITAL STOCK
Of the 6,031,667 shares of common stock outstanding, 9,629 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, 1999, the Fund had a net capital loss carryforward of
$8,617,094. 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 July 31, 2007. To the extent 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 $2,340,785 of realized capital losses arising after October
31, 1998. Such losses are treated for tax purposes as arising on August 1, 1999.
14
<PAGE>
MANAGED HIGH YIELD FUND INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each year is
presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $14.18 $14.30 $13.25 $13.44 $13.76
------ ------ ------ ------ ------
Net investment income .............................. 1.27 1.25 1.29 1.29 1.40
Net realized and unrealized gains (losses) from
investments and foreign currency transactions .... (2.43) (0.11) 1.02 (0.16) (0.34)
------ ------ ------ ------ ------
Net increase (decrease) from investment operations . (1.16) 1.14 2.31 1.13 1.06
------ ------ ------ ------ ------
Dividends from net investment income ............... (1.26) (1.26) (1.26) (1.32) (1.38)
------ ------ ------ ------ ------
Net asset value, end of year ....................... $11.76 $14.18 $14.30 $13.25 $13.44
====== ====== ====== ====== ======
Market value, end of year .......................... $11.31 $13.44 $13.94 $12.50 $12.38
====== ====== ====== ====== ======
Total investment return(1) ......................... (6.35)% 5.45% 22.59% 12.16% 11.87%
====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of year (000's) .................... $70,905 $85,525 $86,232 $79,904 $81,081
Expenses to average net assets ..................... 1.19% 1.15% 1.34% 1.25% 1.21%
Net investment income to average net assets ........ 10.34% 8.71% 9.39% 9.87% 10.68%
Portfolio turnover rate ............................ 102% 156% 122% 135% 103%
</TABLE>
- -------------------
(1) Total investment return is calculated assuming a purchase of capital stock
at market value on the first day of each year reported and a sale at market
value on the last day of each year reported and assuming reinvestment of
dividends at prices obtained under the Fund's Dividend Reinvestment Plan.
Total investment return does not reflect brokerage commissions.
15
<PAGE>
MANAGED HIGH YIELD FUND INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Managed High Yield Fund Inc.
We have audited the accompanying statement of assets and liabilities, of
Managed High Yield Fund Inc. (the "Fund") including the portfolio of
investments, as of July 31, 1999, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at July 31, 1999 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Managed High Yield Fund Inc. at July 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
New York, New York
September 20, 1999
16
<PAGE>
MANAGED HIGH YIELD FUND INC.
TAX INFORMATION (UNAUDITED)
We are required by subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Trust's fiscal year end (July 31,
1999) as to the federal tax status of distributions received by stockholders
during such fiscal year. Accordingly, we are advising you that the distributions
paid during the fiscal year were derived from net investment income and are
taxable as ordinary income.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need
not be reported as taxable income. Some retirement trusts (e.g., corporate,
Keogh and 403(b)(7) plans) may need this information for their annual
information reporting.
Because the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 1999. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their federal income tax returns, will be made in conjunction with
Form 1099 DIV and will be mailed in January 2000. Stockholders are advised to
consult their own tax advisers with respect to the tax consequences of their
investment in the Fund.
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
("NYSE"). The investment objective of the Fund is to seek high current income.
The Fund's investment adviser and administrator is Mitchell Hutchins Asset
Management Inc., a wholly owned asset management subsidiary of PaineWebber
Incorporated ("PaineWebber"), which has over $59 billion in assets under
management as of August 31, 1999.
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.
YEAR 2000 RISKS
Like other funds and financial and business organizations around the world,
the Fund could be adversely affected if the computer systems used by its
investment adviser, other service providers and entities with computer systems
that are linked to Fund records do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Issue."
Mitchell Hutchins is taking steps that it believes are reasonably designed
to address the Year 2000 Issue with respect to the computer systems that it
uses, and to obtain satisfactory assurances that the Fund's other major service
providers is taking comparable steps. However, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Fund. In
addition, issuers of securities in which the Fund invests may be adversely
affected by Year 2000 related problems. This could have an impact on the value
of Fund's investments and share price.
17
<PAGE>
MANAGED HIGH YIELD FUND INC.
GENERAL INFORMATION (UNAUDITED) (CONCLUDED)
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 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 the 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 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 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. Dividends from the Fund's
investment company taxable income (whether received in cash or reinvested in
additional Fund shares) are taxable to its stockholders as ordinary income to
the extent of the Fund's earnings and profits. A participant in the Plan will be
treated as having received a distribution in the amount of the cash used to
purchase shares of common stock on his behalf, including a pro rata portion of
the brokerage commissions incurred by the transfer agent.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan with
respect to any dividend or other distribution if notice of the change is sent to
Plan participants at least 30 days before the record date for such distribution.
The Plan also may be amended or terminated by the transfer agent by at least 30
days' written notice to all Plan participants. Additional information regarding
the Plan may be obtained from, and all correspondence concerning the Plan should
be directed to, the transfer agent at PNC Bank, National Association, c/o PFPC
Inc., P.O. Box 8950, Wilmington, Delaware 19899.
18
<PAGE>
MANAGED HIGH YIELD FUND INC.
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 Brian M. Storms
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 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
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.
19
