MANAGED HIGH YIELD FUND INC. SEMI-ANNUAL REPORT
March 15, 1999
Dear Shareholder,
We are pleased to present you with the semiannual report for the Managed High
Yield Fund Inc. (the "Fund") for the six-month period ended January 31, 1999.
[graphic]
MARKET REVIEW
- --------------------------------------------------------------------------------
During the period, most sectors of the bond market suffered when nervous
investors reacted to the Russian currency devaluation and fled to the
safety of U.S. Treasury securities. Yield spreads -- the yield premium that
fixed-income securities must pay above Treasurys to compensate for their
higher risk -- widened across all sectors. High-yield spreads, as measured by
the CS First Boston High Yield Index (the "Index"), widened from 409 basis
points in June to more than 760 basis points in mid-October, the widest spread
since the recession of 1991. (A basis point equals 1/100th of one percent.)
In response, the Federal Reserve cut the short-term interest rate by 0.25%
in September, October and November, lowering it from 5.50% to 4.75%. Investors
returned in search of bargains, and the markets began to stabilize by
mid-October. The high-yield market made a partial comeback in the final months
of 1998, with cash flows of approximately $1 billion per week entering
high-yield mutual funds in November and December. Within the high-yield market,
larger issues generally outperformed smaller issues and telecommunications was
the best performing sector.
MANAGED HIGH YIELD FUND INC.
Fund PROFILE
Goal:
High current income
Portfolio Manager: Thomas J. Libassi,
Mitchell HutchinsAsset Management Inc.
Total Net Assets:
$74.1 million as of January 31, 1999
Dividend Payments:
Monthly
MANAGED HIGH
YIELD FUND INC.
Top Five Sectors*
Cable 10.55%
- --------------------------------------
Communications (fixed) 9.38%
- --------------------------------
Technology 7.88%
- ----------------------------
Service 6.07%
- ---------------------
General Industrial 6.01%
- ----------------
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
[graphic]
PERFORMANCE
For the six-month period ended January 31, 1999, the Fund (symbol: PHT)
lost 8.79% based on changes in the Fund's net asset value (assuming, for
illustration only, that dividends were reinvested at the net asset value on
the
payable dates) and lost 6.87% based on changes in its share price on the New
York Stock Exchange (assuming dividends were reinvested under the Dividend
Reinvestment Plan).
At January 31, 1999 the Fund's net asset value per share was $12.29, while
its share price on the New York Stock Exchange was $11.88. During the six-month
period ended January 31, 1999, the Fund paid dividends from net investment
income totaling $0.63 per share, or 10.5 cents per share per month. Based on the
dividend paid in January and the Fund's market price on January 31, 1999, the
Fund's annualized market yield was 10.61%.
- --------------------
*Unless otherwise noted, all portfolio weightings represent percentages of net
assets as of January 31, 1999. The Fund's portfolio is actively managed and its
composition will vary over time.
1
<PAGE>
SEMIANNUAL REPORT
HIGHLIGHTS
The Fund suffered a significant price decline as a direct impact of the
slump in the high yield market. On July 31, 1998 the Fund's weighted-average
price was $92.78; on January 31, 1999, its weighted-average price was $86.56.
The Fund's holdings remained largely unchanged during the period.
We reduced the Fund's exposure to zero-coupon bonds from 20.3% to 15.8%*
and invested the proceeds in interest-bearing bonds -- this allowed us to
increase the Fund's current income and lower its volatility. We also reduced the
Fund's exposure to emerging-market corporate debt from 4.9% as of July 31, 1998
to 1.9%* and shifted the assets into the U.S. high-yield market, where we
believe that we have greater return potential.
MANAGED HIGH
YIELD FUND INC.
Top Ten Holdings*
NTL Inc. 3.07%
Packaged Ice Inc. 2.26
Nextel
Communications Inc. 2.16
Airplanes Pass-Through
Trust 2.14
Samsung Electronics
America Inc. 2.02
Jordan
Telecommunication
Products 2.00
Fox Family
Worldwide Inc. 1.97
Iowa Select Farms L.P. 1.80
Corporate Express Inc. 1.74
Park 'N View 1.72
OUTLOOK
- --------------------------------------------------------------------------------
[graphic] We believe the Federal Reserve is likely to maintain a steady
monetary policy given strong U.S. economic growth and weak global growth. After
three consecutive years of 4% annual growth, we expect the U.S. economy to grow
about 2.5% in 1999, with inflation remaining low and no recession on the
immediate horizon. The high-yield market currently is discounting a default rate
of 6-8% for 1999; however, we believe a default rate of 2-3% is more likely.
Although the Index spread has narrowed since mid-October, it remains well
above the 15-year average of 491 basis points. Credit-quality fundamentals and
technical factors suggest the high-yield market could be doing better. Earnings
and cash flows of high-yield issuers -- the credit fundamentals -- remain solid.
As for technical factors, the economy remains strong; the supply of high-yield
bonds is down 25% for the first two months of 1999 compared to the first two
months of 1998; investors are putting money into high-yield-bond mutual funds.
But trading volume is light and the market as measured by the Index has
recovered only about 20% from its bottom near the end of October. Yield spreads
to Treasurys have narrowed mainly because Treasury prices have decreased, not
because high-yield prices have increased.
We believe positive investor sentiment is the missing piece of the puzzle
holding back the high-yield sector. Perhaps portfolio managers were scared off
by the volatility of 1998; perhaps they fear that the economic expansion we've
enjoyed since 1992 will end and undo the sector's positive fundamentals. We feel
that the sector is unlikely to move higher before investor sentiment improves.
- --------------------
*Unless otherwise noted, all portfolio weightings represent percentages of net
assets as of January 31, 1999. The Fund's portfolio is actively managed and its
composition will vary over time.
MANAGED HIGH
YIELD FUND INC.
Credit Quality*
[The following represents a pie chart in the printed report]
BB & Higher 19.05%
B 62.56%
CCC & Lower 5.68%
Non-Rated 7.65%
Cash 1.60%
Equity/Preferred 3.46%
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 REVIEW on
other funds in the PaineWebber Family of Funds,1 please contact your Financial
Advisor.
Sincerely,
[signature] [signature]
MARGO ALEXANDER THOMAS J. LIBASSI
President and Chief Executive Officer 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, 1999, and reflects our
views at the time of writing this report. Of course, these views may change in
response to changing circumstances. We encourage you to consult your Financial
Advisor regarding your personal investment program.
3
<PAGE>
<TABLE>
<CAPTION>
MANAGED HIGH YIELD FUND INC.
PORTFOLIO OF INVESTMENTS JANUARY 31, 1999 (unaudited)
Principal
Amount Maturity Interest
(000) Dates Rates Value
- -------- -------- ------- --------
Corporate Bonds--90.60%
Automotive--1.26%
<S> <C> <C> <C>
$1,000 HDA Parts Systems Incorporated** ............................. 08/01/05 12.000% $ 930,000
---------
Cable--10.54%
1,000# @Entertainment Incorporated** ................................ 02/01/09 14.500+ 395,000
500 EchoStar DBS Corporation** ................................... 02/01/09 9.375 512,500
2,000 Knology Holdings Incorporated ................................ 10/15/07 11.875+ 1,020,000
2,000 NTL Incorporated** ........................................... 10/01/08 11.500 2,280,000
1,500 Park 'N View Incorporated .................................... 05/15/08 13.000 1,275,000
1,250 RCN Corporation .............................................. 10/15/07 11.125+ 725,000
1,000 21st Century Telecom Group Incorporated ...................... 02/15/08 12.250+ 425,000
2,000 UIH Australia/Pacific Incorporated ........................... 05/15/06 14.000+ 1,180,000
---------
7,812,500
---------
Communications-Fixed--8.04%
1,000 Barak ITC .................................................... 11/15/07 12.500+ 510,000
500 Esprit Telecom Group PLC ..................................... 06/15/08 10.875 525,000
500 Facilicom International Incorporated ......................... 01/15/08 10.500 390,000
1,000 GST Equipment Funding Incorporated ........................... 05/01/07 13.250 1,020,000
900 Hyperion Telecommunications Incorporated ..................... 09/01/04 12.250 954,000
1,000 Metromedia Fiber Network Incorporated** ...................... 11/15/08 10.000 1,060,000
500 MetroNet Communications Corporation .......................... 06/15/08 9.950+ 340,000
1,000 Pathnet Incorporated ......................................... 04/15/08 12.250 580,000
1,000 Viatel Incorporated .......................................... 04/15/08 12.500+ 582,500
---------
5,961,500
---------
Communications-Mobile--4.33%
500# ICO Global Communications Limited ............................ 08/01/05 15.000 392,500
2,500 Nextel Communications Incorporated ........................... 02/15/08 9.950+ 1,600,000
1,500 Nextel International Incorporated ............................ 04/15/08 12.125+ 695,625
500 Orange PLC ................................................... 08/01/08 8.000 521,250
---------
3,209,375
---------
Consumer Manufacturing--5.37%
500 AAI Fostergrant Incorporated ................................. 07/15/06 10.750 450,000
1,000 Apparel Ventures Incorporated ................................ 12/31/00 12.250 895,000
1,250 Commemorative Brands Incorporated ............................ 01/15/07 11.000 937,500
1,000 Decora Industries Incorporated ............................... 05/01/05 11.000 945,000
750 Phillips Van-Heusen Corporation .............................. 05/01/08 9.500 753,750
---------
3,981,250
---------
Energy--4.72%
1,000 Grant Geophysical Incorporated ............................... 02/15/08 9.750 660,000
250 GulfMark Offshore Incorporated ............................... 06/01/08 8.750 227,500
500# Key Energy Services Incorporated** ........................... 01/15/09 14.000 500,000
1,000 Northern Offshore ASA** ...................................... 05/15/05 10.000 500,000
1,000 R & B Falcon Corporation** ................................... 12/15/08 9.500 1,005,000
1,000 TransAmerican Energy Corporation ............................. 06/15/02 13.000+ 267,500
1,000# TransAmerican Refining Corporation** ......................... 06/30/03 16.000 340,000
---------
3,500,000
---------
4
<PAGE>
MANAGED HIGH YIELD FUND INC.
Principal
Amount Maturity Interest
(000) Dates Rates Value
- -------- -------- ------- --------
Corporate Bonds--(continued)
Entertainment--0.94%
$ 750 Discovery Zone Incorporated .................................. 08/01/02 13.500% $ 112,500
176 Discovery Zone Incorporated** ................................ 05/01/02 13.500 140,800
750 Silver Cinemas Incorporated .................................. 04/15/05 10.500 442,500
---------
695,800
---------
Finance--3.59%
1,500 Airplanes Pass-Through Trust ................................. 03/15/19 10.875 1,590,000
750 Olympic Financial Limited .................................... 03/15/07 11.500 577,500
500 Superior National Insurance Group ............................ 12/01/17 10.750 497,500
---------
2,665,000
---------
Food & Beverage--5.73%
1,625 Iowa Select Farms L. P.** .................................... 12/01/05 10.750 1,332,500
750# Mrs. Field's Holding Company Incorporated** .................. 12/01/05 14.000+ 405,000
1,000 Mrs. Field's Original Cookies Incorporated ................... 12/01/04 10.125 960,000
1,500 Packaged Ice Incorporated .................................... 02/01/05 9.750 1,552,500
---------
4,250,000
---------
General Industrial--6.01%
500 Coltec Industries Incorporated ............................... 04/15/08 7.500 524,375
500 Goss Graphic Systems Incorporated ............................ 10/15/06 12.000 335,000
500 Jackson Products Incorporated ................................ 04/15/05 9.500 500,000
750 J.B. Poindexter & Company Incorporated ....................... 05/15/04 12.500 735,000
1,500 Jordan Telecommunication Products ............................ 08/01/07 9.875 1,485,000
1,000 Sabreliner Corporation** ..................................... 06/15/08 11.000 880,000
---------
4,459,375
---------
Healthcare--2.39%
1,000 Fresenius Medical Care Capital Trust ......................... 02/01/08 7.875 1,000,000
750 Tenet Healthcare Corporation** ............................... 12/01/08 8.125 772,500
---------
1,772,500
---------
Hotels & Lodging--1.43%
1,250 Silverleaf Resorts Incorporated .............................. 04/01/08 10.500 1,062,500
---------
Media--3.84%
1,500 Fox Family Worldwide Incorporated ............................ 11/01/07 9.250 1,462,500
1,500 Inter Act Systems Incorporated ............................... 08/01/03 14.000+ 615,000
1,000 Source Media Incorporated .................................... 11/01/04 12.000 770,000
---------
2,847,500
---------
Metals--3.68%
375 AEI Holding Company .......................................... 12/15/05 10.500 363,750
1,250 Metal Management Incorporated ................................ 05/15/08 10.000 737,500
1,250 Murrin Murrin Holdings Party Limited ......................... 08/31/07 9.375 1,125,000
500 WCI Steel Incorporated ...................................... 12/01/04 10.000 502,500
---------
2,728,750
---------
5
<PAGE>
MANAGED HIGH YIELD FUND INC.
Principal
Amount Maturity Interest
(000) Dates Rates Value
- -------- -------- ------- --------
Corporate Bonds--(concluded)
Paper & Packaging--3.92%
$ 750 Bear Island LLC .............................................. 12/01/07 10.000% $ 767,813
500 Impac Group Incorporated ..................................... 03/15/08 10.125 502,500
750 Portola Packaging Incorporated ............................... 10/01/05 10.750 772,500
1,000 Vicap S.A. ................................................... 05/15/07 11.375 865,000
---------
2,907,813
---------
Real Estate--2.47%
1,000 American Architectural Products Corporation .................. 12/01/07 11.750 875,000
500 D.R. Horton Incorporated ..................................... 06/15/04 8.375 502,500
450 Forest City Enterprise Incorporated .......................... 03/15/08 8.500 454,500
---------
1,832,000
---------
Restaurants--0.91%
750 American Restaurant Group Incorporated ....................... 02/15/03 11.500 675,000
---------
Retail--4.62%
1,550 Advance Holding Corporation .................................. 04/15/09 12.875+ 930,000
750 Advance Stores Company Incorporated .......................... 04/15/08 10.250 757,500
750 Big 5 Corporation ............................................ 11/15/07 10.875 757,500
1,000 Tuesday Morning Corporation .................................. 12/15/07 11.000 980,000
---------
3,425,000
---------
Service--2.71%
1,000 American Eco Corporation ..................................... 05/15/08 9.625 500,000
500 Atlantic Express Transportation Corporation .................. 02/01/04 10.750 507,500
500 Premier Graphics Incorporated** .............................. 12/01/05 11.500 496,250
500 Protection One Incorporated** ................................ 01/15/09 8.125 502,500
---------
2,006,250
---------
Technology--6.69%
500 Ampex Corporation++ ......................................... 03/15/03 12.000 520,000
800 Electronic Retailing Systems International Incorporated ..... 02/01/04 13.250+ 280,000
190 Fairchild Semiconductor Corporation ......................... 03/15/07 10.125 190,000
400 PSINet Incorporated ......................................... 02/15/05 10.000 412,000
1,500 Samsung Electronics America Incorporated** .................. 05/01/03 9.750 1,500,000
500 Verio Incorporated .......................................... 06/15/04 13.500 550,000
500 Verio Incorporated** ........................................ 12/01/08 11.250 527,500
2,000 Wam! Net Incorporated ....................................... 03/01/05 13.250+ 980,000
---------
4,959,500
---------
Transportation--4.64%
500 American Reefer Company Limited ............................. 03/01/08 10.250 300,000
1,500 Equimar Shipholdings Limited ................................ 07/01/07 9.875 1,125,000
1,250# Navigator Gas Transport PLC** ............................... 06/30/07 12.000 1,000,000
500 Stena AB .................................................... 06/15/07 8.750 482,500
1,000 TFM S.A. de C.V. ............................................ 06/15/09 11.750+ 535,000
---------
3,442,500
---------
Utilities--2.77%
1,000 Calpine Corporation ......................................... 02/01/04 9.250 1,035,000
998 Panda Funding Corporation ................................... 08/20/12 11.625 1,017,914
---------
2,052,914
---------
Total Corporate Bonds (cost--$76,348,501) 67,177,027
---------
6
<PAGE>
MANAGED HIGH YIELD FUND INC.
Principal
Amount Maturity Interest
(000) Dates Rates Value
- -------- -------- ------- --------
Convertible Bonds--3.63%
Communications--Fixed--0.27%
$ 215 GST Telecommunications Incorporated ......................... 12/15/05 13.875%+ $ 197,800
---------
Service--3.36%
1,500 Corporate Express Incorporated .............................. 07/01/00 4.500 1,290,000
1,250 Waste Systems International Incorporated** .................. 05/13/05 7.000 1,203,125
---------
2,493,125
---------
Total Convertible Bonds (cost--$2,830,777) 2,690,925
---------
Number of
Shares
- ----------
Common Stock(a)--3.08%
Communications-Fixed--1.06%
9,475 COLT Telecom Group PLC, ADR ....................................................... 788,793
---------
Gaming--0.10%
10,000 Hollywood Casino Corporation ...................................................... 13,438
19,444 JCC Holding Company ............................................................... 58,332
---------
71,770
---------
Media--0.34%
2,000 Affiliated Newspapers Investments Incorporated .................................... 250,000
---------
Retail--0.54%
47,500 Samuels Jewelers Incorporated ..................................................... 403,750
---------
Technology--1.04%
122,676 Ampex Corporation++ ............................................................... 544,375
7,042 Verio Incorporated ................................................................ 227,985
---------
772,360
---------
Total Common Stock (cost--$901,512) ........................................................... 2,286,673
---------
Preferred Stock(a)--0.72%
Energy--0.00%
20,170 TCR Holdings ...................................................................... 1,210
---------
Restaurants--0.72%
529 American Restaurant Group Incorporated ............................................ 528,500
---------
Total Preferred Stock (cost--$501,199) ........................................................ 529,710
---------
Number of
Warrants
- --------
Warrants(a)--0.37%
Cable--0.01%
2,000 Knology Holdings Incorporated ..................................................... 5,000
1,500 Park 'N View Incorporated ......................................................... 15
2,000 UIH Australia/Pacific Incorporated ................................................ 2,000
---------
7,015
---------
Communications-Fixed--0.01%
1,000 Pathnet Incorporated .............................................................. 10,000
---------
7
<PAGE>
MANAGED HIGH YIELD FUND INC.
Number
of
Warrants Value
- -------- -----------
Warrants(a)--(concluded)
Communications-Mobile--0.01%
1,750 McCaw International Limited ....................................................... $ 4,375
---------
Consumer Manufacturing--0.01%
2,088 AVI Holdings ...................................................................... 10,441
---------
Entertainment--0.00%
6,734 Discovery Zone Incorporated ....................................................... 67
---------
Finance--0.01%
750 Olympic Financial Limited ......................................................... 3,750
---------
Food & Beverage--0.17%
1,250 Packaged Ice Incorporated ......................................................... 125,000
---------
Media--0.01%
1,500 Inter Act Systems Incorporated .................................................... 6,000
---------
Restaurants--0.00%
500 Amercian Restaurant Group Incorporated ............................................ 5
---------
Technology--0.15%
17,000 Ampex Corporation++ ............................................................... 56,270
800 Electronic Retailing Systems International Incorporated ........................... 4,000
6,000 Wam! Net Incorporated ............................................................. 48,000
---------
108,270
---------
Total Warrants (cost--$201,393) ............................................................... 274,923
---------
Total Investments (cost--$80,783,382)--98.40% ................................................. 72,959,258
Other assets in excess of liabilities--1.60% .................................................. 1,187,796
---------
Net Assets--100.00% ........................................................................... $74,147,054
==========
- --------------------
# Security represents a unit which is composed of the stated bond with
attached warrants or common stock.
++ Illiquid securities representing 1.5% of net assets. These securities are
valued at fair value as determined in good faith by a management committee
under the direction of the Fund's board of directors.
(a) Non-income producing security
+ Denotes a step-up bond or zero coupon bond that converts to the noted fixed
rate at a designated future date.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
ADR American Depositary Receipt
See accompanying notes to financial statements
8
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1999(unaudited)
Assets:
Investments in securities, at value (cost--$80,783,382) ....................................... $72,959,258
Receivable for investments sold ............................................................... 53,748
Interest receivable ........................................................................... 1,660,781
Other assets .................................................................................. 4,682
----------
Total assets .................................................................................. 74,678,469
----------
Liabilities:
Payable to custodian .......................................................................... 405,082
Payable to investment adviser and administrator ............................................... 56,228
Accrued expenses and other liabilities ........................................................ 70,105
----------
Total liabilities ............................................................................. 531,415
----------
Net Assets:
Capital Stock--$0.001 par value; 100,000,000 shares authorized;
6,031,667 shares issued and outstanding ....................................................... 90,455,326
Undistributed net investment income .......................................................... 302,492
Accumulated net realized loss from investment transactions ................................ (8,786,640)
Net unrealized depreciation of investments .................................................... (7,824,124)
----------
Net assets applicable to shares outstanding ................................................... $74,147,054
==========
Net asset value per share ..................................................................... $12.29
=====
See accompanying notes to financial statements
9
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF OPERATIONS
For the Six
Months Ended
January 31, 1999
(unaudited)
-------------
Investment income:
Interest ...................................................................................... $ 4,360,968
----------
Expenses:
Investment advisory and administration ........................................................ 340,929
Reports and notices to shareholders ........................................................... 26,327
Legal and audit ............................................................................... 24,263
Custody and accounting ........................................................................ 23,578
Transfer agency and service fees .............................................................. 13,553
Amortization of organizational expenses ....................................................... 9,249
Directors' fees ............................................................................... 5,250
Other expenses ................................................................................ 11,500
----------
.............................................................................................. 454,649
----------
Net investment income ......................................................................... 3,906,319
----------
Realized and unrealized losses from investment activities:
Net realized loss from investment transactions ................................................ (3,403,744)
Net change in unrealized appreciation/depreciation of investments ............................. (8,080,643)
----------
Net realized and unrealized loss from investment activities ................................... (11,484,387)
----------
Net decrease in net assets resulting from operations .......................................... $(7,578,068)
==========
See accompanying notes to financial statements
10
<PAGE>
MANAGED HIGH YIELD FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six
Months Ended For the
January 31, 1999 Year Ended
(unaudited) July 31, 1998
---------------- -------------
From operations:
Net investment income .......................................................... $ 3,906,319 $ 7,555,238
Net realized gain (loss) from investment transactions .......................... (3,403,744) 1,813,855
Net change in unrealized appreciation/depreciation of investments .............. (8,080,643) (2,476,436)
----------- -----------
Net increase (decrease) in net assets resulting from operations ................ (7,578,068) 6,892,657
---------- ----------
Dividends to shareholders from:
Net investment income .......................................................... (3,799,951) (7,599,901)
----------- ----------_
Net decrease in net assets ..................................................... (11,378,019) (707,244)
Net assets:
Beginning of period ............................................................ 85,525,073 86,232,317
---------- ----------
End of period (including undistributed net investment income of
$302,492 and $196,124, respectively)
............................................................................... $74,147,054 $85,525,073
========== ==========
</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
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--Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect the fair value of the securities, in the judgment of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned 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 net realized capital gains are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic developments, including those
particular to a specific industry, country or region.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
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,
1999 was substantially the same as the cost of securities for financial
statement purposes.
At January 31, 1999, the components of net unrealized depreciation of
investments were as follows:
Gross depreciation
(investments having an excess of cost over value) .............. $(10,571,633)
Gross appreciation
(investments having an excess of value over cost) .............. 2,747,509
-----------
Net unrealized depreciation of investments ...................... $ (7,824,124)
===========
For the six months ended January 31, 1999, aggregate purchases and sales of
portfolio securities, excluding short-term securities,
were $40,339,825 and $40,830,267, respectively.
CAPITAL STOCK
Of the 6,031,667 shares of common stock outstanding, 9,122 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, 1998, the Fund had a net capital loss carryforward of $5,244,902.
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
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OF CAPITAL OUTSTANDING THROUGHOUT EACH PERIOD IS
PRESENTED BELOW:
For the Period
For the Six December 7,
Months Ended 1993+
January 31, 1999 For the Years Ended July 31, through July 31,
-----------------------------------
<S> <C> <C> <C> <C> <C> <C>
(unaudited) 1998 1997 1996 1995 1994
-------------- ------ ------ ------ ------ --------------
Net asset value, beginning of period $14.18 $14.30 $13.25 $13.44 $13.76 $15.00
------ ------ ------ ------ ------ ------
Net investment income 0.65 1.25 1.29 1.29 1.40 0.77
Net realized and unrealized gains (losses) from
investments and foreign currency transactions (1.91) (0.11) 1.02 (0.16) (0.34) (1.25)
------ ------ ------ ------ ------ ------
Net increase (decrease) from investment operations (1.26) 1.14 2.31 1.13 1.06 (0.48 )
------ ------ ------ ------ ------ ------
Dividends from net investment income (0.63) (1.26) (1.26) (1.32) (1.38) (0.76)
------ ------ ------ ------ ------ ------
Net asset value, end of period $12.29 $14.18 $14.30 $13.25 $13.44 $13.76
====== ====== ====== ====== ====== ======
Market value, end of period $11.88 $13.44 $13.94 $12.50 $12.38 $12.38
====== ====== ====== ====== ====== ======
Total investment return (1) (6.87)% 5.45% 22.59% 12.16% 11.87% (12.76)%
====== ====== ====== ====== ====== ======
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) $74,147 $85,525 $86,232 $79,904 $81,081 $82,995
Expenses to average net assets 1.20%* 1.15% 1.34% 1.25% 1.21% 1.17%*
Net investment income to average net assets 10.31%* 8.71% 9.39% 9.87% 10.68% 8.27%*
Portfolio turnover rate 53% 156% 122% 135% 103% 85%
</TABLE>
- --------------------
+ Commencement of operations
* Annualized
(1)Total investment return is calculated assuming a purchase of capital 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 and 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 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 $60 billion in assets under
management as of February 28, 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.
An annual meeting of shareholders of the Fund was held on November 19,
1998. 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.
1. To vote for or against the election of:
<TABLE>
<CAPTION>
Shares Voted For Shares Withhold Authority
----------------------- -------------------
<S> <C> <C>
Margo N. Alexander 5,754,250.550 104,277.212
Richard Q. Armstrong 5,756,950.550 101,577.212
E. Garrett Bewkes, Jr. 5,747,068.550 111,459.212
Richard R. Burt 5,756,950.550 101,577.212
Mary C. Farrell 5,756,250.550 102,277.212
Meyer Feldberg 5,756,125.550 102,402.212
George W. Gowen 5,747,873.363 110,654.399
Frederic V. Malek 5,754,548.550 103,979.212
Carl W. Schafer 5,755,392.363 103,135.399
<CAPTION>
Shares Voted For Shares Withhold Authority Shares Against
---------------- ------------------------- --------------
<S> <C> <C> <C>
2. Ratification of the selection of Ernst &
Young LLP as independent auditors. 5,803,376.575 37,772.000 17,379.187
</TABLE>
(Broker non-votes and abstentions are included within the "Shares Withhold
Authority" totals.)
The Fund's board of directors amended the Fund's bylaws to require that the
Fund receive notice of board nominations or proposals that any shareholder
wishes to be considered at an annual or special shareholder meeting. This notice
will give Fund management an opportunity to inform shareholders of and respond
to those nominations and proposals.
The amended bylaws require that the Fund receive notice of a nomination or
proposals for an annual meeting at least 120 days in advance of the anniversary
of the date that the Fund's proxy statement for the previous year's annual
meeting was first released to shareholders. For a special shareholder meeting,
the Fund must receive notice within seven days of the date on which notice of
the special meeting is first given to shareholders. In order to make a
nomination or proposal to be considered at the 1999 annual meeting of
shareholders, theFund must receive notice of that nomination or proposal no
later than June 1, 1999.
16
<PAGE>
MANAGED HIGH YIELD FUND INC.
GENERAL INFORMATION (concluded) (unaudited)
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 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 theFund. 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.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust 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.
16
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
DIRECTORS
E. Garrett Bewkes, Jr. Mary C. Farrell
CHAIRMAN Meyer Feldberg
Margo N. Alexander George W. Gowen
Richard Q. Armstrong Frederic V. Malek
Richard R. Burt Carl W. Schafer
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
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE SHARES OF ITS
COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES.
THE FINANCIAL INFORMATION HEREIN IS TAKEN FROM THE RECORDS OF THE FUND WITHOUT
EXAMINATION BY INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN OPINION THEREON.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS
NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR THE USE IN THE
PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS
REPORT.
