HYF Managed High Yield Plus Fund, Inc.

Managed High Yield Plus Fund Inc. (the “Fund”) (NYSE:HYF) is a closed-end management investment company seeking high income and, secondarily, capital appreciation primarily through investments in lower-rated, income-producing debt and related equity securities.

Fund Commentary for the fourth quarter of 2015 from UBS Asset Management (Americas) Inc. (“UBS AM”), the Fund’s investment manager

Market review

The overall US fixed income market modestly declined during the fourth quarter as short- and longer-term Treasury yields moved higher. US economic data was mixed over the last three months of the year. While employment gains were generally robust, activity in the manufacturing sector contracted. After remaining on hold in October, the US Federal Reserve (the "Fed") raised rates for the first time in almost 10 years at its meeting in December. More specifically, the central bank raised the federal funds rate from a range between 0% and 0.25% to a range between 0.25% and 0.50%.1 In its official statement the Fed said, "The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to two percent inflation." For the fourth quarter as a whole, the yield on the two-year Treasury rose from 0.64% to 1.06%, whereas the yield on the 10-year Treasury moved from 2.06% to 2.27%.

Most US investment grade spread sectors posted negative total returns during the period. Lower-quality securities, such as high yield corporate bonds, generated even weaker results.2 The high yield market continued to be negatively impacted by signs of moderating growth in China, sharply falling commodity prices and weak technicals. For the quarter, the BofA Merrill Lynch US High Yield Cash Pay Constrained Index (the “Index”) declined 2.09%.3 From a ratings perspective, BB-rated, B-rated and CCC-rated high yield securities in the Index returned -0.24%, -2.36% and -8.60%, respectively.4

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1   The federal funds rate, or the "fed funds rate," is the rate US banks charge one another for funds they borrow on an overnight basis. 2 A spread sector refers to non-government fixed income sectors, such as corporate investment grade or high yield bonds, commercial mortgage-backed securities (CMBS), etc. 3 The BofA Merrill Lynch US High Yield Cash Pay Constrained Index is an unmanaged index of publicly placed nonconvertible, coupon-bearing US dollar-denominated, below investment grade corporate debt with a term to maturity of at least one year. The index is market-capitalization-weighted, so that larger bond issuers have a greater effect on the index’s return. However, the representation of any single bond issue is restricted to a maximum of 2% of the total index. The index is not leveraged. Investors should note that indices do not reflect the deduction of fees and expenses.

4

Credit ratings range from AAA, being the highest, to D, being the lowest when based on ratings assigned by Standard & Poor's Financial Services LLC, a part of McGraw-Hill Financial ("S&P"). Ratings of BBB or higher are considered to be investment grade quality. Further information regarding S&P's rating methodology may be found on its website at www.standardandpoors.com.

 

Performance review

For the fourth quarter of 2015, the Fund posted a net asset value total return of -2.27% and a market price total return of 11.56%. On a net asset value basis, the Fund underperformed the Index, which, as previously stated, declined 2.09% for the quarter. The Fund's trading discount narrowed significantly after the October 13, 2015, issuance of a press release announcing a proposal to liquidate the Fund in 2016. This contributed to the higher market price total return performance for the period.

The Fund’s security selection in the energy sector was the largest detractor from results during the quarter. In addition, the Fund's holdings in the transportation and metals & mining sectors were headwinds for results. Conversely, the main contributors to performance were the Fund's overweight positions and security selection within the banks & thrifts, chemicals, building materials and automotive sectors. An overweight to cable TV was also beneficial for results.

There were several changes to the portfolio during the quarter. In particular, we reduced our use of leverage given our cautious outlook for the overall high yield market. In addition, we further pared the Fund's allocation to the energy sector.

Outlook

We have sought to maintain a defensive stance from a beta, or market risk, perspective versus the Index. During December, we further increased our underweight to the energy sector based on a negative fundamental outlook going into mid-2016. In our view, we have entered a new stage of the credit cycle. We now see a more pronounced deterioration in underlying credit fundamentals. We also expect an uptick in defaults during 2016, predominantly in commodity-related sectors. Trading costs remain elevated versus pre-crisis levels, and we are conscious of this in our management of the strategy.

Important Note: As previously announced in a press release issued on October 13, 2015, based upon the recommendation of UBS Asset Management (Americas) Inc., the Fund’s investment manager, the Fund's Board of Directors determined that liquidation and dissolution of the Fund is in the best interests of the Fund's shareholders. A proposed plan of liquidation will be submitted for the approval of the Fund’s shareholders at a special meeting of shareholders, to be held in April 2016. If the shareholders approve the proposed plan, the liquidation and dissolution of the Fund will take place as soon as reasonably practicable, but in no event later than December 31, 2016 (absent unforeseen circumstances).

Portfolio statistics as of December 31, 20155

      Top ten corporate bonds, including coupon and maturity       Percentage of total portfolio assets (%) International Lease Finance Corp., 7.125%, 09/01/18       1.2 First Data Corp., 12.625%, 01/15/21       1.0 SquareTwo Financial Corp., 11.625%, 04/01/17       0.9 SunGard Data Systems, Inc., 7.625%, due 11/15/20       0.9 DISH DBS Corp., 7.875%, 09/01/19       0.9 Wind Acquisition Finance SA, 7.375%, due 04/23/21       0.8 Numericable-SFR, 6.250%, due 05/15/24       0.8 Intelsat Jackson Holdings SA, 7.250%, 10/15/20       0.8 Ineos Group Holdings PLC , 6.125%, 08/15/18       0.8 iHeartCommunications, Inc., 11.250%, due 03/01/21       0.8   Top five industries       Percentage of total portfolio assets (%) Media-cable & satellite TV       6.7 Banking       5.8 Energy-exploration & production       5.0 Support-services       4.3 Software/services       4.2   Credit quality6       Percentage of total portfolio assets (%) BB- or higher       49.8 B       38.9 CCC+ and lower       7.8 Cash equivalents       2.9 Not Rated       0.6 Total       100.0   Characteristics         Net asset value per share7       $1.93 Market price per share7       $1.609 Weighted average life       5.71 yrs Weighted average life to maturity       6.39 yrs Duration8       4.38 yrs Duration–leverage adjusted8       6.23 yrs Leverage9       29.70%   5   The Fund’s portfolio is actively managed, and its portfolio composition will vary over time. 6

Credit quality ratings shown in the table are based on those assigned by Standard & Poor’s Financial Services LLC, a part of McGraw-Hill Financial (“S&P”), to individual portfolio holdings. S&P is an independent ratings agency. Credit ratings range from AAA, being the highest, to D, being the lowest based on S&P’s measures; ratings of BBB or higher are considered to be investment grade quality. Unrated securities do not necessarily indicate low quality. Further information regarding S&P’s rating methodology may be found on its website at www.standardandpoors.com. Please note that any references to credit quality made in the commentary preceding the table may reflect ratings based on multiple providers (not just S&P) and thus may not align with the data represented in this table.

7 Net asset value (NAV) and market price will fluctuate. 8 Duration is a measure of price sensitivity of a fixed income investment or portfolio (expressed as % change in price) to a 1 percentage point (i.e., 100 basis points) change in interest rates, accounting for optionality in bonds such as prepayment risk and call/put features. Duration is unadjusted for leverage. Duration-leverage adjusted is estimated by dividing duration by an amount equal to 1 minus the leverage percentage. 9 As a percentage of adjusted assets. Adjusted net assets equals total assets minus liabilities, excluding liabilities for borrowed money.  

Any performance information reflects the deduction of the Fund’s fees and expenses, as indicated in its shareholder reports, such as investment advisory and administration fees, custody fees, exchange listing fees, etc. It does not reflect any transaction charges that a shareholder may incur when (s)he buys or sells shares (e.g., a shareholder’s brokerage commissions).

Disclaimers Regarding Fund Commentary - The Fund Commentary is intended to assist shareholders in understanding how the Fund performed during the period noted. The views and opinions were current as of the date of this press release. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the Fund and UBS AM reserve the right to change views about individual securities, sectors and markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund’s future investment intent.

Past performance does not predict future performance. The return and value of an investment will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Any Fund net asset value ("NAV") returns cited in a Fund Commentary assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. Any Fund market price returns cited in a Fund Commentary assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund's Dividend Reinvestment Plan. Returns for periods of less than one year have not been annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund dividends and other distributions, if any, or on the sale of Fund shares.

Investing in the Fund entails specific risks, such as interest rate risk, the greater credit risks inherent in investing primarily in lower-rated, higher-yielding bonds as well as the increased risk of using leverage (that is, borrowing money to invest in additional portfolio securities). Further detailed information regarding the Fund, including a discussion of principal objectives, principal investment strategies and principal risks, may be found in the fund overview located at http://www.ubs.com/closedendfundsinfo. You may also request copies of the fund overview by calling the Closed-End Funds Desk at 888-793 8637.

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UBS Asset ManagementClosed-End Funds Desk: 888-793-8637ubs.com